Avaada And SECI Grapple With Legal Implications: Commission’s Verdict On GST Change In Law In Renewable Energy

A recent development in the renewable energy sector involves a petition filed by Avaada Sustainable RJProject Private Limited against Solar Energy Corporation of India Limited (SECI). The petition, filed under the Electricity Act, 2003, and Power Purchase Agreement (PPA) dated 08.06.2020, seeks redress for the change in Goods and Services Tax (GST) from 5% to 12% effective from 01.10.2021.

Avaada Sustainable RJProject Private Limited, a generating company, established a 300 MW solar power project in Rajasthan. The project was awarded to Avaada Energy Private Limited through a competitive bidding process, with a Letter of Award issued on 25.11.2019 by SECI. The PPA was subsequently signed on 08.06.2020 for the supply of 300 MW of solar power from the project.

The core issue in the petition revolves around the change in GST rates, specifically due to amendments in relevant notifications dated 30.09.2021. Avaada Sustainable RJProject Private Limited argues that this change amounts to a ‘Change in Law’ event under Article 12 of the PPA, leading to additional expenditures of approximately ₹63.61 crores.

The petition, filed on 01.10.2022, underwent multiple hearings, and the Commission, after careful consideration, admitted the petition on 11.04.2022. Subsequent hearings were held on 12.07.2023 and 22.09.2023, with the matter reserved for orders. The recent order from the Commission provides insights into their findings and directives.

The Commission, in its order, acknowledges that the change in GST rates from 5% to 12% through notifications dated 30.09.2021 constitutes a ‘Change in Law’ event under Article 12 of the PPA. This decision aligns with similar orders issued by the Commission in various petitions.

The Commission directs the contracting parties to reconcile additional expenditures, along with carrying costs, through a clear and one-to-one correlation with projects and invoices supported by an auditor’s certificate. It further states that responding Discoms are liable to pay SECI the reconciled claims, independent of payment to ASRPL by SECI.

Regarding compensation methodology, the Commission determines a discount rate of 9.12% and an annuity period of 15 years as appropriate for Change in Law compensation. It mandates that SECI/Discoms’ liability for ‘Monthly Annuity Payment’ starts 60 days from the order date or from the submission of claims by ASRPL, whichever is later. Late payment surcharge is applicable for delayed payments.

The Commission also addresses the issue of carrying costs, asserting that ASRPL is eligible for carrying costs from the date of actual payments to authorities until the order date. The carrying cost should be at the actual interest rate paid by ASRPL, the rate of interest on working capital as per applicable RE Tariff Regulations, or the late payment surcharge rate as per the PPA, whichever is lowest. The Commission’s order emphasizes the entitlement of ASRPL to compensation for the Change in Law event due to the 2021 GST Notifications. It outlines specific directives for reconciliation, compensation methodology, and carrying costs. However, the enforcement of certain aspects is contingent upon further orders from the Hon’ble Supreme Court in specific matters. The petition is considered disposed of under the outlined directives.

Please view the document below for more details.