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Tax and Regulatory

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Indirect taxes in the context of Ultra Mega &stock here Insert picture from Mega Power Projects

Conference on EPC contracts Tax and Legal Imperatives 18 - 19 May 2007 | Hotel Imperial | Janpath | New Delhi | India

Sujit Ghosh Executive Director, BMR & Associates

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POLICY BACKGROUND

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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 MW would 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 for setting-up of specified interstate MPP of a capacity of 1500 MW or more (in case of thermal power plant) or 500 MW or more (in case of hydel power projects)

Indirect taxes in the context of Ultra Mega & Mega Power Projects

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ULTRA MEGA POWER PROJECTS STORY SO FAR.

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Ultra Mega Power Projects

Blueprint
Generation type Pithead locations based on domestic coal State Madhya Pradesh Chattisgarh Orissa Jharkhand Coastal locations based on imported coal Gujarat Maharashtra Karnataka Andhra Pradesh Tamil Nadu Mundra Giriye Tadri Krishnapatnam Location Sasan Akaltara Bhasma

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Ultra Mega Power Projects

Wheels in motion
Pithead locations based on domestic coal Madhya Pradesh Chattisgarh Orissa Jharkhand Coastal locations based on imported coal Gujarat Mundra Sasan Akaltara Bhasma Status Bid awarded to LANCO, presently under dispute SPV formed, project held due to states demand of free power SPV formed, consultants appointed, state governments confirmation on land availability awaited RFQ submissions made on April 10, 2007, fast track Status Bid awarded to Tata Power, contract with Doosan signed for supply of super critical boilers and development of ancillary civil structure SPV formed, state government confirmation awaited on local issues SPV formed, state government confirmation awaited on local issues, fast track SPV formed, Feasibility Report & REIA ready

Maharashtra Karnataka Andhra Pradesh

Giriye Tadri Krishnapatnam

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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 All goods supplied against International Competitive Bidding to be exempt from Excise duty, provided that the goods are exempted from BCD and ACD Deemed Export Benefits (excise concessions, drawback & advance authorization) to Main as well as Subcontractor Issues 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?

Indirect taxes in the context of Ultra Mega & Mega Power Projects

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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 at NIL BCD and CVD. Exemption available to:

An interstate thermal power plant of 700 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 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

Indirect taxes in the context of Ultra Mega & Mega Power Projects

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Indirect taxes concessions and issues

Excise Customs Service tax CST/VAT/ Entry tax

Benefits offshore supplies (Project benefits) 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 the Chief Executive Officer of the project

Indirect taxes in the context of Ultra Mega & Mega Power Projects

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Indirect taxes concessions and issues

Excise
Issues Exemption for Mega Power Plants - Meeting conditions
The power purchasing state privatizing distribution in all the cities which have a population of
more than 1 million, within a fixed period

Customs

Service tax

CST/VAT/ Entry tax

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

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Indirect taxes concessions and issues

Excise
Benefits - NONE Issues - MANY Optimization of Service tax cost critical - Service tax on services to Mega Power Plant is neither exempt nor creditable If, construction & operation of coal mine outsourced, likely impact of service tax on the project would need careful planning Concept of Reverse Charge on service recipient & rules governing import and valuation of services 33% basis or split basis of valuation ! must be analyzed along with Deemed Export Benefit Service tax on Inland Services

Customs

Service tax

CST/VAT/ Entry tax

Indirect taxes in the context of Ultra Mega & Mega Power Projects

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Indirect taxes concessions and issues

Excise
Issues Optimization of VAT & CST critical These are generally not exempt nor creditable 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 during the course of business

Customs

Service tax

CST/VAT/ Entry tax

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Tax and Regulatory

SUEZ Energy International

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SUEZ Energy International

Challenge Us

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