Navigating Regulatory Changes: Impact Of Duties And Taxes On 120 MW Solar Projects In Gujarat

Summary

M/s ABRel SPV 2 Limited (the Petitioner) filed a petition under Section 86 of the Electricity Act, 2003, and Article 9 of the Power Purchase Agreement (PPA) against Gujarat Urja Vikas Nigam Limited (the Respondent).[1] The Petitioner requested a declaration that the imposition of a 40% Basic Customs Duty (BCD) on solar PV modules from 1st April 2022 and a change in the Goods and Services Tax (GST) rate from 5% to 12% on various solar plant equipment from 1st October 2021 constitute “Change in Law” events. The Petitioner sought compensation for the additional costs incurred due to these changes.

Case Timeline

• 30th January 2021: The Petitioner and Respondent entered into a PPA for the supply of 120 MW of solar power.
• September 2021: The government of India increased the GST rate applicable to solar modules from 5% to 12%.
• 1st April 2022: The government of India imposed a 40% BCD on the import of solar PV modules.
• 21st February 2024: The matter was heard.
• 6th July 2024: The daily order was issued.

Issue Raised

Whether the imposition of a 40% Basic Customs Duty (BCD) on solar PV modules and the increase in the Goods and Services Tax (GST) rate from 5% to 12% on various solar plant equipment constitute “Change in Law” events under the PPA, and whether the Petitioner is entitled to compensation for the additional costs incurred due to these changes.

Appellant’s Arguments

• The Petitioner argued that the imposition of BCD and the increase in GST rate are “Change in Law” events as per the PPA.
• The Petitioner contended that it is entitled to compensation for the additional costs incurred due to the increased BCD and GST rates, including carrying costs.
• The Petitioner asserted that it had considered the 5% GST rate applicable at the time of bidding and that the subsequent increase to 12% significantly impacted project costs.
• The Petitioner claimed that it had to import solar panels within the extended deadline due to the COVID-19 pandemic and that importing them earlier would have resulted in additional storage and insurance costs.

Respondent’s Arguments

• The Respondent argued that the issue of “Change in Law” must be decided in accordance with the specific terms of the PPA and that only events qualifying under Article 9 of the PPA are entitled to relief.
• The Respondent contended that the Petitioner was aware of the project import scheme, which allowed for a concessional rate of 5% BCD for certain projects, and should have imported the solar modules under this scheme.
• The Respondent claimed that the change in GST rate should not be considered a “Change in Law” event as per the PPA and that the Petitioner is not entitled to any relief for the increased GST costs.
• The Respondent asserted that even if the Petitioner were entitled to compensation, it could only claim the impact of the increased tax or duty with supporting documents and that it could not claim any compensation for expenditures related to interest or penalties.

Order

The Commission directed the Petitioner to submit documents supporting its claim for compensation, including invoices, payment details, and auditor’s certificates. The Commission also directed the Petitioner to provide details of documents establishing a one-to-one correlation between BCD and IGST/GST paid on imported solar modules/inverters. The Respondent was given an opportunity to respond to the Petitioner’s submissions.

Analysis

The case revolves around the interpretation of the “Change in Law” clause in the PPA and the eligibility of the Petitioner for compensation due to the imposition of BCD and the increase in GST rate. The Petitioner’s arguments focus on the unexpected nature of these changes and the resulting financial burden on the project. The Respondent’s arguments emphasize the Petitioner’s awareness of the project import scheme and the specific terms of the PPA regarding “Change in Law” events. The Commission’s order indicates a need for further documentation and analysis to determine the validity of the Petitioner’s claims and the appropriate compensation, if any.

[1] https://gercin.org/wp-content/uploads/2024/07/2187-of-2023-06072024.pdf