CBIC Scraps Provision On Customs Duty Deferment For Solar Imports

Tax authorities in India have revoked permissions that would have allowed solar developers to defer paying basic customs duty on imported modules.

In an order, the Central Board of Indirect Taxes has directed that no further permissions be granted for solar developers to avail benefit of deferred customs duty payments by warehousing the imported modules and declaring them as capital goods.

The deferment facility comes from a separate scheme introduced by the government to push domestic manufacturing. The Manufacturing & Other Operation in Warehouse Regulation scheme, which was revamped in 2019, is for entities that want to conduct manufacturing operations in a bonded warehouse.

Under the scheme, the payment of customs duty and integrated GST on import of raw material and capital goods is deferred till the manufactured goods are cleared from the warehouse for domestic consumption. There is no time cap for the deferment of the duty.

CBIC noted that a few solar power generating units apply for the permission for warehousing of imported panels and modules. These were declared as capital goods to generate electricity as resultant "goods" for consumption, allowing them to technically defer customs payments. Certain permissions had already been granted.

The indirect tax body pointed out that a clause in the MOOWR scheme requires a one-time lock to be attached to the load compartment of the transport, which is being used to remove the resultant goods from the warehouse. Since electricity is intangible, it is not possible to affix a one-time lock to any means of transport which is used to remove it from the warehouse. Hence, it said that electricity falls squarely outside the scope of MOOWR.

Permissions that have already been granted will now be reviewed and follow-up action will be taken, the CBIC order said.

According to Abhishek Jain, tax partner at KPMG India, the government is seeking to deny benefit of the MOOWR scheme and the ruling's sustainability may be tested in court. "Parallelly, the industry could consider exploring other avenues for customs duty optimisation available under the law."

A few solar installers that BQ Prime spoke to said this may only impact large solar developers who execute big projects. "Small-scale rooftop solar installers and EPC contractors generally do not procure in such large quantities to be stockpiled," said Animesh Malik, founder and managing director of Avishakti Solar.

India had introduced a 40% basic customs duty on import of solar modules and 25% basic customs duty on solar cells from April this year, in an attempt to boost domestic manufacturing. The duty, coupled with global supply chain issues, have led to a near 30% rise in the cost of setting up solar power projects. BQ Prime had earlier reported on how the rising costs may dampen the country's pace of solar addition this year.

Solar imports in India had already started surging ahead of the imposition of customs duty. According to Mercom, Indian solar industry procured 9.7 gigawatt of modules in the first three months of 2022, compared with just 3.13 GW in the same period last year.