Confusion over customs duty blindsides solar energy firms

A 7.5% duty on import of solar modules would increase the cost of upcoming projects and threaten the profitability of solar energy producers


Solar modules, essentially photovoltaic cells connected in a series, are a key component for solar plants and account for almost 60% of the project cost. Photo: Bloomberg
Solar modules, essentially photovoltaic cells connected in a series, are a key component for solar plants and account for almost 60% of the project cost. Photo: Bloomberg

Mumbai: Solar energy companies are worried about an ambiguity in the levy of customs duty on the import of solar modules. Imported modules, hitherto fully exempt from any duties, could face a 7.5% duty, according to a notification from the customs department at the largest container port in the country.

Such a duty would increase the cost of upcoming projects and threaten the profitability of solar energy producers.

Containers of modules for several solar energy companies are stuck at the Jawaharlal Nehru Port, called Nhava Sheva, pending submission of a bank guarantee and a bond under provisional assessment, according to three firms that Mint spoke to.

Solar modules, essentially photovoltaic cells connected in a series, are a key component for solar plants and account for almost 60% of the project cost.

Solar projects in India are built on modules imported mos-tly from China; this is the first time that a dispute has arisen over their classification. The dispute is due to the presence of a junction box containing diodes.

On 11 August, the commissioner of customs at Nhava Sheva, Vijay Singh Chauhan, issued a show-cause notice to a Pune-based dairy products firm that is setting up a solar project within its premises and had imported modules from China.

The notice, a copy of which has been seen by Mint, says that the imported goods—modules with a junction box and diodes attached—have been misclassified by the importer SR Thorat Milk Products Pvt. Ltd under Classification 8541.

The notice said the goods under Classification 8541 include modules but do not include modules attached with junction boxes and diodes, and hence, should attract a duty under Classification 8501. That amounts to 7.5%, which includes an education cess of 2% and secondary education cess of 1%.

Such a duty could increase the overall cost of projects, making them unviable, an executive at SR Thorat said over the phone, asking not to be identified. The goods were released after the submission of a Rs.88 lakh bank guarantee and a bond for the total value of the imported modules (Rs.11.39 crore) under provisional assessment.

The company is yet to respond to the show-cause notice.

The dispute has become a cause of concern for companies that have won projects and signed power purchase agreements (PPAs) at fixed tariffs. The firms have sought the intervention of the ministry of new and renewable energy (MNRE) to resolve the ambiguity.

Some other solar power producers with huge consignments of modules, including ACME Solar, have got their goods released with a similar settlement, according to people familiar with the matter and Manoj Upadhyay, chairman and managing director, ACME Group. He declined to share any details.

SunSure Energy, an EPC (engineering, procurement and construction) developer of solar projects, is another company whose containers have been held up at Nhava Sheva, a company executive confirmed on condition of anonymity.

Ornate Solar, which is the authorized distributor of Canadian Solar Inc.’s modules in India, too has got its modules released in exchange of a bank guarantee. Till date, India has impo-rted close to 4 gigawatt of modules, without paying any duty, according to Aditya Goel, executive director at Ornate.

“The dispute is regarding importing of solar modules attached with a junction box including diodes. It is a dispute regarding classification and we are clearing consignments on provisional relief as there is lack of clarity on the exact duty. There are no held-up consignments and none shall be held up,” said Chauhan.

The customs department has been “supportive”, said Goel. “Instead of taking a duty upfront, they have done a provisional assessment of modules entering the country, taking an undertaking from the company and releasing goods on provisio-nal assessment... However, the sector needs clarity on the duty waiver at the earliest,” he said.

For availing customs duty exemption, the project should either have a PPA or a net metering agreement with the distribution company (discom). On the basis of documentation, they get a waiver on customs duty.

But it isn’t easy.

Tax authorities or state nodal agencies are reluctant to process duty waivers for ground-mounted solar projects due to differing interpretation of the law, says Vinay Rustagi, managing director at renewable energy-focused consultancy Bridge to India. “In our view, the government’s intent is very clear: that solar energy should be incentivized. There is no justifiable reason for availability of duty waivers for some projects and not for others. We should have complete clarity on the status of such incentives and hope that MNRE can deal with this issue decisively,” he said.

The cost of solar photovoltaic modules has been on a downward trend because of oversupply in China. Falling prices and the waiver of duty have helped solar companies win projects at low tariffs and also provided a shot in the arm for the government, which has pushed renewable energy to the top of its energy security agenda.

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