'Discoms will have to pay Rs 2k cr to solar cos as GST claims'

State power distribution companies (discoms) will have to shell out nearly Rs 2,000 crore as one-time compensation towards GST impact to solar power developers, according to rating agency Icra.

The Central Electricity Regulatory Commission (CERC), in its order in October, had approved the claims raised by solar power developers related to the impact of introduction of the goods and service tax (GST) on their capital cost.

"The CERC has approved the claims under change in law and thus, allowed the relief which is required to be recovered as a one-time payment on GST front from the off-takers. Thus, the one-time compensation towards GST impact to be paid by discoms to solar power developers," Icra group head and senior vice-president - corporate ratings Sabyasachi Majumdar said.

Considering 75 per cent of the capacity commissioned during this period to be under the competitive bidding regime awarded prior to July 2017 (prior to introduction of GST), the one-time compensation towards GST impact is around Rs 2,000 crore on all-India level, he added.

Majumdar further noted that timely release of allowed compensation by the respective state-owned distribution utilities remains crucial.

According to Icra, about 10.9 gigawatt (GW) of solar power capacity has been commissioned between July 2017 and September 2018, with most of the projects being awarded prior to July 2017.

CERC has also stated that the developers must exhibit clear and one to one correlation between the projects, the supply of goods or services and the invoices raised by the supplier of goods and services backed by auditor certificate.

The commission directed the claims to be paid within 60 days of issuance of the order and any delays beyond this timeline would attract late payment surcharge as provided in the power purchase agreements.

However, the claims related to impact of GST on operation and maintenance expenses was not allowed by CERC.

The GST council has approved 5 per cent rate for solar photovoltaic (PV) generating systems, as against the prevailing regime of exemption from excise duty and customs duty as well as exemption or concession VAT rates across various states.

Majumdar said while CERC in its order has allowed the applicable GST at 5 per cent on the PV modules, there continues to be an ambiguity on GST rate applicable on PV modules supply under EPC contract given the recent ruling of 18 per cent GST on solar EPC projects by Authority of Advance Ruling (AAR) in Maharashtra.

In this context, according to her, the clarity is required on the applicable GST rate on PV modules for the sector.