Solar module and cell manufacturers in India who are operating in special economic zones (SEZs) will not benefit from the levy of 25 percent safeguard duty on solar imports. These units will have to pay safeguard duty for the modules and cells produced by them and utilized for solar projects in India.

The Ministry of Commerce and Industry has issued a circular stating that Section 30 A of the SEZ Act of 2005 implies that safeguard duty will be levied on any goods/products released from SEZ to domestic tariff area (DTA).

When contacted, a DGTR official said, “Safeguard duty is only payable on the inputs used in the finished products and not the finished product itself that is manufactured in the SEZ and cleared into the DTA. We have even given recommendation to the authorities stating the same. But, in the end they are the ones to take decision. Even in our final findings we have mentioned the same.”

Background

The Directorate General of Trade Remedies (DGTR) had recommended levy of 25 percent safeguard duty on solar cell imports from China and Malaysia for the first year, followed by a phased down approach for a second year. In the first six months of the second year, a safeguard duty of 20 percent will be payable by exporters to India and in the latter half of the second year, exporters will pay a safeguard duty of 15 percent.

Later, the government issued an order stating that the safeguard duty of 25 percent on solar modules and cells have been in effect since July 30, 2018.

Initially it was thought that all Indian manufacturers would benefit from this move, though this does not appear to be the case. All manufacturing units operating from SEZs will have to pay this duty as they already have a share in the tax incentives being located in SEZs.

This is somewhat ironic, as these companies were the first ones to demand for the levy of safeguard duty.

It is important to note that SEZs in India were built to enhance industrial capacity of the country. The country provided exceptional benefits and support like- tax holidays, single window clearance, lower charges on electricity, water and other facilities.

In India, 40 percent of solar panel manufacturing units and 60 percent of solar cells manufacturing units are currently located in SEZs.

Image credit: Azure Power