The introduction of GST, which standardized India’s erstwhile tax regime plagiarized with cascading tax structure, was seen in business circles as a business-friendly tax regime and was touted as a major push towards foreign investment. However, not all sectors were equally impressed at the time. This included the Solar industry which has raised periodic concerns on GST rates on Solar projects which stood to derail the present Central Governments megaplan of producing 100 gigawatts of electricity from solar projects by 2022. A few major concerns of the industry include :
- Ambiguity on GST rate structure and increase in input costs that increase overall cost.
- Tax-inclusive contracts continuing from the pre-GST regime
- Shortage of working capital due to high GST rate on procurements
- Redundant GST inputs as Solar Power Plants considered as a Work Contract under GST and hence liable to pay GST on Work Contract only and not inputs.
The GST on solar power generating systems and raw material used (including modules) has fixed at 5 percent. But other integral building materials like cement 28%, inverter and cables attract 18 percent GST. Also if the ambiguities on SPGS qualifications were not enough, various services such as works contract service and technology used in setting up a solar power plant are taxed at 18%. However, contract works mostly pertain to equipment value only. Further, the cost incurred on projects in the pre-GST regime avait reimbursement approvals. Unless these costs are also refunded most projects fear derailment as well as the complete halt for some.
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Amidst all the chaos, a recent notification by the Central Electricity Regulatory Commission (CERC) tries to put the working capital issue to rest by covering the cost of new solar power projects under the new ‘Change in Law’ clause of power contracts. This will allow solar project developers to recover paid GST as a separate element on “one-time basis in a time-bound manner”.
The Petitions
The CERC decision comes in light of the applications filed by Azure Power and Prayatna Developers. The petition requested CERC to declare GST as a change in the law. This would allow considering the GST levied as part of the cost. Prayatna Developers which is also a subsidiary of the Adani group had requested CERC to make tariff adjustments and restore the petitioner accounts to the same state as in the pre-GST regime. Azure, on the other hand, requested a one-time compensation of Rs 650 million from Solar Energy Corporation of India (SECI) and Uttar Pradesh Power Corporation Limited (UPPCL) against its projects in UP.
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The one-time compensation to cover for increased input costs due to GST transition needs to be claimed from the respective state/central ERC. As for the future projects, project developers can now include GST as the legitimate part of the cost structure while bidding for projects.
