The misclassification of solar modules by port authorities has created confusion and delays in the Indian solar sector besieged by challenges. Ports and port authorities across the country have begun demanding that a higher duty be paid on the imported components before they are released from the port premises.

At the heart of the issue is the abrupt reclassification of solar modules by customs authorities who now consider solar modules to be “electrical motors and generators” that incur a 7.5 percent levy. Due to the change, several solar projects in India are now being delayed and many more are bound to incur greater project costs as more than 1,000 containers of solar panel shipments have been blocked by customs officials at the Chennai Port. The Chennai Port is the second largest port in India.

A customs official confirmed to Mercom that the new classification applies to all Indian ports, not just the Chennai Port. Having said that, the customs official added that different ports have the authority to conduct their business in their own way, so how they enforce the rules is up to them.

When asked for the reason behind the new classification, the customs official declined to comment.

According to Mercom India Research, in the second quarter (Apr-Jun) of 2017, export and import activity totaling $1.24 billion (~₹79.9 billion) was registered in the Indian solar sector. The majority of that total was comprised of imported solar modules and cells worth $1.23 billion (~₹79.4 billion).

The Indian solar story has so far depended on imports, and the sudden change in the duty being levied at the ports has created a new hurdle for project developers. Most of them lack the ability to pay the 7.5 percent duty increase to secure the release of their cargo (solar panels).

“Developers are facing extremely competitive solar auctions, which means returns are low and every penny counts. By misclassifying solar panels, port authorities have further disrupted the development of projects by delaying some projects by months and adding to project costs,” said Raj Prabhu, CEO of Mercom Capital Group.

Up until now, solar modules were imported under a category that permitted the duty-free importation of “diodes, transistors and similar semiconductor devices; photosensitive semiconductor devices, including photovoltaic cells whether or not assembled in modules or made up into panels; light‑emitting diodes; and mounted piezo-electric crystals.”

According to the new classification, officials now insist that solar modules are in a different product category that attracts duties. Developers claim that Chennai customs officials have told them to pay the duty and, if the matter is resolved, the payment will be reimbursed.

In a recent site visit to the Pavagada Solar Park, Mercom’s team found that a few projects that had been nearing completion are now delayed because the necessary modules have become stuck at the Chennai Port due to the sudden imposition of the 7.5 percent customs duty. An onsite source told Mercom that one of the developers at the Pavagada Solar Park had paid the extra cost and their modules were now on the way, as the project is expected to be connected to the grid by December.

When contacted, a solar project developer active in the Pavagada Solar Park said, “For all of these years, the solar modules had been imported under the HS Code 8541 with a 0 percent import duty are now classified under 8501 which attracts 7.5 percent import duty by some creative customs official, enthusiastic about increasing the revenue for the nation. We have had over 200 MW of panels waiting in the Chennai Port for the past six months due to this dispute. The only solution is that we the pay 7.5 percent duty and they release the goods, or we just wait indefinitely.

According to another developer, this is not the first time that this issue has cropped up in India. Last year, the customs department at the Jawaharlal Nehru Port issued a notice stating that the goods under classification 8541 include modules but do not include modules attached with junction boxes and diodes, and hence, should attract a duty under Classification 8501. That amounts to 7.5 percent, which is exclusive of education cess and secondary education cess. According to Mercom’s channel checks, the entire duty is 7.85 percent.

According to Mercom’s channel checks, the energy minister has written to the finance minister regarding this issue.

An official at the Ministry of New and Renewable Energy called the issue a matter of misclassification and added that the MNRE has given its inputs to the Minister of Power. When asked why the issue is continuing to occur, the MNRE official had nothing to say.

The project developers contacted for the story did not want to be named.

Image credit: Flickr

Updated: Total customs duty to 7.85%