CERC Upholds Solar Developer’s Compensation Claims Under Change in Law Due to GST

MPPMCL and DMRC were directed to pay the dues along with late payment surcharge


Ruling in favor of a solar developer, the Central Electricity Regulatory Commission (CERC) directed the Madhya Pradesh Power Management Company (MPPMCL) and Delhi Metro Rail Corporation (DMRC) to settle the balance goods and service tax (GST) claims along with the payment of late payment surcharge.


In March 2013, Rewa Ultra Mega Solar (RUMSL) invited bids to develop 750 MW of solar projects split into three units of 250 MW each.

ACME Solar Holdings was selected as the successful bidder to develop one of the units.

In 2017, ACME Solar incorporated a special purpose vehicle, ACME Jaipur Solar Power, to execute the project.

Later, ACME Solar entered into two separate power purchase agreements (PPAs) with MPPMCL and DMRC.

On July 1, 2017, the GST laws were introduced, which subsumed multiple extant indirect taxes. ACME filed a petition seeking compensation due to additional costs incurred on account of GST.

The Commission had allowed the petition, and ACME submitted a GST claim of ₹514.8 million (~$6.26 million).

MPPMCL paid ₹297.16 million (~$3.61 million) against a claim of ₹401.5 million (~$4.88 million), while DMRC paid ₹80.83 million (~$982,114) against a claim amount of ₹113.3 million (~$1.38 million).

ACME submitted that GST claims for ₹121.96 million (~$1.48 million) against the invoices for which one-to-one correlation with GST returns could not be established were disallowed for payment by the respondents.

Further, MPPMCL wrongly considered tax in the pre-GST regime as ₹157.14 million (~$1.91 million). However, as per the statutory auditor certificate, the tax in the pre-GST regime is ₹143.33 million (~$1.74 million). Therefore, an additional deduction of ₹13.77 million (~$167,325) has been wrongfully made by MPPMCL and is thus required for the balance payment.

ACME contended that MPPMCL and DMRC were liable to pay GST claims against the invoices submitted when they were not registered under GST but paid to its vendors anyway.

ACME said it should be compensated by considering a pre-GST tax rate of 11% on the 40% value of services and a 15% tax rate on the balance 60% of the value of services which increased to 18% post-GST. It also sought that it be compensated for the balance GST claims along with late payment surcharge (LPS) as applicable under the PPA.

MPPMCL and DMRC refuted the claims because ACME failed to establish one-to-one co-relation for its claims without GST returns.

ACME argued that change in law rules have no application where the other party to the agreement has already disputed or contested it.

Commission’s analysis

The Commission directed MPPMCL and DMRC to reconcile and process those invoices for compensation on which ACME had paid GST to its registered vendors, and the vendors have deposited the GST with the Government.

The central regulator observed that ACME claimed the tax was payable at a 13.40% −weighted average of 11% on 40% and 15% of the remaining 60% − in the pre-GST regime. However, MPPMCL and DMRC considered a flat 15% tax rate for the entire value of services.

The Commission stated that the parties should reconcile and process the invoices considering the actual tax paid in the GST period and the tax payable in the pre-GST period.

It also directed MPPMCL and DMRC to process the due claims against the invoices already raised along with the LPS as provided under the PPA.

Earlier, CERC ruled in favor of ACME Jaipur and asked MPPMCL and DMRC to settle the safeguard duty claims along with the payment of the late payment surcharge within 30 days.

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