The National Solar Energy Federation of India (NSEFI) appealed to the Telangana government to exempt solar developers from payment of ‘entry tax’ on notified goods imported to the state.

The levy of entry tax is around 12.5% on capital goods coming from other states. Imports do not fall under the purview of this tax.

In a letter to Telangana Chief Minister K Chandrashekhar Rao, NSEFI elaborated that the implementation of the ‘Telangana Tax on Entry of Goods into Local Areas Act, 2001’ (TGET Act), will raise the project cost for developers substantially and severely impact the financial viability of projects.

In its letter, the federation added that the state’s Commercial Tax Department (CTD) recently issued assessment orders to various developers for the payment of entry tax on imported notified goods used to set up solar power projects in Telangana.

The TGET Act states that notified goods are exempt from entry tax only if they are resold or used as inputs in manufacturing. The Andhra Pradesh High Court had declared the levy of entry tax as unconstitutional on December 31, 2007, the letter noted.

The previous Andhra Pradesh government had challenged the order in the Supreme Court; however, the apex court dismissed the appeal on March 29, 2017, and directed state government to file new petitions before the Andhra Pradesh High Court for fresh consideration.

NSEFI, in its letter, claimed that since the entry tax was considered unconstitutional and the fresh appeal by the state government is sub-judice (under judicial consideration and therefore prohibited from public discussion elsewhere), solar developers never factored in the entry tax into their capital costing model for arriving at the bidding tariff.

The letter added that since solar power generation is a manufacturing activity (production of electricity), capital goods used in solar power manufacturing fit under the ambit of ‘input’ used in the TGET Act. These goods include solar modules, mounting structures, inverters, substations, among others, and therefore should be exempt from entry tax under TGET Act. These goods were mostly imported from other countries, while additional supplies came from other states.

According to NSEFI, most of the solar projects were set up during 2015-2018, and retrospective levy of entry tax will substantially increase the project cost substantially, making them financially unviable.

The letter noted that developers are under already tremendous stress due to the non-payment of dues by Telangana and Andhra Pradesh DISCOMs. Notably, Andhra Pradesh and Telangana are among the ‘worst’ rated states when it comes to ease of payments by the DISCOMs.

Considering this, NSEFI recommended that a clarification should be issued that the capital goods used in setting up the solar projects fit into the word “input” used in the TGET Act and, therefore, should be exempted from the entry tax liability under TGET Act.

The installed solar power capacity in the pipeline is 3.5 GW, 236 MW are under development and another 560 MW of projects have been tendered. Installations across India have already nosedived due to the pandemic, and this move could further affect the pipeline. India added only 205 MW of solar capacity in the second quarter of 2020, an 81% decline from the previous quarter’s 1,090 MW of additions. The findings were revealed in Mercom India Research’s newly-released Q2 2020 India Solar Market Update.