An employee inspects solar panels, part of a solar power microgrid, in the village of Dharnai in Jehanabad, Bihar, India. (Photographer: Prashanth Vishwanathan/Bloomberg)

Tax Quibble Stalls India Solar Cargoes, Delaying Projects

(Bloomberg) -- Several solar projects in India are facing delays and inflated costs as customs officials have blocked more than 900 containers of panel shipments for more than a month by demanding higher import duties.

Officials clearing import shipments at the Port of Chennai in South India are classifying solar panels as motors, which attract 7.5 percent import duty as opposed to zero on solar modules, said Sunil Jain, chief executive officer of Hero Future Energies Ltd., a company backed by International Finance Corp. A 30-megawatt shipment of Hero Future was cleared after paying higher duties, he said. 

“These additional costs aren’t anticipated when we bid for projects,” Jain said.

The spat risks imperiling Prime Minister Narendra Modi’s goal of installing 100 gigawatts of solar energy by 2022. To meet that target, developers have relied on low-cost cells and modules from China, enabling tariffs in India to fall to among the lowest in the world. India is China’s second-biggest market for solar equipment with imports worth $3.2 billion for the year ended March 31, according to Bloomberg New Energy Finance research.

Foreign investors remain bullish on India’s solar market but they need to take notice of these events and act to minimize resulting losses, said Allen Tom Abraham, a New Delhi-based analyst at BNEF.

“The dispute about improper classification of modules would impact project construction in the next two quarters,” he said.

Dispute Tribunal

The industry has the option to approach a tribunal after an investigation is complete and an order is passed, a customs official said, asking to not be identified. The tax department contends that the shipment will attract higher tariff as it contains fitments apart from panels that can power other appliances.

New York-listed Azure Power Global Ltd, whose shipment was also held back, is struggling to meet project deadlines.

“We had imported 40 megawatts of modules earlier in the year from the same port without any hassles and now, suddenly, we can’t get more panels from there,” Azure Power Chairman Inderpreet Wadhwa said.

Anand Kumar, the top bureaucrat at the ministry of renewable energy, said he has written to other departments to sort out the confusion. D.S. Malik, a finance ministry spokesman, couldn’t be reached for comment. Indian customs falls under the country’s finance ministry.

The issue has surfaced before, BNEF’s Abraham said. In 2016, customs officials at the Jawaharlal Nehru port in Maharashtra made a similar distinction. It was resolved after the customs department issued a directive to exempt solar modules from duties as long as they weren’t connected to a motor or an electrolyser, he said.

©2017 Bloomberg L.P.