The Central Board of Indirect Taxes and Customs (CBIC) has revoked the permission granted to solar developers to warehouse imported solar modules effective from December 17, 2024.

CBIC ruled that goods imported for solar power generation will not be allowed to undergo any manufacturing processes or operations in a warehouse. Any value addition, assembly, or process within bonded warehouses under Section 65 of the Customs Act that ultimately produces electricity is now prohibited.

Under the Customs Act, the Manufacturing and Other Operations Warehousing Regulation (MOOWR) allows developers to declare their solar projects as bonded warehouses, import solar modules free of duty, deposit them in the warehouse /project area, construct solar projects, and generate power. No duty was payable as long as the modules did not leave the bonded premises (project area).

In May, the Delhi High Court quashed a Customs Department circular and show-cause notices issued by CBIC revoking the permission for solar developers to warehouse imported solar modules to defer paying Basic Customs Duty (BCD) on solar cells and modules effective from April 1, 2022.

MOOWR allows developers to declare their solar projects as bonded warehouses, import solar modules free of duty, deposit them in the warehouse /project area, construct solar projects, and generate power. No duty was payable as long as the modules did not leave the bonded premises (project area).

In July 2022, CBIC argued that manufacturing and operations in a bonded warehouse benefit from duty deferment, where both BCD and Integrated Goods and Service Tax on imports are deferred. This deferment applies until the goods are released for domestic consumption and does not involve any time limit or interest on the deferred duty.

However, some solar projects, treating imported solar modules as capital goods, obtained permission under the Customs Act for warehousing, which allowed them to defer duties.

MOOWR requires that final goods be removed from the warehouse with a one-time lock on the transport vehicle. Since the final goods in these cases are electricity, which cannot be physically locked during transport, these solar projects do not meet the requirements of MOOWR.

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