CERC clarifies treatment of GST changes on coal as Change in Law

The Central Electricity Regulatory Commission (CERC), in a suo motu proceeding in Petition No. 10/SM/2025, has issued directions on how generating companies should handle the financial impact of the abolition of the Goods and Services Tax (GST) Compensation Cess and the increase in the GST rate on coal. The Commission held that both developments qualify as separate Change in Law events under Power Purchase Agreements (PPAs) governed by Section 63 of the Electricity Act, 2003, and required a uniform method for calculating and passing the impact to beneficiaries.

The case arose from two Government of India notifications issued on 17 September 2025. Notification No. 9/2025-Central Tax (Rate) raised the GST rate on coal from 5 per cent to 18 per cent. Notification No. 2/2025-Compensation Cess (Rate) abolished the GST Compensation Cess of Rs 400 per tonne. Both came into effect from 22 September 2025. CERC stated that these statutory changes directly affect coal procurement costs and therefore fall within Change in Law provisions under applicable PPAs.

CERC observed that the two notifications have different financial effects. The GST increase raises landed coal costs while the removal of the Compensation Cess reduces them. The Commission directed that both impacts should be assessed separately. However, final tariff adjustments are to be settled on a net basis through monthly billing, either payable to or recoverable from distribution companies or beneficiary states.

The Commission clarified that eligibility for Change in Law claims will be based on the date of the coal invoice issued to the generating company. It will not depend on the date of receipt of coal at the power plant. The directive applies to all PPAs under Section 63, except for generating companies with captive coal mines. These include Sasan Power Ltd., NTPC, THDC, DVC, and NLC Ltd. For PPAs where the contractual cut-off date is 21 September 2025 or earlier, the impact on generation cost will be adjusted accordingly.

To maintain consistency with its earlier decision in Petition No. 13/SM/2017, CERC instructed generators to calculate the net effect of these statutory changes station wise and month wise. They are required to share complete details with beneficiary distribution companies along with a certificate from an independent auditor. The order requires generators to refund amounts where applicable. Any provisional billing adjustments must be reconciled in line with the Electricity (Timely Recovery of Costs due to Change in Law) Rules, 2021.

CERC also accepted submissions that cost claims must be supported through independent third party auditor certification. The petition has been disposed of, with the Commission stating that any dispute arising from implementation may be brought before it for resolution.

The featured photograph is for representation only.