CERC Orders Compensation To NTPC Over ‘Change Of Law’ Event

CERC Orders Compensation To NTPC Over 'Change Of Law' Event

The Central Electricity Regulatory Commission (CERC) in its latest judgement awarded compensation to NTPC Limited over a surge in Goods and Services Tax (GST). The public sector utility had moved to the CERC seeking compensation for the increased project costs due to the increased taxation.

The case was related to two solar projects with a cumulative capacity of 76 MW, situated in Gujarat. One was a 20 MW solar project at Gandhar and another one was a 56 MW solar project at Kawas. NTPC in its case before the CERC argued that at the time of signing of the Power Usage Agreement (PUA), a GST at the rate of 5% was levied. However, with a notification issued by the Finance Ministry in 2021, the GST rates were revised to 12 percent.

The Central Public Sector Enterprise (CPSE) told the CERC that such a surge in taxation should be categorised as a “change of law” event. In its petition before the central commission, NTPC asked for a compensation of Rs 9.18 crore. 

As per the case details, the first GST notification was issued on June 28, 2017, and the Power Usage Agreement (PUA) was signed between NTPC and Telangana discoms on November 26, 2020. The original Scheduled date of the commencement of the supply of power (SCoD) was August 12, 2021. On the other hand, the Finance Ministry came up with its Integrated Tax (Rate) GST Notification on December 13, 2021. 

CERC, in its written order, admitted that the escalation of GST rates was a ‘change of law’ event. “…The change in rate of Goods and Services Tax from 5% to 12% w.e.f. 01.10.2021 has resulted in the change in the cost of the inputs required for generation, and the same is considered as ‘Change in Law’. Hence, we hold that the impugned notifications viz the 2021 GST Notification is a Change in Law event as per Article 10 of the PUAs dated 26.11.2020…”

The central authority also ordered compensation to NTPC and asked the concerned authorities to reconcile among themselves. “We observe that the impact of a change in law event can be only assessed in respect of the project cost when actual expenditure is incurred by the Petitioner. Hence, in terms of the PUAs and submissions of the parties, we hold that the Petitioner is entitled for change in law compensation viz. 2021 GST Notification as per the terms of Article 11 of the PUAs subject to submission of necessary documents by NTPC. The parties are accordingly directed to reconcile by carrying out one-to-one correlation once invoices are raised, supported by auditor certificate,” the CERC order said.