Govt may impose customs duty on solar equipment soon

NEW DELHI: The ministry of new and renewable energy has asked solar manufacturers to provide a list of machinery and capital goods that should be exempted from basic customs duty (BCD), indicating that the duty may soon be imposed.
"Ministry of New and Renewable Energy had consultation with Ministry of Finance and Department of Heavy Industry regarding updation of this list," said the notice by the ministry.

An executive from a manufacturing company said industry was optimistic.

"This notice probably indicates that the government is closer to figuring out the BCD than it was earlier, when the ministries had reached an impasse," said an executive from a manufacturing company. "Such a notice was also issued earlier this year, but we remain more optimistic this time," the executive added.

Domestic manufacturers have been anticipating the duty on solar equipment for a long time. Power and renewable energy minister told reporters in June that basic custom duty was likely to be imposed from August 1 to prevent the dumping of Chinese goods and protect national interests, where 80% of solar equipment is sourced from.

However, due to disagreements over the "grandfathering" clause which would provide exemptions to power purchase agreements already signed, the implementation remained delayed.

Adding a "grandfather clause" to existing power purchase agreements would mean that there is an understanding between solar developers and the government that the project costs more than the allocated budget at the time of closing of the deal, and hence, compensation will be provided to the developers via the distribution companies.

Instead, a formula based on the coal cess will be implemented to recover the losses incurred due to the safeguard and basic customs duties, Singh said. Although this is expected to provide relief to the generators, consumers might bear the immediate brunt of such a policy.