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CERC Classifies GST Reduction on Renewable Energy Equipment as a ‘Change in Law’, Orders Tariff Adjustments

The Central Electricity Regulatory Commission (CERC) has issued a suo motu order acknowledging the recent reduction in Goods and Services Tax (GST) on renewable energy equipment as a ‘Change in Law’ event. The Commission has instructed renewable energy generators and distribution companies (DISCOMs) to ensure the tax benefit is passed on through appropriate tariff revisions, ultimately benefiting consumers.

The Ministry of Finance had reduced GST on renewable energy devices and their components from 12% to 5%, effective September 22, 2025. According to CERC, this downward revision directly lowers project costs, making it eligible for consideration under the Change in Law provisions within power purchase agreements (PPAs).

CERC further highlighted that the benefit must reach DISCOMs and consumers, referencing Section 171 of the GST Act, which deals with anti-profiteering obligations. The order specifies that the revised tax rate applies to all renewable energy projects where the bid submission occurred before September 22, 2025, and where invoices or payments fall on or after the effective date of the GST cut. Developers will also be required to maintain a clear one-to-one linkage between each project, the procured supplies, and relevant invoices.

The Commission has asked both developers and DISCOMs to perform their own reconciliation of the financial impact before seeking regulatory approval for Change in Law claims, in accordance with the 2021 Change in Law recovery framework. RE generators must submit documentary evidence, certified by auditors, to substantiate the reduction in capital expenditure.

CERC also noted that this GST cut reverses earlier increases implemented in 2017 and 2021, which had raised rates on solar and other renewable components from 5% to 12%, resulting in several industry-wide Change in Law petitions.

With the new ruling, CERC has paved the way for tariff realignment across central and interstate renewable energy projects, ensuring that the GST savings translate into lower procurement costs and reduced consumer tariffs, while ensuring transparency and compliance across the value chain.