MERC Grants TP Saurya Compensation For GST Increase In 500 MW Wind-Solar Hybrid Project

Posted On - 3 August, 2024 • By - King Stubb & Kasiva

Summary

The Maharashtra Electricity Regulatory Commission (MERC) ruled in favor of T.P. Saurya Limited (TPSL) in Case No. 241 of 2022, declaring that a notification issued on September 30, 2021, by the Ministry of Finance (MoF), Government of India (GoI), which increased the Goods and Services Tax (GST) rate, constituted a Change in Law event.[1] This decision entitles TPSL to compensation for the increased expenses incurred due to the change in GST rates for their 500 MW Wind-Solar Hybrid Project. The MERC’s order clarified that TPSL had adhered to the necessary procedures for claiming compensation under the Power Purchase Agreement (PPA) and established that the GST notification met the criteria for a Change in Law event as defined in the PPA.

Case Timeline

  • May 7, 2021: MSEDCL issues a Request for Selection (RfS) to procure 500 MW of wind-solar hybrid power.
  • July 9, 2021: TPSL emerges as a successful bidder in the e-Reverse Auction.
  • September 30, 2021: MoF issues a notification increasing GST rates on RE devices.
  • December 14, 2021: MSEDCL issues a Letter of Award (LOA) to TPSL.
  • December 29, 2021: MSEDCL files Case No. 15 of 2022 for tariff adoption.
  • March 11, 2022: MERC refuses to adopt the tariff at Rs. 2.62 and proposes Rs. 2.49 per unit.
  • April 4, 2022: TPSL files a Review Petition (Case No. 59 of 2022).
  • July 7, 2022: MERC adopts the tariff at Rs. 2.56 per unit.
  • August 3, 2022: MSEDCL and TPSL sign the PPA.
  • August 12, 2022: TPSL issues a Change in Law Notice to MSEDCL.
  • December 27, 2022: TPSL files a petition seeking compensation for the GST increase.

Issue Raised

The central issue was whether the increase in GST rates due to the MoF notification constituted a Change in Law event under the PPA, entitling TPSL to compensation.

Appellant’s Arguments and Respondent’s Arguments

  • TPSL’s Arguments: TPSL argued that the GST notification was a Change in Law event as it occurred after the bid submission deadline and directly impacted the project cost. They contended that they had complied with all PPA requirements for claiming compensation, including timely notification to MSEDCL. TPSL also cited previous rulings by other State Commissions recognizing similar GST notifications as Change in Law events.
  • MSEDCL’s Arguments: MSEDCL opposed TPSL’s claim, arguing that TPSL had factored in the increased GST rates when submitting their revised tariff of Rs. 2.56/kWh. They also claimed that TPSL’s Change in Law notice was issued beyond the stipulated timeframe. MSEDCL referenced a previous MERC order where a Change in Law claim was disallowed due to late notification.

Order

The MERC ruled in favor of TPSL, declaring that the GST notification constituted a Change in Law event under the PPA. The Commission determined that TPSL had adhered to the PPA’s procedures for claiming compensation and that the notification met the criteria for a Change in Law event. The MERC allowed TPSL’s request and stated that TPSL would be eligible to seek compensation for the increased expenses incurred due to the GST rate change.

Analysis

The MERC’s decision in this case reaffirms the importance of adhering to the terms and conditions outlined in PPAs, particularly concerning Change in Law events. The ruling establishes a precedent for how such events are interpreted and addressed within the context of renewable energy projects in Maharashtra. It also highlights the significance of timely notification and adherence to procedural requirements when seeking compensation for changes in law. The decision is likely to have implications for future renewable energy projects in the state, as it provides clarity on the treatment of GST rate changes and other similar events under PPAs.

[1] https://merc.gov.in/wp-content/uploads/2024/06/Order-in-Case-No.-241-of-2022.pdf