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
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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….
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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
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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
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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
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Indirect taxes – concessions and issues
Excise Customs Service tax CST/VAT/ Entry tax
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
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Indirect taxes – concessions and issues
Excise Customs Service tax CST/VAT/ Entry tax
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)
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Indirect taxes – concessions and issues
Excise Customs Service tax CST/VAT/ Entry tax
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
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Indirect taxes – concessions and issues
Excise Customs Service tax CST/VAT/ Entry tax
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
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Indirect taxes – concessions and issues
Excise Customs Service tax CST/VAT/ Entry tax
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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