Summary
Delhi and Mumbai airport operators, airlines and AERA cross-appealed TDSAT orders on aeronautical tariff for the first control period under the AERA Act, 2008, read with the OMDA and State Support Agreement. Applying restrained review of expert regulators, the Court upheld AERA on every issue but one: fuel throughput charges are aeronautical revenue; all three components of the hypothetical regulatory asset base pertain to aeronautical services; transitional dual manpower costs count; the CPI-X formula must be solved as written; revenue from disallowed built-up area enters the till; user development fee is distinct from development fee; project cost determination was within AERA's limited role. It interfered only on the tax element 'T': under Article 3.1.1 of the SSA the annual fee paid to AAI cannot be deducted as a cost before computing corporate tax on aeronautical earnings.
Issues
- What is the scope of judicial review in a statutory appeal against orders of a specialist economic regulator and its appellate tribunal, and how are pre-legislative concession agreements to be treated under Section 13(1)(a)(vi) of the AERA Act.
- Whether fuel throughput charges collected from oil companies are aeronautical revenue within Section 2(a)(vi) of the Act and Schedule 5 of the OMDA, or a non-aeronautical access fee of which only 30% enters the target revenue.
- Whether the words 'pertaining to aeronautical services' in the definition of the hypothetical regulatory base qualify prevailing tariff and revenues as well as operation and maintenance cost and corporate tax, and whether transitional AAI and DIAL manpower costs may both be included.
- Whether the X factor in the CPI-X price cap must be computed together with inflation as the SSA formula reads, or sequentially as the operator proposed.
- Whether revenue from built-up area disallowed in the project cost for development fee purposes must nonetheless be reckoned in fixing aeronautical tariff.
- Whether, in computing 'T' (corporate taxes on earnings pertaining to aeronautical services), the annual fee paid to AAI is deductible as a cost, having regard to Article 3.1.1 of the SSA.
- Whether AERA could levy a user development fee on embarking and disembarking passengers in addition to development fee, and whether its acceptance of escalated project cost and its consultation process were deficient.
Provisions considered
- Section 13(1)(a), including sub-clauses (i), (iii) and (vi), Airports Economic Regulatory Authority of India Act, 2008Tariff is determined on the listed considerations including capital expenditure incurred, the cost of improving efficiency and the concession offered by the Central Government in any agreement; the legislative intent itself requires the prior OMDA and SSA to be considered, so the rule that legislation prevails over prior agreements has no application. Sub-clauses (i) and (iii) are distinct and cannot be read into each other to impose an efficiency test on capital expenditure. (¶¶ 18, 19, 43, 144, 145)
- Section 2(a)(vi), Airports Economic Regulatory Authority of India Act, 2008'Aeronautical service' means any service provided for supplying fuel to aircraft at an airport. The operators, by delegating fuel supply to oil companies and taking a concession fee, were still providing an aeronautical service; FTC appears in Entry 17 of Schedule 5 of the OMDA and nowhere in Schedule 6, and its later discontinuance did not make it non-essential. (¶¶ 22, 23, 41, 42, 43, 45)
- Sections 13(1)(b), 13(1A) and 13(4), Airports Economic Regulatory Authority of India Act, 2008Development fee under Section 13(1)(b) is distinct from the user development fee mentioned in the Aircraft Rules, 1937, which AERA was mandated to determine. Consultation with all stakeholders under Section 13(4) was found to have been held; the complaint of unequal hearings did not survive. (¶¶ 123, 128, 129, 130, 131, 136)
- Section 14(1)(a) and (b), Airports Economic Regulatory Authority of India Act, 2008The airlines' argument that AERA should have engaged professionals for an independent prudence check of escalated project cost was rejected; the auditors themselves could not quantify losses, and AERA, allowing some leeway for a pioneering effort under tight Commonwealth Games timelines, had discharged its limited role. (¶¶ 139, 142, 143, 144)
