The Gujarat Electricity Regulatory Commission recently heard a petition from a power-generating company, a wholly-owned subsidiary of Aditya Birla Renewable Limited, which has set up a 120 MW solar PV power plant. The petition, filed under relevant sections of the Electricity Act, 2003, and specific articles of the Power Purchase Agreement (PPA) signed on January 30, 2021, addresses the imposition of a 40% Basic Customs Duty (BCD) on solar PV modules, effective from April 1, 2022, as well as an increase in Goods and Services Tax (GST) from 5% to 12% on various parts and equipment for solar plants, effective from October 1, 2021.
During the hearing, the petitioner’s counsel argued that these changes constitute “Change in Law” events as per the PPA. The imposition of BCD and the increase in GST were introduced through the Finance Act, 2022, and notifications issued by the Ministry of New and Renewable Energy (MNRE) and the Ministry of Finance, respectively. The petitioner sought a declaration from the Commission that these changes should be recognized as “Change in Law” events, entitling the petitioner to claim the additional costs incurred due to these changes.
The petitioner emphasized the significant financial impact of these changes on the project. They argued that the increased costs due to the new duties and taxes were unforeseen at the time of signing the PPA and thus should be treated as “Change in Law” events. The petitioner also assured the Commission that they were in the process of arranging all necessary documents and details to substantiate their claims and would provide them as soon as possible.
The respondent, Gujarat Urja Vikas Nigam Limited (GUVNL), countered that the claim for “Change in Law” should be evaluated strictly per the PPA terms. They argued that the expression “etc.” and “such as” in the PPA’s Change in Law provision indicated that the clause was intended to cover a wide range of levies and duties brought about by law, not just those explicitly mentioned. The respondent also noted that the petitioner should have imported the equipment under the Project Import Scheme, which offers concessional rates but is not allowed for solar projects. The respondent further asserted that there was no provision in the PPA that specifically disallowed the claims made by the petitioner.
The Commission took note of the arguments from both parties and requested the petitioner to submit invoices and documents that clearly show the payment of BCD and GST, demonstrating a direct correlation between the project, the supply of goods/services, and the invoices raised. This documentation should be backed by an auditor’s certificate to verify the authenticity of the claims. The petitioner agreed to provide these documents and details at the earliest opportunity.
Additionally, the petitioner sought an extension of time beyond October 14, 2022, due to the delays caused by these additional duties and taxes. They highlighted that the solar PV modules were imported before the Scheduled Commercial Operation Date (SCOD) and that the incidence of GST also occurred before this date. The petitioner reiterated that there was a clear one-to-one correlation between the invoices and the additional costs incurred due to the Change in Law events.
The petition underscores the challenges faced by power-generating companies due to unexpected changes in tax and duty regulations, which can significantly impact project costs and timelines. The Commission’s decision on this matter will set an important precedent for how such “Change in Law” claims are handled in the future, balancing the interests of power developers and regulatory bodies. The outcome will also influence the financial planning and risk assessment strategies of companies involved in renewable energy projects.
Please view the document here for more details.
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