The Central Electricity Regulatory Commission (CERC) has ruled that developers are entitled to compensation in lieu of higher expenses incurred for 100 MW solar power projects in Uttar Pradesh and Karnataka after the Goods and Services Tax (GST) came into force.

The compensation would qualify under the ‘Change in Law’ event and will be applicable even if GST was promulgated after the project’s commercial operation date (CoD).

The Commission also allowed compensation to developers on account of additional expenditure towards operation and maintenance (O&M) activities, even if these services were outsourced.

It also directed two solar developers and the Solar Energy Corporation of India (SECI) and NTPC to reconcile the extent of incremental impact by exhibiting a one-to-one correlation with the projects and the invoices raised to support it.

SECI will receive the due amount from DISCOMs, which will then be transferred to the developers.

However, payment to the developers by SECI would not be conditional upon the payment to be made by the DISCOMs to SECI.

Vector Green Prayagraj Solar and Yarrow Infrastructure had filed petitions with CERC seeking the declaration of the imposition of safeguard duty as a ‘Change in Law’ event per the provisions of the power purchase agreement (PPA).

Background

Vector Green was selected by SECI to develop a 50 MW solar project in Uttar Pradesh, while NTPC selected Yarrow Infrastructure to develop a 50 MW solar project in Karnataka.

The initial submissions filed by the petitioners sought compensation for various factors, including the introduction of GST laws, carrying costs, GST on O&M services, and GST on post-CoD expenditures.

The Commission’s decisions for Vector Green’s petition included the following:

• GST laws implemented from July 1, 2017, were considered a Change in Law under the PPA. The petitioner was instructed to provide supporting documents demonstrating a clear correlation between the project and the supply of goods until the CoD. SECI was directed to reconcile the claims and compensate the petitioner within 60 days.
• The billing and payment relationship between the petitioner and SECI was deemed separate from SECI’s billing and payment with Uttar Pradesh Power Corporation (UPPCL). The PPA and power sale agreement (PSA) were considered independent agreements, making UPPCL liable to pay SECI the same amount SECI had to pay the petitioner.
• Compensation for the adverse impact of GST on O&M expenses was not granted.
• The claim for “carrying cost” was deemed inadmissible.

Similar decisions were made for Yarrow Infrastructure’s petition, which included:

• The introduction of GST laws from July 1, 2017, was considered a Change in Law under the relevant PPA. The petitioner was required to provide supporting documents, establishing a correlation between the project and the supply of goods until the CoD. The respondents (NTPC) were directed to reconcile the claims and provide compensation within 60 days.
• The billing and payment relationship between the petitioner and NTPC was considered separate from NTPC’s billing and payment with the Karnataka DISCOMs. The PPA and PSA were viewed as independent agreements, making the Karnataka DISCOMs liable to pay NTPC the same amount NTPC had to pay the petitioner.
• Compensation for safeguard duty was not granted.
• Compensation for GST on O&M during the Defects Liability Period was not allowed.
• Compensation for GST on O&M charges payable to SPIA (Solar Park Implementation Agency) was granted.
• The claim for “carrying cost” was deemed inadmissible.

The dissatisfied petitioners filed an appeal with the Appellate Tribunal for Electricity (APTEL), which allowed the appeal, and set aside the Commission’s orders. The cases were remanded to the Commission for a fresh hearing.

The petitioners then approached the Commission, highlighting that the issues raised are covered by the APTEL’s Parampujya judgment, which allowed compensation for the impact of GST laws and Safeguard Duty. The petitioners requested that their claims regarding the increase in GST rates on O&M expenses, reimbursement of post-COD claims, and carrying costs be granted.

SECI and NTPC referred to APTEL’s Parampujya judgment, which directed the Commission to allow Change in Law compensation for the impact of GST laws and Safeguard Duty. However, they said the Supreme Court stayed the enforceability of the APTEL’s decision, and therefore, the Commission should await the final judgment of the apex court.

SECI also argued that the petitioner’s claim regarding GST on O&M expenses payable under the land use cum implementation and support agreement was an afterthought raised for the first time in the appeal before APTEL. It requested that the Commission not consider this issue as there was no specific direction from APTEL to address it.

Commission’s Analysis

Vector Green initially faced denial of compensation for GST on O&M expenses by the Commission due to the absence of specific provisions in the PPA or related agreements. However, Vector Green later submitted the land use cum implementation support agreement, which outlines the payment terms, including O&M charges and tax reimbursement.

The Commission noted that Vector Green’s projects were affected by the GST Laws implemented on July 1, 2017. Following the APTEL’s Parampujya judgment, which allows compensation for GST on O&M expenses, the Commission granted Vector Green’s request for increased charges payable to the solar park implementation agency due to GST.

The Commission noted that Vector Green submitted their bid before the enactment of GST laws, and their project’s CoD was after July 1, 2017. Thus, Vector Green is eligible for relief under the GST laws.

In the case of Yarrow Infrastructure, the Commission referred to its previous order, which stated that Vector Green was not eligible for compensation for safeguard duty as their project was commissioned before the imposition of safeguard duty. However, the APTEL’s Parampujya judgment held that compensation for safeguard duty should be allowed for the entire impact period, including the post-CoD period.

Based on the analysis, the Commission concluded that both petitioners are entitled to compensation for the impact of GST and safeguard duty. However, they noted that the enforcement of their directions for the post-CoD period is subject to further orders from the Supreme Court in the ongoing case of Telangana Northern Power Distribution Company versus Parampujya Solar.

In September last year, the Ministry of New and Renewable Energy said the imposition of basic customs duty and hike in GST should be treated under ‘Change in Law’ events unless disallowed by specific provisions in the tender documents or contracts.

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