Update: Solar Module Misclassification Issue at Ports Only Partially Resolved

Government makes it easier to release solar goods, but stops short of eliminating port duties


The solar module misclassification issue at ports is not fully resolved yet according to Mercom findings. The 7.5 percent (plus cess) duty has still not been eliminated but the government is now allowing developers to pay a bank guarantee or a provisional bond to get the modules released provisionally from ports.

The 7.5 percent in custom duties is detrimental to the growth of the domestic solar industry. Projects have been delayed by months due to this issue and with many project commissioning postponed. These duties have created wide spread uncertainty in the market and stand in contradiction to other governmental efforts being made to support the solar industry.

Until there is a clear repeal of the 7.5 percent port duty, developers will still have to plan for this cost when bidding for projects to be safe. It is unclear if port duties were figured into the recent Bhadla auctions that saw extremely low bids.

At the heart of the matter is a customs department notice last year stating that the goods under classification code 8541 include modules but do not include modules attached with junction boxes and diodes, and hence, should attract a duty under classification code 8501. The duty amounts to 7.5 percent, which is exclusive of education cess and secondary education cess. According to Mercom’s supply chain channel checks, the entire duty is approximately 7.85 percent.

On December 19, 2017, Mercom reported that the Indian government had announced measures to resolve the issue by eliminating the 7.5 percent duty. However, after detailed examination into the matter and interactions with developers and engineering, procurement, and construction (EPC) companies familiar with the development, it is becoming clear that the fix merely meant that the government has made the process easier to release solar modules but has not entirely eliminated the port duties. Moreover, there seems to be little clarity on just how the government intends to resolve this issue.

A customs official told Mercom, “Yes, we have received an order stating the bondage of goods under Section 49 of the Customs Act and provisional release of goods under Section 110A of the Customs Act.” Now, for the provisional release, customs officials at various ports can either choose to ask for a provisional release bond or a bank guarantee. This practice may vary from port to port.

No order citing the repeal of the 7.5 percent duty has been circulated yet, the customs official added.

When asked an official at the Ministry of New and Renewable Energy (MNRE) to shed some light on the issue, he said, “The government has provided immediate relief by allowing provisional release at ports. The matter is open for deliberations as this also involves other ministries. For now, the developers and contractors have an avenue through which they can release their cargo without hassle and without paying the entire customs duty.”

The Finance Ministry has also been apprised about the issue by the Union Minister of Power, the MNRE official added.

According to Mercom’s industry sources, a delegation recently met with the Finance Minister to seek relief in the matter. No particular time frame has been provided as to when this duty will be repealed.

Mercom previously reported on how the misclassification of solar modules by port authorities is creating confusion and delays in an Indian solar sector that is already besieged by a range of challenges.

“It is extremely concerning that there is such a lack of coordination when it comes policy implementation among government agencies. One agency is pushing to implement the government goal of installing 100 GW of solar by 2022 while another agency is slapping customs duties on solar imports to promote the government’s ‘Make in India” program,” said Raj Prabhu, CEO of Mercom Capital Group.

“Developers can bid higher or lower based on whether a duty is imposed or not, but not knowing is the worst possible situation for the industry. For every new policy that supports the industry there seems to be a contradictory policy coming up that pulls the industry back,” Prabhu added.