SUPREME COURT DENIES DEEMED EXPORT BENEFITS – HOLDS POWER PLANT IS NOT ‘GOODS’ UNDER FOREIGN TRADE POLICY

Introduction

On August 19, 2025, the Supreme Court dismissed appeals by Nabha Power Limited (NPL) and Talwandi Sabo Power Limited (TSPL) in the case titled Nabha Power Limited v. Punjab State Power Corporation Limited and Others (Civil Appeal No. 8694 of 2017). Both companies sought deemed export benefits under the Foreign Trade Policy (FTP) 2009-2014.

Delivering the Judgment, the Two Judge Bench comprising the Chief Justice of India and Justice Augustine George Masih clarified key issues on the “Change in Law” provisions in Power Purchase Agreements (PPAs) and the eligibility of power projects for deemed export incentives. The ruling provides crucial guidance on the boundaries of FTP benefits and contractual interpretation in competitive bidding projects.

Factual Background

The dispute emerged from two coal-based thermal power projects in Punjab, developed under Section 63 of the Electricity Act, 2003, through tariff-based competitive bidding. NPL was set up in 2007 with a 1,400 MW plant at Rajpura, while TSPL undertook a similar project.

When bidding in 2009, both companies relied on fiscal incentives under:

1. The Mega Power Policy, granting concessions to projects above 1,000 MW.
2. Deemed export benefits under Para 8.3 of the FTP for projects using International Competitive Bidding (ICB).

In October 2009, the Union Cabinet reduced the Mega Power threshold to 500 MW and relaxed inter-state power sale requirements. Subsequently, in March 2011, the DGFT’s Policy Interpretation Committee opined that deemed export benefits (like Terminal Excise Duty exemptions) would not apply to non-Mega Power Projects. This was confirmed through Public Notices of April, 2011.

Though both projects eventually received Mega Power status, NPL and TSPL had undertaken to pass all benefits to Punjab State Power Corporation Limited (PSPCL). They later sought compensation under the PPAs, arguing that withdrawal of deemed export benefits was a “Change in Law” increasing their costs.

Appellants’ Contentions

The power companies argued:

• Eligibility for Deemed Export Benefits: Their entire power plant qualified as “capital goods” under FTP Para 9.12. Since project execution involved assembly and processing, it was “manufacture” within FTP Para 9.36.
• Broad Change in Law Clause: Article 13.1.1(ii) of the PPA covered “any change in law,” including executive notifications. The 2011 DGFT notices constituted such changes.
• Legitimate Expectation: Based on DGFT practices and committee minutes, they had reason to expect deemed export benefits until formally repealed.

Respondents’ Arguments

PSPCL refuted these claims:

• FTP Scope: Export promotion incentives were meant for “goods”—tangible, movable items classifiable under the Customs Tariff—not immovable power plants. To extend FTP to generating assets would distort the scheme.
• Contractual Bar: NPL had consciously opted for Mega Power Policy benefits in 2011, confirmed by affidavit, and could not claim FTP benefits simultaneously.
• Change in Law Limitation: Only statutory enactments or delegated legislation qualified as “Change in Law.” Administrative notices or press releases could not trigger relief.

Court’s Decision

Prerequisites for FTP Deemed Export Benefits

The Court identified five requirements/conditions:

1. Claim must relate to “goods” (not immovable assets).
2. Goods must be manufactured in India.
3. There must be supply of goods to power projects.
4. Supply should be by the main contractor/sub-contractor.
5. Procurement must follow ICB procedures.

The Court held that NPL and TSPL did not satisfy these requirements.

On “Change in Law”

Relying on its earlier decision in Nabha Power Limited v. PSPCL (2025) 5 SCC 353, the Court clarified:

• The October 2009 Press Release was not “law.” Only formal Notifications issued between December 11–14, 2009, qualified.
• The PPAs required that words be given their ordinary meaning. Administrative clarifications, however significant, are not equal to statutory changes.

On FTP Eligibility

• Goods Definition: Citing consistent jurisprudence, “goods” meant movable property. A massive thermal power plant embedded in the earth could not be classed as “capital goods.”
• Manufacture Requirement: Although “manufacture” under FTP was broad, the appellants failed to show the plants bore a distinct identity or use as “manufactured goods.”
• Supply to Projects: The Court rejected the contention that the entire plant could be considered as “supplied goods,” holding that the Foreign Trade Policy (FTP) was never intended to extend benefits to immovable infrastructure assets.
• ICB Non-Compliance: Neither company demonstrated that procurement of project goods adhered to ICB procedures—a mandatory FTP condition.

Reasoning on Contractual Integrity

The Court reinforced the sanctity of contracts, observing that bidders are expected to factor in prevailing policies and cannot later claim relief for predictable policy risks. It emphasized that business efficacy cannot override the express terms of the contracts.

Precedential Impact

This judgment sets important precedents:

1. Strict Construction of FTP Benefits: Export-linked incentives are not to be stretched to cover assets outside their clear scope, like power plants.
2. Change in Law in PPAs: Only formal legislative or regulatory changes count, not executive clarifications or press releases.
3. Contractual Certainty in Bids: A reminder that bidders must anticipate policy risks in infrastructure projects. Relief cannot be claimed retrospectively.

Conclusion

The Supreme Court’s dismissal of both appeals is an important ruling for India’s power and trade law sectors. It settles that power plants as immovable assets are ineligible for deemed export benefits under the FTP. It also delineates the contours of “Change in Law” in commercial contracts—restricting it to statutory or delegated legislation, not administrative instructions.

For developers, the ruling underlines the need for careful bid structuring based on existing policy frameworks and precise PPA drafting. For the broader policy framework, it ensures FTP incentives remain closely tied to their objective—promoting tangible manufactured goods and exports, not subsidizing non-export linked infrastructure.

This Judgment will shape disputes involving export promotion schemes and commercial contracts in India, reinforcing contractual discipline while clarifying the limits of government policy expectations.

 

YASH HARI DIXIT

Legal Associate

The Indian Lawyer & Allied Services

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