Much to the relief of solar developers, the Central Board of Indirect Taxes and Customs (CBITC), has clarified that the bulk of imported solar panels and modules will not attract customs duty, putting to rest a controversy that had been raging for more than six months. Around 90 per cent of panels used in Indian solar projects are imported.
In September 2016, the CBITC had passed an order saying that since solar panels and modules generate power, they should be classified along with “electrical motors and generators” under the Customs Act (HS Code 8501) which attract 7.5 per cent import duty, apart from various kinds of cess, amounting to a total of around 10 per cent. Its implementation, however, began only in the middle of 2017. Until then solar equipment had always been grouped with “diodes, transistors and similar semiconductor devices, photosensitive semiconductor devices,” etc, (HS Code 8541) whose import was free.
In an official order, the CBITC has now clarified that “solar panels or modules equipped with bypass diodes are classifiable in heading 8541” while “solar panels or modules equipped with blocking diodes” as well as those with “blocking diodes and bypass diodes” are “classifiable in heading 8501.” Solar developers ET spoke to all maintained that most of the solar equipment India imports are those with bypass diodes only, and will thus not attract duty.
The reclassification became a serious issue for solar developers with solar imports being held back, initially at Chennai port, and later at all ports across the country, unless the duty was paid. By October last year, over 1,000 containers of solar equipment had piled up at Chennai port alone, with developers contesting the duty charged.
Initially, both developers and the ministry of new and renewable energy (MNRE) believed it was a misunderstanding, but after Customs officials refused to budge, both MNRE minister R. K. Singh and MNRE secretary Anand Kumar took up the matter with their finance ministry counterparts. They pointed out that this would raise solar developers’ costs and thereby solar tariffs, which until then had been falling steadily for the last several years. They noted that raising costs would impede achieving the prime minister’s ambitious target of 100,000 MW of installed solar capacity by 2022.
A number of developers even began paying the levy sought and clearing their goods.
At a high-level meeting in December last year, Finance Secretary Hasmukh Adhia had argued strongly on behalf of continuing with the import duty, noting that solar imports were already subject to investigations by Directorate of Anti Dumping and Allied Duties. The MNRE sought and received an assurance that solar equipment for projects already bid for or partially built would be exempted, since imposing duty would render the projects unviable at the tariffs that had already been determined. However, the finance ministry clearly seems to have had a rethink since then.
