Basic Customs Duty up to 40% to be Levied on Solar Imports from April 1 next year

In a move that will provide respite to domestic manufactures, a basic customs duty (BCD) on solar imports up to 40 per cent is set to be levied from April 1, 2022.

A 40 per cent charge will be imposed on solar modules, while cells will attract 25 per cent. Already bid-out projects will not be grandfathered in, the Ministry of New and Renewable Energy (MNRE) notification clarified.

"Considering India's huge solar targets and that electricity is a strategic sector of the economy, India needs to develop domestic solar manufacturing capacities and reduce its dependence on imports to avoid disruption in future," said the notification.

Domestic manufacturers have been anticipating the duty on solar equipment since Finance Minister Nirmala Sitharaman included it in her union budget proposal in 2020. Power and renewable energy minister RK Singh told reporters in June last year that such a basics custom duty was supposed to be imposed from August 1, 2020 to prevent the dumping of Chinese goods and protect national interests, where 80 per cent of solar equipment is sourced from.

The government then decided to continue imposing safeguard duty on such imports for a third consecutive year as a stop-gap solution. The basic customs duty was expected to replace the safeguard duty, as the former can only be imposed for a maximum of four years and has to be progressively lowered owing to World Trade Organisation's (WTO) safeguard measures. A duty of 14.9 per cent was levied on Chinese imports for six months from July 30, 2020 to January 28, 2021, while the duty will be slightly lesser at 14.5 per cent for the following six months.

Disagreements over the "grandfathering" clause between the Ministry of Finance and the MNRE over providing exemptions to power purchase agreements already signed delayed the implementation of the BCD till now.

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.