The Central Electricity Regulatory Commission (CERC) has taken suo motu cognisance (on its own motion) of the recent statutory changes in the Goods and Services Tax (GST) structure for coal and has initiated proceedings (Petition No. 10/SM/2025) to determine the resultant impact on electricity tariffs.
The CERC Order, dated October 1, 2025, acknowledges that the abolition of the Compensation Cess and the increase in the GST rate on coal constitute a Change in Law event, requiring a uniform regulatory direction to adjust monthly tariffs and facilitate the settlement of dues.
Tax Changes Constituting ‘Change in Law’
The statutory changes, effective from September 22, 2025, are:
- Abolition of Cess: The Compensation Cess of ₹400 per Metric Ton (MT) on coal and lignite, which had been leviable since 2017, was abolished.
- GST Rate Increase: The GST rate on coal was simultaneously increased from 5% to 18%.
Impact and Regulatory Rationale
The CERC observed that these two statutory changes have offsetting impacts on the cost of coal procurement for generating companies:
- The increase in GST (5% to 18%) is cost-escalating on landed coal prices.
- The abolition of Compensation Cess (₹400/MT) results in a cost reduction.
The net impact on coal procurement cost varies depending on the coal grade and base price. Therefore, the CERC affirmed that this is a Change in Law event applicable to all Power Purchase Agreements (PPAs) that have a composite scheme for generation and supply and are covered under Section 63 of the Electricity Act, 2003.
Directions to Stakeholders
The Commission has directed the relevant generating companies and distribution licensees (Discoms) to file their written submissions regarding the impact of these changes.
- All PPAs where the original cut-off date is September 21, 2025, or earlier, are covered.
- The beneficiaries (Discoms) are entitled to the net impact (positive or negative) resulting from the abolition of the cess and the revision of GST rates where intra-State or inter-State movement of coal is involved.
- Parties are directed to file their written submissions within 10 days from the date of the Order. The CERC plans to hold a public hearing to finalize a uniform adjustment mechanism.