Union Power Minister R K Singh has said the solar projects that were bid before the announcement of basic customs duty (BCD) in April are affected and there are two ways to address it — grandfathering or passthrough. He, however, added that there are states that are resisting passthrough and the finance ministry is not fully agreeing to grandfathering. Singh also said efforts are being made to give relief to developers without them paying duty.
Last year, the government announced imposing 40 per cent BCD on solar modules and 25 per cent on solar cells with effect from April 1, 2022. Rating agency Icra has also said that the increase in prices of solar photovoltaic cells and modules coupled with the BCD is leading to cost pressure for solar power projects aggregating 4.4 gigawatts (GW).
Abhishek Jain, Partner Indirect Tax, KPMG in India, said, “The increase in BCD for solar modules and cells to 40 per cent and 25 per cent, respectively, w.e.f 1/4/2022 has affected the viability of projects that were bid prior to the announcement of an increase in BCD rates and are currently in the delivery stage. It is good to see the government deliberating on possible avenues to provide relief. Meanwhile, the industry can consider other solutions that help mitigate the customs duty cost for solar projects.”
The minister said he wanted to hear from the industry and understand the severity of these issues, especially in terms of the impact of BCD, the Approved List of Models and Manufacturers (ALMM) and module availability and how to address this at the earliest.
During the meeting with the power minister, industry executives said that due to BCD and ALMM, the growth of solar installations slowed down and immediate measures are required to address this.
The industry said BCD grandfathering would be preferable. They also said that in case grandfathering is not possible, the ministry should create a separate budget head and then devise a mechanism where through this budget is funded to SECI and SECI as a nodal agency can reimburse the BCD paid to the developers.
The industry said the ministry should also allow the registration of projects under the No.21/2002-Customs dated March 1, 2002, read together with No.49/2006-Customs dated May 26, 2006, where a concessional duty of 5 per cent is applicable on the import for mega power projects.
“The ministry should release an advisory on the applicability of change in law for BCD and GST related expenses. A blanket extension of 1 year for the projects affected under BCD and supply chain issue to ensure the capacity is installed,” said the industry, according to a statement.
The power minister said the ministry is actively pursuing grandfathering but there is a little chance. However, efforts are being made to give relief to developers without them paying duty.
Singh added that the ministry will try to examine if the permanent solution is the project registration route for concessional duty of 5 per cent. The minister has asked MNRE to compile a list of projects which have already availed the exemption under MOOWR or mega power project registration.
He also said BCD and GST Change-in-Law advisory will be issued at the earliest by the ministry. The minister said a blanket extension of one year for the project commissioning will also be considered after due discussion.
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