Major CERC Judgement on Safeguard Duty Payment, Discount rate, Liability

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In a detailed 97 page order, the Central Electricity Regulatory Commission has passed an order that covers multiple petitions filed by 34 solar power developers, SECI itself, and involving multiple discoms across the country. The CERC was forced to move to this format as the queries were broadly the same, and required to be settled for clarity and to prevent any further redundant arguments. We list below the key issues as identified and summarised by the CERC, followed by the commissions response to each. The order was passed by a 4 member bench of the commission, chaired by P.K. Pujari, Chairperson. Considering the length and complication of the issues involved, and in the interest of timely dissemination, we will be holding off for adding any analysis to this order, as some of our readers always request. To view or download the full order, click here.

Issue No. 1: Whether the annuity methodology proposed by SECI is just and equitable and can be approved?

• The discount rate of annuity payments shall be 10.41% towards the expenditure incurred by SPDs on account of Change in Law (GST Laws or Safeguard Duty, as the case may be).
• The liability of SECI/ Discoms for ‘Monthly Annuity Payments’ starts from 60th (sixtieth) day from the date of orders in respective petitions or from the date of submission of claims by the Respondent (SPDs), whichever is later. In case of delay in the Monthly Annuity Payment beyond the 60th (sixtieth) day from the date of orders in respective petitions or from the date of submission of claims by the Respondent
  (SPDs), whichever is later, late payment surcharge for the delayed period Order in Petition No. 536/MP/2020 & Ors. corresponding to each such delayed Monthly Annuity Payment(s) shall be payable as per respective PPAs/PSAs.
• The “Tenure of Annuity Payments” shall be for 13 years.

The annuity payment liability shall be a part of the existing payment security mechanism as stipulated in the PPAs and already established under the PPAs by making suitable provision for the annuity payments.

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Issue No. 2: Whether interest cost on Customs Bonds executed by some SPDs is covered under Change in Law and whether it should be allowed to be recovered in lumpsum as a separate element?

• The prayer of SPDs that the interest on Customs Bond should be covered under Change in Law and should be paid in lumpsum as separate element is disallowed. Actual cash outflow (due to levy of safeguard duty) for which bonds have been executed will be
  payable and claims for Change in Law towards Safeguard Duty will be governed by orders in the petitions where the matter has been adjudicated.

Issue No. 3: Whether the cut-off date for payment of GST/Safeguard Duty claims in respect of orders passed by this Commission needs clarification?

• Cut-off date for Safeguard Duty Claims: The invoices related to supply of the goods can be raised only up to the COD for all the equipment as per rated project capacity that has been installed and through which energy has flown into the grid.
• Cut-off date for GST Claims: The invoices related to supply of the goods can be raised only up to COD for all the equipment as per the rated project capacity that has been installed and through which energy has flown into the grid. 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 30 day of COD.

Issue No. 4: Whether there is implication of taxes and duties levied by the appropriate Government on monthly annuity payment and whether the same should be allowed as pass through on actual basis?

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• The SPDs shall have to pay all statutory taxes, duties, levies and cases etc. On Monthly Annuity Payments that may be required to be paid as per the terms of PPAs.

Issue No. 5: Whether the principles decided in this Petition can be made applicable to all the current petitions pertaining to GST and Safeguard Duty pending before this Commission?

• Since the pending petitions were not tagged along with the current Petitions, no general Order can be passed.