The Central Board of Indirect Taxes and Customs (CBIC) has withdrawn customs duty deferment benefits previously available to solar power generation companies using imported goods stored in customs-bonded warehouses.
In a recent notification, the CBIC stated that manufacturing processes and related operations involving imported goods for solar power generation projects supplying electricity would no longer be allowed in bonded warehouses. This change takes effect from December 17, 2024.
The Manufacturing and Other Operations in Customs Bonded Warehouses (MOOWR) scheme, introduced by the CBIC, had enabled companies to defer customs duties on imported goods used for manufacturing or other approved activities.
Abhishek Jain, Partner and Head of Indirect Tax at KPMG in India, noted that the government has now formalised its position through this notification, disallowing customs duty deferral benefits for solar power companies. He explained that earlier attempts to restrict such benefits through a circular had faced challenges, but the new legal framework solidifies the prohibition.
Saurabh Agarwal, Tax Partner at EY India, highlighted that the move essentially eliminates the MOOWR scheme for solar power producers, even impacting those who have already utilised its benefits. He warned that companies might need to de-bond solar farms and pay import duties on previously imported goods, potentially causing cash flow disruptions.
Agarwal also pointed out that this development could affect the profitability of solar plants, especially if power purchase agreements (PPAs) do not account for tariff adjustments resulting from changes in law. He emphasised the need for the industry to thoroughly assess the amendment and explore possible actions, such as filing claims for tariff revisions.
