Indian panel backs developer claims against new solar tax

India’s Central Electricity Regulatory Commission (CERC) has backed a compensation claim by developers for a tax imposed on new solar power projects. It said the new levy constituted a “Change in Law” by parliament, and required authorities to return what had already been paid. Developers Parampujya Solar Energy and Wardha Sola sought the ruling, saying the enactment of the goods and services tax in July 2017 increased their costs.

The Central Electricity Regulatory Commission (CERC) has observed that the enactment of Goods and Services Tax (GST) that came into effect from July 1, 2017, will be covered under the clause of ‘‘Change in Law’.’

The commission was hearing a petition filed by Parampujya Solar Energy Pvt. Limited (PSEPL), a wholly owned subsidiary of Adani Green Energy Limited, and Wardha Solar (Maharashtra) Private Limited (WSPL), a wholly owned subsidiary of PSEPL.

The petitioners had requested the commission to declare the imposition of GST as an event under ‘Change in Law’, and direct the National Thermal Power Corporation (NTPC) and Solar Energy Corporation of India (SECI), which were the respondents in the case, to pay the petitioners the amount claimed under ‘Change in Law’.

Quoting the PPA, the petitioners claimed that they meet the conditions prescribed in the Article 12 for claiming Change in Law, which says that a Change in Law results in any additional recurring/non-recurring expenditure by the developer or any income to the developer.

Moreover, they cited an earlier order of the CERC which held that if an event qualifies as a ‘‘Change in Law’,’ then the due compensation must follow.

However, the respondents, in this case, have argued about the scope and applicability of Article 12 of the PPA and said that in the present PPA, there is no clause dealing with the specific relief under the construction period and therefore, the entire basis of ‘Change in Law’ provision does not arise.

It further argued that the relief for taxes is admissible in case of – “any change in tax or introduction of any tax made applicable for the supply of power by the solar power developers (SPD) as per the terms of this agreement (PPA).”

Therefore, the scope for Change in Law is restricted to the taxes which are imposed for the ‘supply of power’ and other than that the conditions for relief are not admissible.

To this, the petitioners have submitted that the commission has allowed ‘Change in Law’ event under a similar PPA by holding the phrase “for the supply of power” which will include inputs required for such generation and supply of power to the DISCOMs.

The commission observed that it has already cleared that any tax levied through an Act of Parliament after the cut-off date which results in the additional expenditure by the petitioner is covered as ‘Change in Law.’ Previously, it also made it clear that any tax or application of the new tax on ‘supply of power’ covers the taxes on inputs required for such generation and supply of power to the DISCOMs.

Therefore, the present case is no different and the enactment of GST laws will be covered as ‘Change in Law.’

The petitioners argued that after the introduction of GST, a tax slab of 5% to 28% had been introduced concerning goods and services required for the execution, construction, and operation of solar power projects. Previously, these were either exempted or fell under lower tax slabs. Therefore, new taxes have impacted the overall project costs.

For example, a service tax of 15% was being levied on operations and maintenance (O&M) expenses. However, after the GST, a rate of 18% is levied on O&M costs.

However, respondents have argued that it is the responsibility of the petitioners to account for the cost and risk for designing, constructing, erecting, commissioning, completing and testing the power project and mitigating the effect of change.