Power companies challenge GST on green certificates

Power companies challenge GST on green certificates

Are renewable energy certificates, bought by power companies, goods or services?

Neither. And so, must be out of the indirect tax ambit, according to power companies which have suffered higher costs because of the Goods and Services Tax (GST).

The power companies that buy these certificates to comply with the environmental norms challenged the levy through a write petition filed in the Delhi High Court on Tuesday.

Power companies buy these certificates from renewable energy exchanges to abide by government norms that mandate that a certain percentage of power generated should be through renewable sources.

The certificates are derivatives based on the power generated in green route. Most power generators buy renewable energy from their green peers, sometimes based abroad. These certificates also work as a source to buy the balance quantity of renewable energy that cannot be bought or generated directly by the power firms.

“The taxability of renewable energy certificates has been challenged as these are securities which are excluded from both goods and services. These scrips are traded every Wednesday on IEX (Indian Energy Exchange) and PXIL (Power Exchange India), the two exchanges for the trading purposes,” said Abhishek A Rastogi, partner, Khaitan and Co.

According to the power companies, a government circular that came out in June last year added to their woes. It talked about the applicability of GST on the renewable energy certificates at 12%. “It is hereby clarified that Renewable Energy Certificates (RECs) and Priority Sector Lending Certificates (PSLCs) and other similar documents are classifiable under heading 4907 and attract 12% GST,” it read.

“Taxing renewable energy certificates will prove to be fatal for the power consumers by further increasing the cost of electricity. The regulatory obligations to consume renewable energy as a part of the climate change initiative to control global warming and the taxability can only be decided by the court,” said Harry Dhaul, director general of the Independent Power Producers Association of India (IPPAI).

“The circular provides for the taxability of renewable energy certificates and it will have to be determined in light of the statutory provisions,” said Rastogi.

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Source: Economic Times.

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