CERC Favors Mahindra Renewables in Dispute With MPPMCL and DMRC

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The Central Electricity Regulatory Commission (CERC) recently gave a judgement in favour of Mahindra Renewables Private Limited, accepting most of its pleas for compensation from M.P. Power Management Company Limited (MPPMCL) and Delhi Metro Rail Corporation (DMRC) on account of a ‘Change in Law’ event in the power purchase agreement (PPA) executed among the three parties in 2017.

Following the development of one unit of 250 MW capacity of the 750 MW solar project in Rewa District in Madhya Pradesh, Mahindra Renewables submitted to CERC that the imposition of the Goods and Services Tax (GST) Laws is a ‘Change in Law’ event under the PPA, rendering the firm to be entitled to relief on account of it. Thus, Mahindra Renewables petitioned CERC to direct MPPCL and DMRC to pay the claimed amount along with carrying cost.

Mahindra Renewables argued before CERC that the issues involved in its petition were already covered by the commission’s earlier orders relating to Change in Law arising out of enactment of GST Laws, stating that with respect to similar cases in the past, the commission had directed the beneficiaries, including MPPMCL and DMRC, to pay compensation on account of GST Laws on a one-time basis. Since the amount in question in its petition is very small, similar dispensation may also be adopted, requested Mahindra Renewables.

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DMRC submitted that while the issues involved in the present case had already been dealt with by CERC in its earlier decisions, the commission had disallowed the claims in respect of impact of GST Laws on O&M expenses and carrying cost in those cases.

CERC agreed with Mahindra Renewables regarding compensation on account of Change in Law due to GST Laws, but also directed the petitioner to make available to MPPMCL and DMRC all relevant documents exhibiting clear and one to one correlation between the projects and the supply of goods or services, duly supported by relevant invoices and Auditor’s Certificate with respect to claims (subject to threshold limit).

The commission also directed MPPMCL and DMRC to reconcile the claims for Change in Law on receipt of the relevant documents and pay the claimed amount (subject to threshold limit). The commission further noted that the quantum of compensation on account of introduction of GST Laws w.e.f. 01.07.2017 should be discharged within 60 days from the date of issue of CERC’s order or from the date of submission of claims by the petitioner, whichever is later, failing which the respondents (MPPMCL and DMRC) will attract late payment surcharge at the rates provided for in the PPAs.

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“Alternatively, the Petitioner and the Respondents may mutually agree to a mechanism for the payment of such compensation on annuity basis spread over a period not exceeding the duration of the PPAs as a percentage of the tariff agreed in the PPAs,” said CERC.

However, CERC rejected Mahindra Renewables’ prayer to receive GST on the O&M expenses. Agreeing with DMRC, CERC stated, “Since the PPAs in this case do not have a provision dealing with restitution principle of restoration to the same economic position, we hold that the claim regarding ‘carrying cost’ is not admissible.”

Additionally, the commission noted that there couldn’t be any invoice under law, post the supply of goods as goods were not exempted under CGST Rules, 2017. In such cases where the invoices are not raised, the date of the delivery of goods becomes the point of taxation for the supply of goods, said CERC.

Thus, the commission concluded that invoices for the supply of goods raised up to the Commercial Operation Date (COD) can be claimed by Mahindra Renewables under Change in Law on account of the GST Laws since MPPMCL and DMRC are liable to pay for the purchase of power from the petitioner from COD onwards.

There is a possibility of a few services related to goods procured up to COD to be completed on the last date of COD, added CERC. “Hence, in case of ‘supply of services’ related to goods procured up to COD completed on the last day of COD, the invoices can be raised within 30 days after COD. Thus, in case of supply of services related to goods procured up to COD, the invoices are to be raised within 30 days of supply of such services, which cannot be later than 30th day of COD and the Petitioner is entitled to be compensated accordingly,” noted the commission in its judgement.