- Section 22A, Airports Authority of India Act, 1994Development fee could be levied only at rates determined by AERA (Consumer Online Foundation); AERA's determinations for Delhi and Mumbai, upheld by TDSAT, were not pressed in challenge. (¶¶ 119, 120, 121, 124)
- Schedule 1 tariff formula (TR, RB0, CPI-X price cap, definition of 'T') and Article 3.1.1, State Support Agreement dated 26.04.2006, Schedule 1 (tariff formula) and Article 3.1.1'Pertaining to aeronautical services' qualifies all three components of RB0; the CPI-X formula must be solved as written on BODMAS principles, not rewritten to apply X before CPI; 'T' means corporate taxes on earnings pertaining to aeronautical services computed on regulatory accounts, and Article 3.1.1's proviso that the annual fee shall not be included as a cost for aeronautical services governs, the 'no pass-through' words not nullifying it. (¶¶ 7, 56, 57, 58, 82, 83, 112, 113, 114, 115, 116)
Held
- In an appeal from a regulator and its appellate tribunal the Court is a third tier of scrutiny; it does not substitute its view on economic policy or price fixation, and its function is exhausted when the regulator's conclusions have a rational basis supported by evidence (Shri Sitaram Sugar, Modern Dental College, Akshay N. Patel). The pioneering character of the airport PPP warranted ironing out creases, not microscopic re-examination. (¶¶ 14, 15, 16, 17, 41, 142, 146)
- Fuel throughput charge is part of aeronautical service: aircraft cannot operate without fuel supplied through the common hydrant, the operator merely delegates the service to oil companies and pockets a concession fee, and treating FTC as non-aeronautical would be a subterfuge passing 70% of it to airlines and passengers with a cascading effect, which the Australian regulator has called an abuse of market power. ICAO documents cannot be used selectively. (¶¶ 42, 43, 44, 45)
- Reading RB0's definition grammatically, 'prevailing tariff and the revenues', 'operation and maintenance cost' and 'corporate tax' are all qualified by 'pertaining to aeronautical services'; the reddendo singula singulis principle in Nabha Power has no application to a sentence that is not complex. Contracts drawn by specialists are not to be strained to increase the operator's inflow by reverse engineering. Including both AAI and DIAL manpower in the transition year was not inefficiency but a necessary learning curve. (¶¶ 56, 57, 58, 59, 65)
- DIAL's proposal to compute X without inflation and then add CPI would introduce an additional term and rewrite the SSA formula; the word 'then' merely introduces the formula. The regulator's two-stage method solving the formula as written was affirmed, MIAL not even having pursued the point. (¶¶ 72, 81, 82, 83, 84)
- Disallowance of 8,652 sq m of food and beverage area in the development-fee project cost under Section 13(1)(b) is a separate exercise from tariff fixation under Section 13(1)(a); the assets were built, were in use and were not ordered to be decommissioned, so revenue from them counts towards the 30% cross-subsidy. (¶¶ 86, 87, 92)
- 'T' must be computed from the express definition in the SSA, not from how tax is generally understood: corporate taxes on earnings pertaining to aeronautical services on regulatory accounts, without deducting the annual fee. Article 3.1.1 provides that the upfront and annual fees shall not be included as costs for aeronautical services; the 'no pass-through' clause cannot be read to nullify that first part, and since the SSA does not contemplate subtracting the annual fee from expenses there is no pass-through. The principle of business efficacy supported the operators to this limited extent. (¶¶ 110, 111, 112, 113, 114, 115, 116, 117)
- Arguments not raised before AERA or TDSAT, such as FIA's contention that cargo and ground handling are aeronautical, cannot be entertained for the first time in this Court; a general grievance about AERA's conduct of consultation does not survive where all stakeholders were heard and the orders were exhaustive. (¶¶ 127, 131)
Result
Appeals allowed only to the extent that the annual fee paid to AAI shall not be deducted from expenses pertaining to aeronautical services before calculating the 'T' element; the impugned TDSAT orders modified to that extent and all other appeals and cross-appeals dismissed. No costs.