NEW DELHI : Indian solar power developers have found a new way to defer payment of high import duties on cells and modules that came into force on April 1, by declaring their plants as “bonded warehouses”, said two people familiar with the development.
By declaring a solar power plant as a “bonded warehouse”, these developers try to circumvent the payment of the basic customs duty (BCD) of 25% on solar cells and 40% on modules. This is gaining importance given that solar modules account for more than 60% of the cost of a solar project, and India plans to award major solar contracts to accelerate its goal of reaching 500 gigawatts (GW ) of electricity generation capacity from non-fossil fuels by the end of this decade.
According to the Central Board of Excise and Customs (CBIC) website, “Manufacturing and other operations in a bonded warehouse constitute a duty deferment regime. Thus, the BCD and IGST on imports are deferred. In the case of goods other than capital goods, import duties (both BCD and IGST) are deferred until cleared from warehouse for domestic consumption, and no interest is payable. is due on duties. In case the finished products are exported, the duties on the imported inputs (both BCD and IGST) are remitted, i.e. they will not be payable. The deferment of rights is without time limit.
While this ingenuity helps defer the imposition of import duties, it negates the ambitious exercise of reducing dependence on cheap Chinese imports by encouraging domestic capacity building in solar equipment manufacturing. .
The head of a large investment firm with a large solar power generation portfolio, however, said that “the developers are not breaking any laws”.
“There is a provision to exercise such deferral of duty that is exercised,” the person said, speaking on condition of anonymity.
Meanwhile, industry experts have called the practices a gross abuse of the brainchild of the bonded warehouse system. “The spirit of the bonded warehouse system is to exempt import duties on intermediate or capital goods intended to be used directly or indirectly for exports. If the importer later decides to use the goods for domestic consumption, duties become due but are deferred until that date. We have heard cases of the program being used to defer duty payments for domestic solar projects,” said Vinay Rustagi, CEO of the consulting company Bridge to India.
“But it seems a risky ploy because it stretches the basic principle of the scheme. We believe it is only a matter of time before the tax authorities crack down on this practice,” Rustagi added.
Spokespersons for the ministries of new and renewable energy, finance and the CBIC did not respond to questions emailed Thursday.
According to the Central Electricity Authority, by 2030, household energy needs will reach 817 GW, more than half of which will be clean energy. Of this, 280 GW would be solar power only. To reach the 280 GW target, approximately 25 GW of solar power capacity will need to be installed each year until 2030.
India currently has a renewable energy capacity of 153 GW.
The solar developers’ approach comes amid the Centre’s plans to build additional domestic manufacturing capacity for solar equipment and play a bigger role in global supply chains. As part of the strategy, the FY23 budget includes an additional allocation of ₹19,500 crore for the Production Linked Incentive (PLI) program for high-efficiency solar modules.