Government unlikely to scrap customs duty on import of solar panels

The government appears to have turned down a plea by the Ministry of New and Renewable Energy (MNRE) to scrap import duty on solar panels imposed last year, according to the minutes of a meeting held earlier this month.

The renewable energy ministry had backed the demand by solar developers that such equipment should continue to be exempted from duty.

This would mean developers getting equipment from overseas having to pay levies that add up to about 10%, possibly reversing the decline in solar tariffs in successive auctions in the past three years unless power producers choose to absorb the extra cost, experts said. However, developers that quoted tariffs based on a zero-duty calculation in past auctions may get some relief.

The minutes of the December 6 meeting held by finance secretary Hasmukh Adhia and attended by government stakeholders indicate that the change will stay in force and developers will lose the concession that's been in place since India's solar programme began in 2010.

ET has seen a copy of the minutes, signed by Zubair Riaz Kamili, director, customs.

"Policy intervention in the form of customs duty exemption may not always be the ideal way to promote growth of solar power generating industry in the country, particularly when the import is also being investigated by DGAD (Directorate General of Anti-Dumping) for possible dumping, besides safeguard protection," finance secretary Adhia is cited as saying in the minutes.

He agreed however that developers that had already quoted tariffs and won projects expecting customs duty to be nil should be protected, and asked the MNRE to give him a list of such developers and projects. This was in response to MNRE secretary Anand Kumar saying that the imposition of customs duty "will cause distress to importers who have already bid for solar power projects and quoted power tariffs," according to the minutes.

The Central Board of Excise and Customs (CBEC) ended its longstanding policy of exempting imported solar panels and modules from customs duty last year, imposing a levy of 7.5%, along with various cesses, adding up to about 10%. More than 90% of solar panels and modules used in Indian solar projects are imported, mainly from China, Malaysia and Taiwan.

A CBEC notification in September last year said solar panels and modules should not be classified along with diodes, semiconductors and related electronic equipment (under customs code 8541) but with electrical motors and generators (customs code 8501), which attract 7.5% basic customs duty plus cesses. This doesn't appear to have been implemented however for a year and solar equipment importers weren't aware of the change.

Implementation began only in September this year, initially at Chennai port and later at other ports as well. MNRE secretary Kumar argued at the December 6 meeting that this would raise solar tariffs and adversely impact the country's ambitious solar programme, according to the minutes.

The Department of Industrial Policy and Promotion (DIPP) backed the revision, maintaining it would help local solar manufacturers compete with global ones and was thereby in keeping with the Prime Minister's Make in India policy. Imports are around 25-30% cheaper than locally made solar equipment mainly due to economies of scale and hidden government subsidies.

Developers had initially resisted paying the duty at Chennai, leading to equipment piling up at the port. They have since begun paying and clearing goods for fear of missing project deadlines.

In November, MNRE minister RK Singh wrote to finance minister Arun Jaitley that solar modules had been exempted because they tapped renewable energy. MNRE secretary Kumar made the same argument to CBEC board members.

Solar developer Acme Solar, among the worst affected, has moved the Madras High Court against the new classification. At the December 6 meeting, the customs representative said the new classification was based on "Harmonised System of Nomenclature followed all over the world for the classification of goods" and argued that any exception for solar panels and modules should be spelt out clearly in the rules, according to the minutes.

The DIPP secretary "emphasised the cause of Make in India and stated there was a need to promote manufacturing of solar panels and modules in India, and that the domestic industry needed protection of at least 30% so as to have a level playing field vis-a-vis imports."

The commerce ministry representative noted that, on the basis of complaints made by local manufacturers, DGAD had initiated "anti-dumping investigation into the import of solar panels and modules from China, Malaysia and Taiwan."

The DG Safeguards said his office had received a representation from local manufacturers to impose safeguard duty on imported solar goods.

Source- The Economic Times