It has been almost 6 months since the imposition of safeguard duty on solar imports to India. However, the industry is still clamoring for clarity amid a plethora of problems and ambiguities revolving around the duty. The government had announced a levy of 25 percent safeguard duty on solar imports from China and Malaysia back in July 2018.

If that wasn’t enough, lack of clarity around the imposition of Goods and Services Tax (GST) has further  confused the industry. Addressing the issue, the Solar Power Developers Association (SPDA) recently wrote to Finance Minister Arun Jaitley expressing their concerns on the way additional taxes such as GST are being levied over safeguard duty.

In the letter, SPDA has said that solar power companies are paying tax (Safeguard) on tax (GST). It has further elaborated that the imposition of safeguard duty is a protective measure for the domestic solar module manufacturers and not a supply of goods or services. Therefore, it is unfair that solar power companies have to pay GST, which is a tax on the value of goods and services in India; on safeguard duty, a specific measure under trade remedies.

The letter says, “The entire solar industry has been affected by the imposition of the SGD as the quantum of 25 percent duty has caused huge stress on the project cash flow. Solar power developers have been penalized to pay the huge amount of duty from internal funds/resources even for the projects awarded prior to the SGD notification. Further, 5 percent GST is also being levied on the amount of safeguard duty.”

It has requested the Ministry of Finance (MoF) to look into the matter and give appropriate directions to not levy the GST on safeguard duty. It has also asked the government to reimburse the amount already paid in the form of GST by solar power developers.

“GST implementation continues to be a nightmare for the solar industry. Just when the industry was getting some clarity, we have a new wrinkle. This will bog down the solar industry further unless the issue is quickly resolved,” said Raj Prabhu, CEO of Mercom Capital Group.

There have been various clarifications regarding GST from the government as well. In December 2018, the Central Electricity Regulatory Commission (CERC) issued an order stating that the introduction of GST that came into effect from July 1, 2017 will constitute a Change in Law event for the transmission service providers in India.

Then in October 2018, the CERC issued an order to compensate solar power developers by giving them an upfront lumpsum payment, which they would have incurred as an additional capital expenditure after the introduction of GST Law. It also asked the government agencies to make adjustments in the quoted tariff because of the additional operating and recurring expenditure that will incur for the entire term of the project.

Before this, the commission had issued an order stating that the enactment of GST laws is covered as Change in Law under Article 12 of PPAs. “The relief for Change in Law is allowed as a separate element on one-time basis in a time bound manner,” the CERC said in its order.

Mercom previously reported that the delay in GST reimbursement and lack of clarity is affecting solar project developers in India. Recently, the MNRE issued an order extending the commissioning date of solar PV projects that were affected after the imposition of GST and other related issues.

Both GST and safeguard duty have been the two biggest sore points for the solar industry in India ever since their introduction. As another year begins, the lingering confusion revolving these two isuues are not going away.

Nitin is a staff reporter at Mercomindia.com and writes on renewable energy and related sectors. Prior to Mercom, Nitin has worked for CNN IBN, India News, Agricultural Spectrum and Bureaucracy Today. He received his bachelor’s degree in Journalism & Communication from Manipal Institute of Communication at Manipal University and Master’s degree in International Relations from Jindal School of International Affairs. More articles from Nitin Kabeer