GST Introduction to be Treated as Change in Law for Transmission Service Providers: CERC

The additional impact due to the introduction of GST will be borne by its beneficiaries, noted CERC


The Central Electricity Regulatory Commission (CERC) has issued an order stating that the introduction of Goods and Services Tax (GST) that came into effect from July 1, 2017 will constitute a Change in Law event for the transmission service providers in India.

The CERC had initiated suo moto proceedings in the matter of additional tax burden on transmission licensees on introduction of GST compensation cess.  According to the commission, the proceedings were initiated to assess and determine the principles to be adopted for allowing Change in Law for projects where the cut-off date, which is seven days prior to the bidding deadline, occurs on or before June 30, 2017.

CERC had directed these transmission providers to submit the rate of tax on the cut-off date up to June 30, 2017 and then for the period after the introduction of GST from July 1, 2017. After considering the submissions made by these providers, the CERC asserted that due to varied nature of such taxes that have been abolished through the introduction of GST, it is not possible to ascertain the impact in a generic manner for all such providers. The abolition of these taxes, duties, cess, after the introduction of GST are Change in Law events and the savings arising out of such events should be passed to the beneficiaries.

The CERC also believed that the introduction of GST resulted in imposition of new or increased taxes, which constitute Change in Law event and accordingly the additional impact due to the introduction of GST will be borne by the beneficiaries. The details of the increase or decrease will be worked out by the providers and the beneficiaries.

The commission has ordered that the introduction of GST will constitute a Change in Law event if the cut-off date according to transmission service agreement falls on or after July 1, 2017. The difference between the taxes subsumed in GST and the rates of GST on various items will be admissible under the Change in Law and the transmission service providers will work out and provide the details of any change in the tax liability in respect to the introduction of GST to the beneficiaries supported by the auditor’s certificate.

The CERC has also stated that the additional expenditure on account of GST will be reimbursed by the long-term customers according to the relevant provisions of the agreement regarding Change in Law during the construction or operating period.

In October 2018, the CERC issued an order to compensate solar power developers by giving them an upfront lumpsum payment, which they would have incurred as an additional capital expenditure after the introduction of GST Law. It also asked the government agencies to make adjustments in the quoted tariff because of the additional operating and recurring expenditure that will incur for the entire term of the project.

Before this, the commission had issued an order stating that the enactment of GST laws is covered as Change in Law under Article 12 of PPAs. “The relief for Change in Law is allowed as a separate element on one-time basis in a time bound manner,” the CERC said in its order.

Mercom previously reported that the delay in GST reimbursement and lack of clarity is affecting solar project developers in India. Recently, the MNRE issued an order extending the commissioning date of solar PV projects that were affected after the imposition of GST and other related issues.