The Central Board of Indirect Taxes and Customs (CBIC) has revoked the permission granted to solar developers to warehouse imported solar modules to defer payment of the basic customs duty (BCD) on solar cells and modules effective from April 1, 2022.

CBIC stated that manufacturing and other operations in a bonded warehouse is a duty deferment program. So, both BCD and Integrated Goods and Service Tax (IGST) on imports stand deferred. In the case of goods other than capital goods, import duties —both BCD and IGST— stand deferred until they are cleared from the warehouse for home consumption, and no interest is payable on duty. The duty deferment is without any time limitation.

CBIC noticed that a few solar projects applied for permission under section 65 of the Customs Act, 1962 for the warehousing of imported solar modules and declared them as capital goods. A few jurisdictional commissioners granted such permissions.

However, under the Manufacture and Other Operations in Warehouse (no.2) Regulations, 2019 (MOOWR 2019), the removal of final goods from the warehouse requires affixing a one-time-lock to the load compartment of the transport in which such goods are removed.

Since the goods here refer to electricity, affixing a one-time-lock to the load compartment of the means of transport is not possible. The final goods fall squarely outside the scope of MOOWR 2019 because of the inability to satisfy the essence of the prescribed condition.

Under Regulation 20, considering the nature of goods, their manner of transport or storage, the CBIC may exempt a class of goods from the provisions of MOOWR 2019. But CBIC had neither exempted goods of the nature of electricity from MOOWR 19 nor issued regulations relating to the removal of electricity.

Therefore, CBIC has notified that the permissions granted to solar power projects are not per the MOOWR 19 provisions, which are the conditions prescribed by the CBIC under Section 65 of the Customs Act 1962.

CBIC also stated that permissions granted to the solar power projects must be immediately reviewed and follow-up action taken. No more permissions in such cases should be granted under Section 65 of the Customs Act,1962.

Indian solar developers procured 9.7 GW of solar modules in the first quarter of 2022 and stockpiled them ahead of BCD on solar cells and modules. Imports surged by 210% year-over-year compared to 3.13 GW imported in Q1 2021.

The stockpiling was to save on module costs, which increased by 40% once BCD kicked in. The exponential increase in imports of cells and modules was mainly from China. In March alone, the top 20 Indian solar developers imported 4.2 GW of solar modules.

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