SujitGhosh5-BMR[1]

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T a x a n d R e g u l a t o r y



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Sujit Ghosh

Executive Director, BMR & Associates

Indirect taxes in the context of Ultra Mega & MegaPower Projects

Conference on

EPC contracts Tax and Legal Imperatives

18 - 19 May 2007 | Hotel Imperial | Janpath | New Delhi | India



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POLICYBACKGROUND



All rights reservedIndirect taxes in the context of Ultra Mega & Mega Power Projects | 4

Policy background

1995

Policy for Mega Power Projects (“MPP”) formulated by the Ministry of Power

Policy provided that interstate power projects exceeding capacity of 1000 MWwould qualify as MPPs

No fiscal incentives contemplated

1999

Fiscal incentives notified by Department of Revenue, Ministry of Finance

Customs notification provided BCD and CVD exemption for goods required forsetting-up of specified interstate MPP of a capacity of 1500 MW or more (in case ofthermal power plant) or 500 MW or more (in case of hydel power projects)



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ULTRA MEGAPOWER PROJECTS

– STORY SO FAR….




Ultra Mega Power Projects

Generation type State Location

Pithead locations based on domestic coal Madhya Pradesh Sasan

Chattisgarh Akaltara

Orissa Bhasma

Jharkhand

Coastal locations based on imported coal Gujarat Mundra

Maharashtra Giriye

Karnataka Tadri

Andhra Pradesh Krishnapatnam

Tamil Nadu

Blueprint




Ultra Mega Power Projects

Pithead locations based on domestic coal Status

Madhya Pradesh Sasan Bid awarded to LANCO, presently under disputeChattisgarh Akaltara SPV formed, project held due to state’s demand of

free power

Orissa Bhasma SPV formed, consultants appointed, stategovernments confirmation on land availability awaited

Jharkhand RFQ submissions made on April 10, 2007, fast track

Coastal locations based on imported coal Status

Gujarat Mundra Bid awarded to Tata Power, contract with Doosansigned for supply of super critical boilers anddevelopment of ancillary civil structure

Maharashtra Giriye SPV formed, state government confirmation awaitedon local issues

Karnataka Tadri SPV formed, state government confirmation awaitedon local issues, fast track

Andhra Pradesh Krishnapatnam SPV formed, Feasibility Report & REIA ready

Wheels in motion



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INDIRECT TAXES –CONCESSIONS AND

ISSUES




Indirect taxes – concessions and issues

Excise Customs Service tax CST/VAT/ Entry tax

Benefits – Onshore supplies

Deemed Export benefit

– Refund of terminal excise duty (non ICB projects)

– 700 MW or more in the state of Jammu & Kashmir – Non ICB?

– Would the manufacturer lose its credit?

Issues

All goods supplied against International Competitive Bidding to be exempt fromExcise duty, provided that the goods are exempted from BCD and ACD

Deemed Export Benefits (excise concessions, drawback & advance authorization) toMain as well as Subcontractor






Benefits – offshore supplies (Project benefits)All goods required for setting up a Mega Power Project to be eligible for import atNIL BCD and CVD. Exemption available to:

– An interstate thermal power plant of 700 MW or more in the state of Jammu & Kashmir orin any of the 7 north eastern states

– For all other states, exemption available for a 1000 MW interstate thermal power plant – An interstate hydel power plant of 350 MW or more in the state of Jammu & Kashmir or in

any of the 7 north eastern states

– For all other states, exemption available for a 500 MW interstate hydel power plant






Above exemption subject to the condition that:

– Joint Secretary or higher ranked officer in the ministry of Power to certify that :

• The power purchasing state has set up a Regulatory Commission to fix tariffs;

• The power purchasing state has undertaken to privatize distribution in all the cities which

have a population of more than 1 million, within a fixed period – In the case of imports by a PSU, the details of the imported goods to be certified by the

Chairman and the Managing Director; and

– In case of a private sector project, the details of the imported goods to be certified by theChief Executive Officer of the project

Benefits – offshore supplies (Project benefits)






Exemption for Mega Power Plants - Meeting conditions

– The power purchasing state privatizing distribution in all the cities which have a population ofmore than 1 million, within a fixed period

– Who must be the importer?

– Does it extend to construction equipment also? – Integrated Mines – would they be eligible – Dabhol experience

– Does it extend to Transmission facility

Stand alone duty exemptions for Coal mining projects under Project Imports &Transmission facility

Issues






Optimization of Service tax cost critical - Service tax on services to Mega PowerPlant is neither exempt nor creditable

If, construction & operation of coal mine outsourced, likely impact of service tax onthe project – would need careful planning

Concept of Reverse Charge on service recipient & rules governing import andvaluation of services

33% basis or split basis of valuation ! – must be analyzed along with Deemed

Export BenefitService tax on Inland Services

Benefits - NONE

Issues - MANY






Optimization of VAT & CST critical – These are generally not exempt norcreditable for Mega Power Plant

In-transit sales v Works contracts & interplay of Deemed Exports

Taxability of Imports and contract formulations

Withholding tax obligations of the Project Owner

Form C for power generation – direct v indirect deployment

Royalty on Coal ?

Entry tax exemption for Mega Projects – Does it apply to Mega Power plants as

well?Entry tax does it apply on pre commencement of business or only on imports duringthe course of business

Issues

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