Powerica Ltd Entitled To Compensation Due To Rise of GST Rates Post-Contract, Rules CERC

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The Central Electricity Regulatory Commission (CERC), in its latest Order, while hearing a petition filed by Powerica Limited, has ruled that the change of Goods and Service Tax (GST) rates after receiving a contract was a deemed case of ‘change of law.’ Accordingly, the regulatory body also ordered compensation to the wind energy company on this ground.

Powerica is a wind energy generating company that was working on setting up its 50.6 Megawatt (MW) wind power project in selected villages in the Devbhoomi Dwarka district of Gujarat. It also created a Power Purchase Agreement with the Solar Energy Corporation of India (SECI) on October 18, 2019.  

The SECI, on December 12, 2018, issued a request to select wind power developers for the development of a 50.6MW wind power plant and Powerica emerged as the successful bidder of the project in 2018. However, on September 20, 2021, the Ministry of Finance, through its Notification, increased the GST on wind manufacturing parts from 5 percent to 12 percent.

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Powerica, in its petition before the CERC, called it a ‘change of law’ post-award of the project and sought compensation for the additional financial burden, which was pegged at around Rs 11,86,38,449 (Rs 11.8 crores).  

“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’. Further, SECI during the hearing held on 10.01.2023, has also agreed that the revision in the rate of GST from 5% to 12% …squarely qualifies to be a Change in Law event. Hence, the Commission holds that the introduction of Notification…is covered as ‘Change in Law’ under Article 12.1.1 of the PPA,” the Order of CERC said.

The CERC held the liability of SECI/ Discoms for ‘Monthly Annuity Payment’ to Powerica starting from the 60th (sixtieth) day from the date of orders in respective petitions or the date of submission of claims by the Respondent, whichever is later.

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The Order also said that Powerica is entitled to compensation towards additional expenditure for the change in law event and carrying cost on the change in the law event. 

“Petitioner (Powerica), in the instant petition, eligible for carrying cost starting from the date when the actual payments were made to the Authorities till the date of issuance of this Order, at the actual rate of interest paid by the Petitioner for arranging funds (supported by Auditor’s Certificate) or the rate of interest on working capital as per applicable CERC Tariff Regulations or the late payment surcharge rate as per the PPA, whichever is the lower. It is further clarified that once a supplementary bill is raised by the Petitioner in terms of this Order, the provision of Late Payment Surcharge in the PPA would kick in if the payment is not made by the Respondents within the due date,” the Order said. 

The Order also directed the contracting parties to reconcile the additional expenditure due to the changes in the GST rates along with carrying costs by exhibiting a clear and one-to-one correlation with the project and the invoices raised. 

However, the CERC order said that the Order would not be enforced now and subjected to further orders of the Supreme Court in another case of Telangana Northern Power Distribution Company Ltd and V Parampujya Solar Energy Pvt Ltd as some of the connected matters were raised before the apex court.