/images/ppid_59c68470-image-176217754487751424.webp)
What is the story about?
In a yet another major GST classification dispute that has reached the courts, this time questioning the very nature of Renewable Energy Certificates (RECs) and whether they should be subject to Goods and Services Tax (GST).
Leading renewable power companies — including Global Energy, Wind World Resources, Wind World Infrastructure, Vaayu Renewable and Vaayu Infrastructure — have challenged tax demands initiated by multiple state GST authorities, placing a critical clean-energy compliance instrument at the centre of contentious legal debate.
The Delhi High Court is currently hearing the petitions, which argue that REC trading should not attract GST — a stand that counters the notices issued by authorities in Gujarat, Tamil Nadu, Andhra Pradesh and Karnataka treating REC procurement as a taxable supply.
A Recurring GST Challenge: Classification Battles Continue
Since GST’s rollout in 2017, the regime continues to grapple with classification disputes involving what constitutes “goods”, “services” and excluded categories. Electricity, for instance, is constitutionally kept out of GST, while carbon credits and trading derivatives have triggered interpretational litigation.
RECs now represent the latest flashpoint in this ongoing tax ambiguity that has financial repercussions across industries.
What Are RECs and Why Does Tax Matter?
RECs were introduced to enable India’s energy consumers — particularly power discoms and major industrial users — to meet Renewable Purchase Obligations (RPOs) when direct sourcing of green power is not feasible.
Given the unequal distribution of renewable resources across states, RECs act as market-based instruments traded on recognised energy platforms such as the Indian Energy Exchange (IEX) and Power Exchange India Limited (PXIL).
The petitioners argue that the imposition of GST on these instruments could:
• Increase the cost of clean energy compliance
• Disrupt the policy framework designed to incentivise renewables
• Create retrospective liability, burdening consumption already recorded
Core Legal Question: Are RECs “Securities”?
The primary issue under judicial consideration is whether RECs fall under the definition of “securities,” which would exclude them entirely from GST, as securities are treated as neither goods nor services.
Abhishek A Rastogi, founder of Rastogi Chambers and counsel to the petitioners, asserted that GST law expressly borrows the definition of securities from the Securities Contracts (Regulation) Act, 1956, supporting the argument that RECs — being tradable compliance instruments — should be classified accordingly.
He further notes that a February 1, 2019 amendment which taxed facilitation of securities transactions:
“…shows legislative acknowledgment that transactions in securities were never taxable before that date, meaning any GST levy, if at all applicable, must be strictly prospective.”
Rastogi cautions that taxing RECs while renewable electricity itself remains outside GST would be a policy contradiction and says that “RECs are not consumable commodities or service deliverables. They are compliance instruments for renewable electricity — which remains constitutionally beyond GST. Taxation here risks distorting India’s sustainability mission and unsettling investor sentiment in the green energy sector.”
Implications: Costs, Compliance and Climate Goals
The renewable industry warns that the uncertainty created by tax notices has already strained obligated entities and developers by:
• raising operational risks,
• potentially escalating consumer tariffs, and
• dampening funding appetite for new renewable capacity.
With India pursuing an ambitious 500 GW renewable energy target by 2030, policy clarity around RECs is seen as crucial to maintaining market confidence.
What Next?
The matter is scheduled for next hearing on March 19, 2026, and experts anticipate the outcome may prompt the GST Council to weigh in with guidance to avoid fragmented state-level interpretations.
Until then, a key instrument of India’s clean-energy marketplace remains stuck in tax limbo — emblematic of the broader struggle to align GST classification with evolving economic and environmental realities.
Also Read: Bombay High Court stays 18% GST on hotel restaurants; Legal debate rekindles over fair tax classification
Leading renewable power companies — including Global Energy, Wind World Resources, Wind World Infrastructure, Vaayu Renewable and Vaayu Infrastructure — have challenged tax demands initiated by multiple state GST authorities, placing a critical clean-energy compliance instrument at the centre of contentious legal debate.
The Delhi High Court is currently hearing the petitions, which argue that REC trading should not attract GST — a stand that counters the notices issued by authorities in Gujarat, Tamil Nadu, Andhra Pradesh and Karnataka treating REC procurement as a taxable supply.
A Recurring GST Challenge: Classification Battles Continue
Since GST’s rollout in 2017, the regime continues to grapple with classification disputes involving what constitutes “goods”, “services” and excluded categories. Electricity, for instance, is constitutionally kept out of GST, while carbon credits and trading derivatives have triggered interpretational litigation.
RECs now represent the latest flashpoint in this ongoing tax ambiguity that has financial repercussions across industries.
What Are RECs and Why Does Tax Matter?
RECs were introduced to enable India’s energy consumers — particularly power discoms and major industrial users — to meet Renewable Purchase Obligations (RPOs) when direct sourcing of green power is not feasible.
Given the unequal distribution of renewable resources across states, RECs act as market-based instruments traded on recognised energy platforms such as the Indian Energy Exchange (IEX) and Power Exchange India Limited (PXIL).
The petitioners argue that the imposition of GST on these instruments could:
• Increase the cost of clean energy compliance
• Disrupt the policy framework designed to incentivise renewables
• Create retrospective liability, burdening consumption already recorded
Core Legal Question: Are RECs “Securities”?
The primary issue under judicial consideration is whether RECs fall under the definition of “securities,” which would exclude them entirely from GST, as securities are treated as neither goods nor services.
Abhishek A Rastogi, founder of Rastogi Chambers and counsel to the petitioners, asserted that GST law expressly borrows the definition of securities from the Securities Contracts (Regulation) Act, 1956, supporting the argument that RECs — being tradable compliance instruments — should be classified accordingly.
He further notes that a February 1, 2019 amendment which taxed facilitation of securities transactions:
“…shows legislative acknowledgment that transactions in securities were never taxable before that date, meaning any GST levy, if at all applicable, must be strictly prospective.”
Rastogi cautions that taxing RECs while renewable electricity itself remains outside GST would be a policy contradiction and says that “RECs are not consumable commodities or service deliverables. They are compliance instruments for renewable electricity — which remains constitutionally beyond GST. Taxation here risks distorting India’s sustainability mission and unsettling investor sentiment in the green energy sector.”
Implications: Costs, Compliance and Climate Goals
The renewable industry warns that the uncertainty created by tax notices has already strained obligated entities and developers by:
• raising operational risks,
• potentially escalating consumer tariffs, and
• dampening funding appetite for new renewable capacity.
With India pursuing an ambitious 500 GW renewable energy target by 2030, policy clarity around RECs is seen as crucial to maintaining market confidence.
What Next?
The matter is scheduled for next hearing on March 19, 2026, and experts anticipate the outcome may prompt the GST Council to weigh in with guidance to avoid fragmented state-level interpretations.
Until then, a key instrument of India’s clean-energy marketplace remains stuck in tax limbo — emblematic of the broader struggle to align GST classification with evolving economic and environmental realities.
Also Read: Bombay High Court stays 18% GST on hotel restaurants; Legal debate rekindles over fair tax classification
Do you find this article useful?
/images/ppid_59c68470-image-176216505272584490.webp)
/images/ppid_a911dc6a-image-176217343183778553.webp)
