The Central Electricity Regulatory Commission (CERC) has issued a suo motu order directing that monthly tariffs or charges must be adjusted or refunded from the date the Goods and Services Tax (GST) reduction event occurs, affirming that renewable energy generators must pass on the benefit of lower tax rates to procurers.

To enable this, generating stations must furnish invoices and auditor-certified statements demonstrating a clear one-to-one correlation between project expenditure and the invoices raised.

The Commission has instructed all parties to complete this reconciliation before approaching it for tariff determination under Change in Law provisions, as per the Electricity (Timely Recovery of Costs due to Change in Law) Rules, 2021, and Section 63 of the Electricity Act, 2003.

CERC also underscored Section 171 of the Central Goods and Services Tax Act, which mandates that any reduction in tax rate or benefit of input tax credit must be passed on to the recipient through a commensurate reduction in prices.

It noted that the GST reduction on renewable energy devices from 12% to 5% directly lowers the net project cost, making it a material change with tariff implications.

The reduction reverses the 2021 revision that raised the applicable GST to 12% from October 1, 2021, a change that the Commission had earlier recognized as a Change in Law event under power purchase agreements (PPA).

Equipment categories covered under the restored concessional rate include solar power–based devices, solar generating systems, windmills and wind-operated electricity generators, waste-to-energy projects and devices, ocean and tidal energy systems, and photovoltaic cells, whether or not assembled into modules or panels. The devices fall under Chapters 84, 85, and 94 of the GST tariff classification, consistent with the original 2017 structure.

CERC clarified that the revised GST rate applies under the time-of-supply rules, which determine tax liability based on the earlier of the invoice date and the date of payment. As a result, the updated 5% rate applies to all cases where the bid submission date precedes September 22, 2025, and where procurement, commissioning, commercial operation, or supply-related invoices or payments are dated on or after September 22, 2025, regardless of whether payments are made in full or in part.

The Commission reiterated the requirement for a clear, documented link between the project, the goods or services procured, and the supplier invoices. Since GST directly affects the cost of inputs used in renewable energy projects, the restoration of the 5% rate requires appropriate treatment under the Change in Law mechanisms established in PPAs.

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