The Uttar Pradesh Electricity Regulatory Commission has passed a suo motu order in Petition No. 75/SM/2026 dealing with the impact of reduction in GST rate on renewable energy devices and parts used in projects under the PM-KUSUM Component-C2 Scheme. The issue before the Commission was whether the reduction in GST from 12% to 5%, effective from 22 September 2025, should affect tariffs under Power Purchase Agreements already executed for such solar projects.

PM-KUSUM Component-C is aimed at solarisation of grid-connected agricultural pumps and feeder-level solarisation. Under Component-C2, project developers were selected through tariff-based competitive bidding for supplying solar power for 25 years. In Uttar Pradesh, bidding documents for procurement of 3,205 MW of grid-connected solar power were earlier approved by UPERC, with a ceiling tariff of Rs. 2.99/kWh. Subsequently, the procurement quantum was revised to 2,553.5 MW, and Letters of Award were issued to successful bidders between February and July 2025.

What Changed?

At the time of bid submission, the applicable GST rate on renewable energy devices and parts was 12%. Later, Notification No. 9/2025-Central Tax (Rate), dated 17 September 2025, reduced the rate to 5% with effect from 22 September 2025. This covered renewable energy devices and parts, including solar power-based devices, solar power generating systems and photovoltaic cells, whether or not assembled into modules or panels.

Since the last date of bid submission was 9 January 2025, the GST rate reduction occurred after the bidders had already quoted their tariffs. The Commission therefore examined whether this post-bid tax change would fall within the “Change in Law” clause contained in the approved PPAs.

UPERC’s Findings

UPERC noted that Article 12 of the PPA specifically covers any change in the rate of taxes, duties or cess, or introduction of a new tax, after the last date of bid submission, where such change has a direct effect on the project. The PPA also provides that if a Change in Law results in financial gain or loss, the affected party should be placed in the same financial position as if the change had not occurred.

On this basis, the Commission held that the reduction in GST from 12% to 5% has the effect of lowering the cost of procurement of renewable energy devices and components. Consequently, it reduces the overall capital cost of renewable energy projects, including those implemented under PM-KUSUM Component-C2. UPERC declared the GST rate reduction to be a “Change in Law” event under the PPAs.

Importantly, the Commission also held that the financial benefit arising from such reduction is required to be passed on to the procurer, namely UPPCL, and ultimately to end consumers. The order therefore does not merely recognise a tax change; it ensures that the economic benefit of that tax change is captured in tariff determination.

Applicability of the Benefit

UPERC clarified that the benefit is not automatic in every case. The revised GST rate would apply to projects where the bid submission date was prior to 22 September 2025 and either the invoices for goods or services were raised on or after 22 September 2025, or the consideration and tax were paid on or after that date. This applies irrespective of whether the consideration was paid wholly or partly.

The Commission also emphasised that there must be a clear one-to-one correlation between the project, the relevant supply of goods or services, the invoices raised and the applicable PPA. In other words, developers cannot claim a generalised benefit. The benefit must be supported through project-specific documentation.

Mechanism Prescribed by UPERC

To implement the order, UPERC directed constitution of an Expert Committee for each DISCOM. The committee will include representatives from UPNEDA, UPPCL, the concerned DISCOM and a finance officer from the DISCOM. Within 45 days from the Commercial Operation Date, each project developer must submit calculations of the impact of the GST reduction along with supporting documents.

The Expert Committee will undertake a project-wise assessment of executed PPAs. The assessment must be based on documentary evidence such as invoices, payment details, applicable GST rates and auditor certificates. The Committee will then determine the revised tariff for each project based on the actual benefit accruing from the GST reduction.

After this exercise, UPPCL will execute supplementary PPAs for the agreed revised tariff and approach the Commission for prudence check and approval. UPPCL has also been directed to prepare a standardised format for collection of data required for computing the GST impact. The entire assessment and submission of project-wise details must be completed within 90 days from the Commercial Operation Date of the respective project.

Significance of the Order

The order is significant because it highlights the commercial impact of GST changes in long-term infrastructure contracts. A GST rate reduction is not merely a compliance update; in regulated sectors, it can alter project cost assumptions, trigger contractual clauses and require tariff reworking.

For project developers, the ruling makes it clear that tax benefits arising after bid submission cannot be retained as unintended gains where the PPA framework requires pass-through. For procurers and consumers, it provides a mechanism to ensure that reduced tax incidence translates into lower tariff burden.

From a GST and contract management perspective, the decision reinforces three important principles. First, “Change in Law” clauses must be read commercially and not mechanically. Second, GST notifications can have direct implications on pricing and project economics. Third, any benefit or burden arising from tax changes must be supported by clear documentation and project-level reconciliation.

Conclusion

UPERC’s order brings regulatory clarity to the treatment of GST rate reduction under PM-KUSUM Component-C2 PPAs. By recognising the reduction from 12% to 5% as a Change in Law event, the Commission has ensured that the benefit is passed through in a structured and verifiable manner.

The ruling is also a reminder for businesses executing renewable energy, EPC and infrastructure projects to closely review tax change clauses in their contracts. In long-term projects, GST rate amendments may not end with tax computation; they can influence tariff, recovery, cash flows and contractual obligations.