The National Solar Energy Federation of India (NSEFI) has requested the Central Board of Indirect Taxes and Customs (CBIC) to introduce a ‘Legacy Dispute Resolution/Settlement Program to help eligible safeguard duty (SGD) payers to declare their unpaid duty/tax dues.

Such a program would help incentivize them to pay the dues at the earliest with an interest waiver.

According to NSEFI, it would be in both the industry and nation’s interest if the government announces a program that would enable the assessee to disclose and pay the duty amount without interest and penalty.

The solar association claims that the program would result in voluntary disclosure and prompt payment of the duty and withdrawal of litigations and proceedings before various courts challenging the validity, levy, and assessment of safeguard duty on solar panels imported by the solar power developers and their supply contractors.

Back Ground

SGD on import of solar panels was introduced by the Directorate General of Trade Remedies (DGTR) on July 30, 2018.

However, solar power developers had challenged the SGD imposition in the Orissa High Court. On August 27, 2018, the court had observed that the notification had been issued with utter disregard to its order on July 23, 2018.

The court had further ruled that the Government of India should not implement the notification until further orders from the Orissa High Court or the Supreme Court of India.

The Ministry of Finance issued a notification on August 13, 2018, directing the Customs authorities not to insist on the payment of SGD until further directions. It also said that solar cells, whether or not assembled in modules or panels, would, in respect of SGD, be assessed provisionally on furnishing a letter of undertaking or bond.

Based on the above instructions, NSEFI said that the solar developers and their supply contractors had cleared their shipments under provisional assessment without payment of duty and by submitting the bonds against the payment of SGD.

However, the government approached the Supreme Court, which stayed the interim order passed by the Orissa High Court on September 10, 2018. The government issued instructions on September 13, withdrawing the earlier instructions issued on August 13, 2018, with immediate effect.

Issues Faced by SPDs

The developers and their supply contractors approached several High Courts, which ordered the clearance of goods on a provisional basis, subject to a bond for either 100% of the SGD or 50% of SGD and payment of the balance of SGD in cash.

Based on these orders, the developers and their supply contractors got their imports cleared by submitting bonds. However, the bonds are reflecting as a liability in their financial statements. Since the goods had been cleared on a provisional basis, the interest keeps accruing to the SGD.

According to NSEFI, these factors have caused great hardship to the renewable energy generators and their supply contractors, both big and small.

NSEFI listed the issues SPDs were facing:

• The SGD was levied on import of all solar modules imported from July 1, 2018, without making any differentiation between projects which were already won in the bids, under-development projects, and the projects which would be won after levy of SGD.
• Wherever the SGD was deposited either in full or in part by the supply contractor or developers, the same was deposited from the promoters’ equity contribution, as no project lender had funded the payment of SGD. The funding cost of the equity ranged between 14 % – 16%.
• Although the SGD was allowed as a pass-through under a change in the Power Purchase Agreement (PPA) law provisions, it took between 12-15 months for developers to get the SGD declared as a change in law from the central and state regulators.
• In cases where the reimbursement of SGD was spread over periods of as long as 13 years from the date of orders by regulators, the rate of interest allowed by the regulator ranged between 8.75%-10.41%
• Developers are carrying this liability in their financial statements. As most developers are taking funding from overseas investors and financial institutions, these pending liabilities, disputes, and litigations cause undue hardship to developers in getting the overseas funding.
• The dues from various DISCOMS and other government bodies are due and stuck for several months.

Solar power developers and their supply contractors were put to financial hardship because of these problems.

The Solution

Most of the developers and their supply contractors were ready to come forward to deposit the duty amount in full, provided interest amount and penalty were waived, NSEFI said.

According to the NSEFI, the government had earlier introduced amnesty programs for the customs, excise, and service tax. The solar body claimed that these programs had greatly helped revenue mobilization by recovering money stuck in indirect tax litigation.