The Gujarat Electricity Regulatory Commission (Gandhinagar) reaffirmed that the imposition of new or increased statutory duties and taxes on all inputs costs necessary for generation and sale of electricity after the bid submission date constitutes a Change in Law event under the Power Purchase Agreement (PPA) in line with principles of business efficacy, and that affected generators are entitled to compensatory relief to preserve the financial equilibrium of their projects.
To reinforce the investor confidence in India’s renewable energy sector, particularly in the context of cost pass-through and tariff stability for long-term PPAs, the Commission emphasised that if the deviation in bidding documents is accepted after issuance of the letter of award to the successful bidder, then it would inevitably create pragmatic difficulties. In such cases, by the time of tariff approval, the bidding process would have already been concluded, and bids would have been submitted based on unapproved deviated provisions.
The Commission pointed out that approving such deviations during the tariff proceedings would undermine the entire purpose of Section 63 of the Electricity Act, 2003.
Therefore, the Commission held that the Customs Notifications imposing Basic Customs Duty (BCD) on solar inverters constitute Change in Law events under Article 9 of the PPA and allowed the claim of Juniper Green Three (petitioner/ renewable energy developer) in full, while observing that the increase in GST on solar modules and inverters also qualifies as a Change in Law event since the same are essential inputs for generation and sale of electricity. The Commission thus granted a restitutionary relief of Rs. 41.84 crores while disallowing Rs. 2.26 crores claimed towards other balance-of-system equipment.
The Commission also granted carrying cost at 8.89% from the date of actual payments made by the petitioner/ developer to the statutory authorities till the Scheduled Commercial Operation Date (SCOD) of the project, and computed the total impact of the Change in Law as an incremental tariff of Rs. 0.12 per kWh. The Commission accordingly directed that the petitioner may raise supplementary bills on Gujarat Urja Vikas Nigam Limited (GUVNL – respondent) for recovery of the incremental tariff, with GUVNL being liable to make payment within the prescribed timelines under the PPA.
The Commission, however, cautioned that failure of the GUVNL in making payment within the prescribed timelines under the PPA would attract a late payment surcharge. Resultantly, the effective tariff for the petitioner’s project was enhanced from Rs. 2.63 per unit to Rs. 2.75 per unit for the entire tenure of the PPA.
The Members of the Commission, comprising Mehul M. Gandhi and S.R. Pandey, observed that when the tariff is determined through the competitive bidding process under Section 63 of the Electricity Act, 2003, then the Commission can approve the same only if it is determined in accordance with the guidelines issued by the Central Government read with Standard Bidding Guidelines (SBD) and deviation in it if any approved by the Commission.
From a plain reading of the nature of the query raised by the bidders, which is related to an increase in the cost of the project, including GST, the Bench noted that the use of the term ‘such as’ and ‘etc.’ is of significant importance as it clearly denotes that the treatment of the ‘Change in Law clause’ is not merely limited to antidumping duty, safeguard duty and customs duty but extends to any other form of such duty, tax or levy.
Further, the use of the words “is also covered under ‘Change in Law’” in the second sentence of the clarification clearly indicates that imposition of any tax or surcharge or levies is covered in addition to the wide gamut of taxes and duties as indicated in the first sentence and in line with the Bidding Guidelines, added the Bench.
The Bench pointed out that when the bid clarifications provide a written interpretation of the tender documents to any bidder, then the parties have to rely solely on the written communication. If there is no requirement for revision or amendment to the bid documents for every clarification, the respondent cannot seek to renege on its own written clarifications that have formed the basis of the bidding process.
Since the respondent is the author of the PPA as well as the clarifications issued thereupon, the principle of contra proferentem will be applicable in the event the respondent now wants to read the bid documents and the PPA differently from that in the bid clarifications, which otherwise are clear in terms of language, clarified the Bench.
The Bench went on to note that the levy of GST is introduced by the Central Government by way of enactment in the Parliament, and also decided that the rates of GST in the form of GST and IGST are applicable on goods and services. The Government has also amended the rates of GST, IGST on applicable goods and services by following the legal procedures. It is like the imposition of duties under the Customs Act by the Central Government. IGST is also one type of levy of tax, like the levy of customs duty on solar modules imported, like BCD plus SWS and value of material in the context of the present PPA.
The word used in the clarification is “etcetera”, and any imposition of tax or surcharge on levies of generation of electricity leviable on the final output in the form of energy or sale of electricity is also covered under a change in law as per the PPA. Similarly, the levy of IGST on solar modules on which SGD, BCD and antidumping duty, SWS applicable, added the Bench.
Briefly, Juniper Green (the petitioner), the developer of a 190 MW solar photovoltaic power project in Gujarat, was awarded through a tariff-based competitive bidding process under the Gujarat Solar Policy, 2015. Two key fiscal changes occurred after the bid submission date of 7 March 2020. Firstly, a Basic Customs Duty was imposed on solar inverters pursuant to Notifications No. 03/2021-Customs and 07/2021-Customs dated February 01, 2021, and secondly, the GST rates on solar modules and other solar power generating equipment were increased from 5% to 12% under Notification No. 8/2021-Integrated Tax (Rate) dated September 30, 2021. The petitioner challenged these fiscal changes, contending that these changes, being beyond its reasonable control, had a direct financial impact on project cost and thus qualified as Change in Law events under the PPA, warranting restitution so as to restore the company to the same economic position as if the events had not occurred.
Appearances:
Advocates Hemant Sahai, Nitish Gupta, Rishabh Sehgal, Varnaika Tyagi, Shivani Uppal, and Shailesh Shekhar, for the Petitioner
Advocates Ranjitha Ramchandran, Utkarsh Singh, Shristi Kindaria, Bhavani, and Vaishali Dalal, for the Respondent
