JSW Renewable Energy Secures Change In Law Victory As CERC Backs GST Dispute Resolution

JSW Renewable Energy Limited (JREL), a company involved in generating and selling electricity, recently sought a declaration from the Central Electricity Regulatory Commission (CERC) regarding a “Change in Law” under the Power Purchase Agreements (PPAs) signed with the Solar Energy Corporation of India Limited.

The issue at hand revolves around a change in Goods and Services Tax (GST) rates, specifically the increase from 5% to 12%, as per notifications issued by the Ministry of Finance, Government of India, and the Government of Tamil Nadu. JSW Renew Energy Limited argued that this change in GST rates should be considered a “Change in Law” under Article 12 of the PPAs, as it directly impacted the cost of inputs required for electricity generation.

The petitions were filed in August 2022 and admitted for hearing in February 2023. The key contention was whether the increase in GST rates qualified as a “Change in Law” event under the PPAs. SECI (Solar Energy Corporation of India Limited) argued that the notifications regarding GST were issued before the Change in Law Rules in 2021 and should be dealt with according to the prevailing rules at the time of the event.

The CERC, after considering the submissions from both parties, determined that the increase in GST rates indeed constituted a “Change in Law” event under Article 12 of the PPAs. The commission acknowledged that the change affected the cost of inputs for electricity generation, leading to a declaration that the notifications dated 30.09.2021 and 04.10.2021 were indeed “Change in Law” events.

JSW Renewable Energy Limited, in its plea, emphasized that Change in Law clauses in the PPAs are restitutive. It argued that unless expressly prohibited in the PPAs, the affected party is entitled to be restored to the economic position it would have been in, but for the Change in Law event. The company also expressed its intention to approach the Commission for reimbursement as actual expenditures are incurred.

SECI countered that the consideration of relief, including the calculation of the impact on capital expenditure, should be deferred until the JREL commissions and declares the commercial operation of the project. SECI proposed that the JREL should provide details, such as the date of delivery of goods, invoices, and statutory auditor’s certificate, to substantiate the impact of the change in GST rates on renewable energy devices.

The commission, in its decision, noted that the impact of a Change in Law event could only be assessed when actual expenditures are incurred. Therefore, it deferred any order on computation methodology and carrying costs until the Petitioner incurs actual expenditure, at which point it can approach the Commission separately for compensation related to Change in Law events. In conclusion, the Central Electricity Regulatory Commission acknowledged the Change in Law events due to the increase in GST rates but deferred detailed consideration of relief until JSW Renewable Energy Limited incurs actual expenditure. The company has been granted the right to approach the Commission for compensation at that juncture.

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