No more exemptions! Eyeing to boost local manufacturing, CBIC scraps duty-free imports for solar power cells and modules. Will this disrupt the profitability of the industry? Experts say so.
The Central Board of Indirect Taxes and Customs (CBIC) has announced the withdrawal of a duty-free import scheme for solar power generation items, effective from December 17, 2024.
This decision, outlined in an official notification, ends the allowance for solar power firms to import goods and carry out manufacturing processes or operations in customs-bonded warehouses.
Under the previous scheme, firms could store imported solar modules and cells without paying customs duties until they began manufacturing solar projects.
The CBIC’s new directive reverses a May 2024 ruling by the Delhi High Court, which had quashed several show cause notices issued by the Customs Department. The notices had demanded that solar power firms pay customs duties on solar modules and cells, arguing that certain firms were ineligible for the tax benefits under the Manufacturing and Other Operations in Warehouse Regulations (MOOWR). The basic customs duties for solar modules and solar cells are 40% and 25%, respectively.
According to a Financial Express report, the move to rescind the MOOWR scheme will significantly impact the costs for solar power generation companies. Previously duty-free imports will now require businesses to pay customs duties, increasing expenses.
Experts have warned that this change could lead to cash flow disruptions, especially for companies that have already imported materials under the previous scheme’s benefits.
Additionally, solar farms may be required to “de-bond” imported modules and pay retroactive duties. If the power purchase agreements (PPAs) do not factor in tariff adjustments due to such legal changes, the profitability of affected solar plants could also be impacted.
The government’s shift is being seen as part of an effort to boost domestic manufacturing by removing tax advantages that had previously been available for solar power generation.
