CERC orders tariff adjustments after GST cut on renewable energy equipment

The Central Electricity Regulatory Commission has issued a suo motu order acknowledging the recent cut in the Goods and Services Tax on renewable energy devices and components. The order, released on November 4, 2025, follows the Ministry of Finance notification that lowered the GST rate from 12 per cent to 5 per cent from September 22, 2025.

The Commission opened this proceeding on its own because the tax change affects project costs for renewable energy developers. It relied on its powers under Section 79 of the Electricity Act, 2003, which allow it to handle tariff issues and disputes linked to a Change in Law. The Commission has treated earlier GST revisions in the same way.

In 2021, the GST on renewable energy devices was raised from 5 per cent to 12 per cent through Notification No. 8/2021. The Commission classified that increase as a Change in Law. The new cut under Notification No. 9/2025 has now reversed the 2021 hike and restored the original 5 per cent rate.

The order traces the full GST history. In 2017, renewable energy devices were first taxed at 5 per cent under Notification No. 1/2017. The 2021 revision pushed this up to 12 per cent. The 2025 notification has returned the rate to 5 per cent. The Commission also restated the rules for composite supplies, where equipment and services are bundled. Under earlier GST Council decisions, 70 per cent of the contract value is treated as goods and 30 per cent as services.

The Commission explained that the applicable GST rate depends on the date of invoice or the date of payment, whichever happens first. The reduced 5 per cent rate will apply when the bid was submitted before September 22, 2025, but the invoice or payment comes on or after that date. The Commission stressed that developers must clearly link each project, supply, and invoice to prove the tax impact. Tariffs must then be adjusted or refunded to reflect the lower cost.

The Commission also set directions for renewable energy generators and distribution companies. If procurement, commissioning, commercial operation, or scheduled commercial operation happens on or after September 22, 2025, and the bid was submitted before that date, the parties need to factor in the GST reduction. They must complete this reconciliation before seeking a formal tariff adjustment under the Change in Law rules. This process follows the Electricity Timely Recovery of Costs due to Change in Law Rules, 2021.

Developers need to submit documentation to the distribution companies along with an Auditor certificate to show the reduction in expenditure for each project. This ensures that the tax benefit is passed through in line with Section 171 of the Central Goods and Services Tax Act, 2017.

The order sets out a clear method for incorporating the GST reduction into tariffs. It provides certainty for ongoing and upcoming renewable energy projects and ensures that the financial benefit flows to consumers.

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