CERC Permits SolarArise Subsidiary to get GST Compensation

The Central Electricity Regulatory Commission (CERC) has ruled in favour of Talettutayi Solar Projects One Pvt. Limited (TSPPL), a subsidiary of Gurugram-based SolarArise, directing Solar Energy Corporation of India Limited (SECI) to pay the solar developer compensation for the increased cost of a project, excluding carrying cost, due to the implementation of the GST laws which created a ‘change-in-law’ event.

The judgement has come along expected lines, and perhaps its most unexpected quality is its delayed arrival, given that GST compensation is a frequent occurrence now, in which carrying cost is never included anyway.

In February 2016, SECI, under Jawaharlal Nehru National Solar Mission (JNNSM) Phase II Batch III Tranche–V, invited proposals by RfS for setting up of solar power projects in Karnataka. TSPPL won the bid to develop a 30 MW solar power project and entered into a PPA with SECI, as per which the scheduled date of commissioning (SCoD) was September 2017.

However, in 2017, GST Laws were enacted for levy and collection of tax, w.e.f. July that year, on intra-state supply of goods or services, or both, by the Central Government. Consequently, Ministry of New and Renewable Energy (MNRE) issued an Office Memorandum extending SCoD of the solar power plants on account of the introduction of GST. TSPPL achieved commissioning in January 2018 and commercial operation in February 2018.

TSPPL later approached CERC, submitting that as part of the GST Laws’ enactment, a tax slab of 5% to 28% was introduced with respect to goods and services required for execution, construction and operation of solar power plants. These goods and services were previously either exempted or were under lower tax slabs. The change of tax regime has escalated the capital cost of the project, hence making the tariff quoted at the time of bid for allocation of project unviable, said the solar developer.

TSPPL submitted that the total escalation in cost due to GST implementation was about Rs. 87,90,302. The developer believes that the enactment of the GST Law is squarely covered by the definition of ‘Change in Law’ under Article 12 of the PPA. The Tariff Policy as amended in January 2016 also provides that increase in taxes and levies are Change in Law events, said the developer.

In response, SECI agreed that a number of taxes, duties, cess and levies had been subsumed in GST in July 2017. But it argued that TSPPL must place before the commission the extent to which its project was subject to such taxes existing prior to July 2017 which have been subsumed in GST. TSPPL, said SECI, is proceeding on the assumption that the entire quantum of taxes under GST are payable, which is contrary to the very scheme of the introduction of GST and the intention of the Central Government in rationalising the tax structure in a manner that various existing taxes will get subsumed in GST. Accordingly, true and faithful disclosure of existing taxes which have been subsumed by the GST needs to be furnished by TSPPL, said SECI.

SECI also submitted to CERC that it would be appropriate for the commission to give directions to the distribution licensees, determining the amount payable to the TSPPL, keeping in view the intermediary status and role of SECI as a nodal agency to facilitate the solar power project and for the distribution licensee to have an arrangement for generation and procurement of solar power and thereby, promote solar power development in the country, as per the policy decisions of the Central Government. Any enforcement of the claim by the Petitioner against SECI without the distribution licensees being obligated to pay and discharge the corresponding claim under the PSA in advance of the discharge of the obligation of SECI will result in serious financial issues to SECI and thereby, affect implementation of the scheme, said the agency.

Upon considering the facts of the matter, CERC gave the following judgement:

“The introduction of the GST Laws w.e.f. 01.07.2017 is covered under Change in Law in terms of Article 12 of the PPA. SECI shall pay to the Petitioner as per mutually agreed mechanism for payment of such compensation on annuity basis, subject to the outcome of the Petition No. 536/MP/2020. The compensation paid to the Petitioner by SECI is not conditional upon payment to be made by the Respondent Discoms to SECI. However, SECI is eligible to claim the same from the Respondent Discoms on ‘back to back’ basis.”

“The first instalment of the annuity shall be paid within sixty days of the date of this Order or from the date of submission of claims by the Petitioner, whichever is later, failing which it will attract late payment surcharge as provided under PPA/PSA. The invoices raised up to COD pertaining to supply of goods can be claimed under Change in Law on account of the GST Laws whereas in case of supply of services related to goods procured up to COD, the invoices are to be raised within 30 days of supply of such services, which cannot be later than 30 day of COD and the Petitioner is entitled to be compensated accordingly. The claim regarding carrying cost is not admissible.”