The Goods and Services Tax on Renewable Energy Certificates has left the clean energy industry scratching its heads. Industry bodies say that it is unusual for the trade of RECs to attract a GST when the trade of electricity does not.
A wind industry sector watcher said, “Since there is no GST on the trade of power, why is there a tax on RECs?” What worries industry further is the confusion regarding the rate at which RECs are being taxed.
According to a circular from the Indian Energy Exchange (IEX), the country’s largest platform for spot trade of power, to its consumers, “The CBEC, GST (Policy Wing) vide its letter dated January 4, 2018, has clarified that the Goods & Service Tax is applicable on the Renewable Energy Certificates (RECs), however, the rate and HSN number applicable was not mentioned.”
If HSN is not mentioned the applicable tax rate cannot be determined. However, on its part IEX has clarified to its consumers that their own consultants have opined that RECs are document of title and therefore are covered under the HSN Code 4907 0090 —liable for GST at 12 per cent.
“Since January we started collecting price of the REC and the supposed tax rate from the buyers,” an IEX official told BusinessLine.
The Supreme Court had allowed the trade of non-solar RECs in July last year. Since then the trade of RECs on the exchange grew steadily to a record high of 32.39 lakh transactions during December 2017 alone. At a price of ₹1,500 per certificate, the trade was worth nearly ₹485.87 crore.
But in January, after the GST was levied, the trade of RECs crashed to 1.82 lakh or worth just ₹2.7 crore. Trade remained tepid with 3.90 lakh certificates traded in February. There was a recovery in March with 20.79 lakh RECs traded worth ₹311.96 crore.
Further complicating is a circular from the Ministry of Finance issued on March 1 regarding the Priority Sector Lending Certificates (PSLCs) that has vexed the industry. The Finance Ministry has categorised PSLCs as goods that are similar to Renewable Energy Certificates and others. The Ministry has also said that they are taxable at 18 per cent. “This clarification has caused some confusion about the rate applicable on the RECs and few members of the exchange have raised queries whether 18 per cent GST rate is also applicable on the REC,” IEX said.