Proposed 20% basic customs duty on solar cells to hit units in SEZs

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June 12, 2020 2:15 AM

The government is planning to replace safeguard duty introduced in July 2018 to protect domestic manufacturers with a basic customs duty which will rise to 20% in a phased manner over the next 2-3 years.

Unlike BCD, under safeguard duty, the SEZ manufacturers were treated on par with DTA manufacturers.Unlike BCD, under safeguard duty, the SEZ manufacturers were treated on par with DTA manufacturers.

As the safeguard duty on imported solar cells and modules from China and Malaysia ceases to exit in July, and is likely to be replaced with 20% basic customs duty (BCD), the viability of Indian solar cells and module manufacturers based out of special economic zones (SEZ) will be threatened, if they are not allowed parity with the domestic tariff area (DTA) manufacturers.

As FE reported earlier, the government is planning to replace safeguard duty introduced in July 2018 to protect domestic manufacturers with a basic customs duty which will rise to 20% in a phased manner over the next 2-3 years.

SEZ based manufacturers believe the viability of their operations — 60% of the total solar cells manufacturing in India and around 50% of solar modules manufacturing are based in SEZs — will be affected as their buyers in the domestic tariff area (DTA) will have to pay BCD. The sale by SEZ manufacturers in India is considered as exports.

Unlike BCD, under safeguard duty, the SEZ manufacturers were treated on par with DTA manufacturers.

Avinash Hiranandani, Global CEO of Renewsys, which operates a 750 MW module manufacturing capacity in Hyderabad SEZ, said, they have recommended that same parity as safeguard duty should be implemented when the BCD is introduced.

However, if the tariff is applied then a lot of manufacturers will move out of the SEZ.

Though the migration may not be possible for everyone as it will depend on how deep inside the SEZ they are embedded, and also, how much fund they would need for that. It will also require time. “The plea was to give everyone at least 6-9 months or one-year time to move out if the BCD is implemented without resolving the SEZ issue,” Hiranandani said.

When contacted by FE, a senior MNRE official said that they are aware of the situation. “We are working with all the concerned stakeholders —ministry of finance, commerce, and revenue along with manufacturers — to resolve the issue. We expect some clarity to emerge by next week,” the MNRE official said.

The SEZ manufacturers believe, if they are not treated on par with DTA, the concept of ‘Atmanirbhar Bharat’ and ‘vocal for local’ will move one step behind.

“Everyone wants to invest money. Even the industry players who are very nicely placed to invest on expansion and have acquired the land, taken approval from pollution control board, all they need is capacity expansion, will find it difficult to move without this clarity. People who want to expand the capacity by 3GW- 4GW will suddenly find the capacities cut by half if this BCD parity doesn’t happen,” Hiranandani said.

Saibaba Vutukuri, CEO of Vikram Solar, which operates 1.2 GW solar module manufacturing facility based out of SEZ in Falta, West Bengal, said, “Government must take necessary steps to protect the investments already made by the manufacturing facilities in SEZ by taking up the matter with the concerned ministries to provide exemption and to ensure that DTA and SEZ based units are placed on a similar footing,” Vutukuri said.

Being fair to the solar panel manufacturers in DTA, they want the duty to be levied at the earliest as they are facing the wrath of cheap Chinese panel imports post the lockdown. “The Chinese manufacturers have further reduced the panel prices after the lockdown, reducing the prices to below 18 cents per watt peak from 23 cents before the lockdown. “It would be very difficult for any manufacturer to make a decent return with such wafer-thin margins,” Hiranandani said.

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