The Maharashtra Electricity Regulatory Commission (MERC) has dismissed a plea requesting that the introduction of Goods and Services Tax (GST) be treated as a ‘Change in Law’ event.

The petition, filed by Azure Power Thirty-Four Private Limited (APTFPL), had asked for the approval and determination of compensation for solar projects due to the amendment of the GST rates, citing it as ‘Change in Law.’

Azure had entered the power purchase agreement (PPA) with the Maharashtra State Electricity Distribution Company Limited (MSEDCL) for 130 MW of grid-connected solar PV projects at a tariff of ₹2.72 (~$0.039)/kWh.

These solar PV projects are currently under construction and Azure had requested the commission to direct MSEDCL to pay a lump sum compensation of ₹233,880,000 (~$3,372,549) as a result of the additional tax burden on the development and operation of the solar PV project along with the appropriate carrying costs.

After going through the submissions made by both the parties, the commission observed, “According to the ‘Change in Law’ provisions of the PPA, if there is any adverse financial gain or loss on account of ‘Change in Law’, then the affected party is entitled to a compensation in to place it at the same financial position as if such ‘Change in Law’ event had not occurred.”

According to the state commission, to claim such compensation, the affected party should provide supporting documents to substantiate the effect of ‘Change in Law.’ There is no concept of in-principle approval of ‘Change in Law’ under the PPA.

The PPA allows such relief only after the actual financial impact is ascertained and supported by documentary evidence.

Consequently, the MERC considered the developer’s petition premature and dismissed it. However, the commission also stated that parties to the PPA could interpret which event can constitute as ‘Change in Law’ event and accordingly claim compensation. If there is a dispute between the parties, then the commission can be approached for redressal.

In the petition, a parallel had been drawn to the consideration of safeguard duty as a ‘Change in Law’ event by the MERC. To this, the commission clarified, “The judgment passed on the safeguard duty is an exception to the provisions in the PPA and was provided considering the large impact of safeguard duty ranging from 25% to 15%. In the present case, the alleged impact of change in GST rate is 3.9% only. Therefore, the circumstances in the present case cannot be equated with that prevailing in safeguard duty matter.”

A few weeks ago, the Maharashtra commission had dismissed another petition moved by Azure Power requesting it to order Maharashtra State Power Generation Company to compensate the company for the excess cost incurred due to GST.

However, in January 2019, the Gujarat High Court had provided temporary relief to Azure Power in the matter of imposing safeguard duty on solar cells and modules imported by the company.