CERC Allows ACME Petition To Qualify Entry Tax As Change In Law

The Central Electricity Regulatory Commission allowed on June 29 the petition moved by ACME praying for declaring the Entry Tax as Change In Law defined in the statutes. The three judges panel of I. S. Jha, Arun Goyal and P. K. Singh, also ordered the stay of collection of entry tax pursuant from the petitioner for 2015-16, 2016-17 and 2017-18 on condition of the petitioner paying 25% of the entry tax demanded by the respondents within a period of six weeks from June 29. NTPC, Southern Power Distribution Company of Telangana Limited and Northern Power Distribution Company of Telangana Limited are three respondents to the petition by ACME following a turn of events but more importantly the imposition of tax on entry of goods.

ACME moved the Commission with the following prayers:

1. Declare that the imposition of entry tax for entry of goods in Telangana through Telangana Tax on Entry of Goods into Local Areas Act, 2001 and show cause notice by Commercial Taxes Department, Government of Telangana and assessment order pronounced by Commercial Tax Officer qualify as a Change in Law Event.

2. Direct the respondent to reimburse the petitioner for the corresponding increase in the project cost on account of imposition of the Entry Tax as and when paid by the petitioner.

Facts

Following a Power Sale Agreement (PSA) with NTPC, on 18.06.2016, for procurement of 50 MW of Solar Power from ACME Solar on a long-term basis, ACME Solar formed SPV and executed two PPAs with the respondent on 09.08.2016 to set up Solar PV Power Project based on photo-voltaic technology of 10 MW capacity each in the State of Telangana and supply it to the NTPC.

For setting up solar power plant, inter-State movement of various products like Solar PV Module, String & Array, Array Junction box/String Combiner Box, DC Cable, Inverter, Inverter Duty Transformer, Medium Voltage Switch Gear, Earthing & Lighting Protection System, Pooling End Substation, Power Transformer, SCADA, WMS and PPC System etc, are required. In order to procure the components to set up its solar power plant in Telangana, the ACME filed C-Forms prescribed under the Central Sales Tax Act providing the detailed report for system descriptions and specifications of components.

However, the Supreme Court declared later that the levy of the entry tax is constitutional. In view of the said order, the Chief Tax Officer (CTO) issued a show cause notice on 02.01.2020 to ACME informing the liability of an amount of Rs 1,17,00,379 as an entry tax for importing the notified goods into Telangana for the period from April, 2017 to June, 2017.

ACME contested the allegations as made out. On 04.03.2020 the High Court directed interim stay on the recovery amount subject to the payment of 25% entry tax as demanded by the CTO within 6 weeks.

The Commission formulated the following questions for detailed analysis after hearing the arguments and the counter arguments:

1. Whether imposition of Entry Tax for entry of Goods in Telangana through Telangana Tax on Entry of Goods into Local Areas Act, 2001 and show cause issued by Commercial Taxes Department, and Assessment Order pronounced by Commercial Tax Officer qualify as a Change in Law Event as per Article 12 of the PPA?

CERC holds that the enactment of ‘Telangana Tax on Entry of Goods into Local Areas Order is squarely covered as ‘Change in Law’ as per Article 12 of the PPAs. The reason is that the petitioners placed their bids on 08.02.2016 and the PPAs were executed on 09.08.2016 i.e. before holding of levy of the Entry Tax as constitutional by the Supreme Court.

2: Whether there is a need to compensate the petitioners for the increase in the project cost on account of imposition of the entry tax as one-time lump amount on account of Change in Law? And whether the petitioner is also entitled for carrying cost?

CERC ordered there shall be a stay of collection of Entry Tax pursuant to the impugned final assessment orders from the petitioner for the years 2015-16, 2016-17 and 2017-18 on condition of the petitioner paying 25% of the entry tax demanded by the respondents under the impugned proceedings within a period of six weeks from June 29.

3: Whether to compensate the petitioner on account of legal and administrative costs incurred by the petitioners in pursuing the instant petition?

The Commission finds that since the reliefs sought in this petition and validity of the assessment order dated 11.02.2020 imposing entry tax which is sub-judice before the High Court of Telangana are directly and substantially and closely juxtaposed, any effective order by this commission may not be proper at this stage. Once the outcome of the decision of the High Court of Telangana is delivered, the petitioner is at liberty to approach to this commission.