Pay GST, Safeguard Duty Compensation to Solar Developers in 60 Days: MNRE to SECI and NTPC

If the compensation is not paid to developers within 60 days, a late payment surcharge will be levied


The Ministry of New and Renewable Energy (MNRE) has released a circular stating that Goods and Services Tax (GST) and Safeguard Duty (SGD) compensation to solar project developers should be paid within 60 days.

Mentioning the orders already passed by the Central Electricity Regulatory Commission (CERC) on the ‘Change in Law’ compensation for GST and SGD, the ministry added that there is now no need for the developers to approach the CERC for each case individually.

Since a majority of solar projects were already under development when the safeguard duty and GST were announced, they came under a clause called “Change in Law.” Change in law comes into play when there is a new law or a change in the tax structure or when a new tax is introduced.

Previously, MNRE had stated, “Change in the rates of any taxes as mentioned in clause 5.7.2 of “Guidelines for Tariff Based Competitive Bidding Process for Procurement of Power from Grid Connected Solar PV Power Projects,” includes a change in rates of taxes, duties, and cess.” Thus, the solar projects that were auctioned before the imposition of the safeguard duty are eligible to get compensated for increased project costs as a result of the duty.

The circular by MNRE is addressed to Solar Energy Corporation of India (SECI) and National Thermal Power Corporation (NTPC) warns that if the compensation is not made within two months, a late payment surcharge (LPS) may be imposed or the payment can be made on an annual basis spread throughout the power purchase agreement (PPA) tenure.

To protect domestic cell and module manufacturers, a 25% safeguard duty was announced on solar cell and module imports from China and Malaysia for the period between July 30, 2018, and July 29, 2019. The duty was set at 25% for the first year, followed by a phased down approach for the second year, with the rate reduced by 5% every six months until the duty is set to end after July 2020. Since then, the CERC has heard various petitions of developers on the matter and agreed that the imposition of the duty was a Change in Law.

Similarly, there have been various clarifications regarding GST from the government as well. In December 2018, the Central Electricity Regulatory Commission (CERC) issued an order stating that the introduction of GST that came into effect from July 1, 2017, will constitute a Change in Law event for the transmission service providers in India.

Then 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 CERC 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 a 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. 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.