CERC orders $30 million GST compensation payment

India’s Central Electricity Regulatory Commission (CERC) has ordered government agencies to reimburse nearly US$30 million incurred by solar power developers as additional capital expenditure under the Goods & Services Tax (GST) laws, which came into effect on July 1, 2017.

November 19, 2018 Preeti Verma Lal

With the Supreme Court ruling that solar power plants will be considered immovable property, GST has been set at 18%.

Image: Nick Youngson CC BY-SA 3.0 Alpha Stock Images

The CERC order arose in response to submissions by 15 petitioners who called for the GST to be declared a ‘Change in Law’, which provides a one-time compensation payment to cover increased costs.

According to the petitioners, which included Acme Solar and Azure Power, the impact of GST was nearly 11.4% of the cost over and above initial project costs.

The respondents to the petitioners included Solar Energy Corporation of India, National Thermal Power Corporation and several discoms from Andhra Pradesh, Telangana and Madhya Pradesh.

Following the decision, payment claims now have to be paid by the government agencies within 60 days of the date of the order, or risk attracting late payment surcharges.

According to CERC, if changes are made to domestic duties, levies, cess and taxes imposed by Central or State Governments/Union Territories or any other Government body, after the award of bids, they may be treated as a ‘Change in Law’.

With the Supreme Court ruling that solar power plants will be considered immovable property, GST has been set at 18%. GST laws will be applicable to all cases except for generating companies, where the actual date of commissioning is prior to July 1, 2017.

Before India introduced GST, the solar power sector enjoyed concessions under excise, customs and value added tax. The 15% service tax was only applicable to around 10% of total project costs. In effect, the net tax in a pre-GST regime was less than 5%.

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