SECI to Reimburse Additional Charges Incurred by Hero Solar Due to GST Enactment

The Commission declared that the enactment of GST laws in 2017 constituted Change in Law


The Central Electricity Regulatory Commission (CERC) has said that the introduction of the Goods and Services Tax (GST) falls under the scope of the “Change in Law” clause of power purchase agreements (PPA) in the case of the petition filed by Clean Solar Power against the Solar Energy Corporation of India (SECI) and the Gulbarga Electricity Supply Company Limited (GESCOM).

Clean Power, a subsidiary of Hero Solar Energy Private Limited, had filed a petition with the CERC seeking the bench to acknowledge the enactment of GST laws as “change in law.”

The power generator also sought the reimbursement of additional non-recurring expenditure incurred on account of the “change in law” to the tune of ₹107.22 million (~$1.41 million) for 200 MW of solar projects in Karnataka, whose PPAs were made effective before the GST was enacted. Additionally, it sought the reimbursement of carrying costs along with the legal and administrative costs incurred by them by pursuing the petition.

Clean Power stated that the PPAs for all 200 MW of its projects came into effect on August 2, 2016, whereas GST laws were passed on July 1, 2017. It said that the introduction of these laws increased the actual cost of the projects well over the budgeted costs, and this was beyond their control.

The CERC, in its response, said that it has observed that the enactment of GST laws took place after the execution of the PPA and all conditions dealing with “Change in Law” according to article 12 of the PPA have been met with. It subsequently declared that Clean Power was entitled to relief under the clause.

Addressing the reimbursement of the additional non-recurring expenditure incurred by the company because of the change in law, it stated that that Clean Power would have to submit proof of these charges along with supporting invoices raised by the supplier of goods and services, along with an auditor’s certificate.

Upon submission and approval, SECI would be liable to pay the petitioner regardless of whether GESCOM, a distribution company (DISCOM), pays SECI or not. The Commission, however, noted that SECI would be eligible to claim the same from GESCOM.

The Commission stated that the payments must be made within 60 days from the date of the issue of the order or from the submission of claims by the petitioner, whichever comes later. Failure to make the payments on time would attract a late payment surcharge, as specified in the respective power sale or purchase agreements.

It also said that alternatively, the petitioner and respondents could mutually agree on a mechanism for the payment of these charges on an annuity basis spread over the PPA term as a percentage of the agreed-upon tariff.

The Commission, however, denied the developer’s claim for carrying costs as well as its request for the reimbursement for legal and administrative costs.

The fact that GST cases are still being decided after almost three years does not bode well for the government agencies that are supposed to decide cases quickly and instill confidence in the investment community.

A similar petition was filed by Azure Power against the NTPC and SECI requesting reimbursement of the incremental cost of project construction and O&M due to the introduction of GST Laws and the claim of carrying cost for the delay in reimbursement. The Commission had dismissed this claim.

Earlier, Mercom reported that the CERC directed the National Thermal Power Corporation (NTPC) to pay the dues claimed by ACME Solar along with late payment surcharge within 30 days of the order. The payment is for reimbursing the sum that was incurred as additional capital expenditure after the introduction of GST Law.

Around the same time, the CERC also approved Parampujya Solar’s plea that the introduction of GST laws with effect from July 1, 2017, should be covered under the ‘Change in Law’ clause. But for the compensation amount, the company has to prove the correlation between the projects and the supply of goods and services backed by invoices raised by the supplier with auditors’ certificate.