Tata Power Green Energy Seeks Compensation For GST Rate Change With MERC Decision

Tata Power Green Energy Ltd (TPGEL) has submitted a petition seeking compensation due to a change in the Goods and Service Tax (GST) rates. The company filed the petition with the Maharashtra Electricity Regulatory Commission (MERC) under relevant legal provisions, stating that the increase in GST rates post their bid submission had a significant impact on their project’s finances.

TPGEL, a renewable energy company and a subsidiary of Tata Power Renewable Energy Ltd, entered into a Power Purchase Agreement (PPA) on December 4, 2020, with Tata Power Company Limited– Distribution business (TPC-D) for a Hybrid Power Project.

During the bidding process, TPGEL considered a composite GST rate of 8.9% on supply and civil works/service contracts. However, a subsequent change in GST rates recommended by the GST Council in September 2021 increased the rate to 13.8%. This change, beyond TPGEL’s control, prompted them to file a petition seeking compensation.

TPGEL sent a Change in Law notice to TPC-D on October 6, 2021, informing them of the GST rate increase. The petition claims compensation of ₹49.12 Crores, along with carrying costs, as calculated based on the methodology approved by the Commission in a previous order.

TPGEL submitted supporting documents, including invoices and a certificate, to TPC-D, which confirmed the accuracy of the additional GST payable. TPC-D, having verified the documents, accepted the Change in Law as per the terms of the PPA.

The regulatory commission addressed several key issues. Firstly, it determined that the GST rate change in the September 2021 notification qualified as a Change in Law event under the PPA. The commission acknowledged TPGEL’s eligibility to claim compensation.

Regarding the principal claim amount for the change in GST, the commission accepted TPC-D’s verification of documents and confirmed that the Change in Law was due to the GST rate change post-bid submission.

The commission also discussed the modalities for carrying costs, approving TPGEL’s claim of ₹4,68,24,265, computed according to an approved methodology. The carrying cost was set at 1.25% plus the State Bank of India’s Marginal Cost of Fund-based Lending Rate per annum.

Lastly, the commission provided TPC-D with the option to decide whether to opt for a lump-sum payment or a per-unit basis over the PPA period. If the per-unit option is chosen, the commission outlines a methodology for calculating the compensation amount and carrying costs. In conclusion, the commission allowed the impact of the Change in Law due to the GST rate increase, and TPC-D was given two weeks to communicate its compensation payment option to TPGEL.

Please view the document below for more details.