GST Rate Change: APTEL Upholds Rights Of Solar Firms For Relief

GST Rate Change: APTEL Upholds Rights Of Solar Firms For Relief

The Appellate Tribunal for Electricity (APTEL) has reaffirmed solar developers’ right to compensation for additional expenses under the Goods and Services Tax (GST), including outsourced operation and maintenance (O&M) costs. In a key judgment that aligns with its earlier Parampujya ruling, the apex agency gave the ruling. However, the tribunal remanded the matter to the Central Electricity Regulatory Commission (CERC), citing a pending appeal before the Supreme Court.

The case involves a batch of appeals filed by solar power developers against CERC’s denial of “Change in Law” compensation related to the implementation of GST from July 1, 2017. The developers challenged the Commission’s refusal to allow claims for increased O&M expenses and carrying costs due to the new tax regime.

CERC’s No To O&M Costs

CERC had acknowledged the introduction of GST as a Change in Law event under Article 12 of the Power Purchase Agreements (PPAs) and permitted compensation for increased engineering, procurement and construction (EPC) costs. However, it rejected claims for increased O&M costs, citing the outsourcing of such services as a commercial choice that could not burden the procurers. CERC also declined carrying cost claims, citing the absence of specific restitution clauses in the PPAs.

APTEL rejected CERC’s reasoning, relying heavily on its September 2022 judgment in Parampujya Solar Energy Pvt. Ltd. vs. CERC, which had settled similar issues. The tribunal held that recurring O&M costs—whether incurred directly or through outsourcing—fall under the Change in Law clause.

“Outsourcing is a legitimate commercial arrangement and not restricted under the PPAs,” APTEL said, noting that CERC’s rejection of these claims had already been disapproved in the Parampujya judgment. It also observed that both the CERC and Bihar regulator had subsequently granted similar relief in other matters following tribunal directions.

Change In Law Applicable For O&M Too

APTEL further dismissed arguments that the Change in Law clause only applied to project setup costs or direct impacts on tariffs. It held that GST on O&M services directly affects the cost structure and is thus eligible for relief.

On the issue of carrying costs—compensation for delayed payment—APTEL reaffirmed that such costs are integral to Change in Law relief. It cited the Parampujya ruling, Article 12.2.2 of the PPAs, and the Supreme Court’s verdict in South Eastern Coalfields Ltd v. State of MP, all of which support compensating developers for delays to restore financial neutrality.

“Relief without carrying costs would render Change in Law compensation economically ineffective,” APTEL said, also citing competitive bidding guidelines that reinforce this principle.

Remand Due to Supreme Court Stay

Despite siding with the developers, APTEL noted that the Parampujya ruling is under appeal before the Supreme Court (Civil Appeal No. 8880 of 2022). The apex court, while directing CERC to comply with Parampujya, also stayed the enforcement of any final order arising from it.

In line with this, APTEL set aside the impugned CERC orders and remanded the matters for fresh consideration. CERC has been directed to re-examine the claims in light of the Parampujya ruling and APTEL’s present observations.

However, the tribunal made clear that any final order issued by CERC on remand will remain unenforceable until the Supreme Court rules on the pending appeals.