Government ends customs duty deferment for solar companies

India has restricted solar power developers from importing modules without paying duties by revoking the benefits under the Manufacturing and Other Operations Warehousing Regulation (MOOWR) scheme. In an order effective 17 December, the Central Board of Indirect Taxes and Customs (CBIC) has prohibited the use of customs-bonded warehouses for activities related to solar power generation.

The government has withdrawn a scheme allowing duty-free imports for solar power generation to boost domestic manufacturing. Effective December 17, the Central Board of Indirect Taxes and Customs (CBIC) announced that goods imported for solar power can no longer be manufactured or processed in customs-bonded warehouses under the Manufacturing and Other Operations in Warehouse Regulations (MOOWR).

(Bonded warehousing, governed under Section 65 of the Customs Act, primarily allows duty deferment to promote trade and facilitate manufacturing for export or domestic consumption.)

The MOOWR scheme, first introduced in 1996 and revamped in 2019, allowed businesses to import solar modules without immediate customs duty, manufacture solar projects, and sell power domestically or for export without duty payment until the goods left the bonded facility. (The scheme is available to many other sectors including pharmaceuticals, food processing, electronics, textiles and leather products.)

The move overturns a Delhi High Court judgment that had quashed show-cause notices issued by the Customs Department, demanding basic customs duty payments on solar imports.  The basic customs duty on solar modules is 40% and on solar cells is 25%.

Experts warn this retroactive policy change could force solar power companies to “de-bond” their facilities, requiring them to pay import duties on previously imported modules, disrupting cash flows significantly. The withdrawal of the MOOWR scheme for solar power may also affect the profitability of existing projects, especially where Power Purchase Agreements (PPAs) do not account for tariff adjustments due to regulatory changes.