Industry critical of attempt to circumvent ‘aatmanirbhar’ solar power manufacturing

Concerned over the potential impact on India’s nascent solar power equipment manufacturers, the Ministry of Finance is examining a recent ruling of the customs authority allowing a solar power developer to import photovoltaic (PV) modules at a concessional rate of duty into India.

In a recent order, the Customs Authority for Advance Rulings (CAAR) allowed a Telangana-based developer to import solar modules at a concessional rate of five per cent import duty. This is in direct contrast to the basic customs duty of 40 per cent applicable on such imports since the beginning of the current financial year.

When contacted, industry sources said some developers may be trying to circumvent the 40 per cent duty by unduly exploiting some provisions and loopholes in the rules. “The customs authority order flies in the face of the central government’s efforts to boost local manufacturing of solar power equipment and reduce the outflow of foreign exchange to China, which has traditionally accounted for over 90 per cent of supplies of solar PV modules to India”, they said.

In order to ensure self-sufficiency in solar PV modules in India over the long-term, the central government has introduced a production linked incentive scheme for ramping up domestic manufacturing capacity.

“The order has the potential to defeat the Modi government’s overall impetus on indigenisation of solar PV modules by allowing imports under chapter 98.01 of the Customs Tariff Act, 1975 which specifies provisions for goods imported for the purpose of setting up of industrial project”, the source added. This specific section of the tariff rules specifies that if a company imports all components for a power project contract, it would have to pay only a five per cent import duty instead of the 40 per cent duty that is applicable otherwise.

The Modi government has set ambitious targets to ramp up solar power installations in India, with the target being to increase the current total cumulative capacity from 57 gigawatt (GW) to 300 GW by 2030. Solar PV modules are the biggest cost element of a solar power project, and account for as much as 60-70 per cent of overall capital expenditure.

Accordingly, the government has introduced several tariff barriers including a safe-guard duty and a basic customs duty (BCD) of 40 per cent from April this year.

Sources said the customs authority ruling is now under the active consideration in the Ministry of Finance, with senior officials in the Central Board of Indirect Taxes & Customs (CBIC) seized of the issue. “The intention of the central government to levy 40 per cent BCD on imports of PV solar modules has not changed, despite there being a provision for import of PV solar modules under the provisions of Chapter 98 dealing with project imports at a concessional duty of 5 per cent”, they added.

In order to resolve the situation, the revenue department may need to amend the customs tariff rules and do away with the project import option as the loophole can be unduly exploited to the detriment of domestic manufacturing capacities.