Solar industry hit: SC, Maha AAR rulings to up project cost by 25%; to impact small, big players, says experts

Mumbai: The rulings of the Supreme Court and the Maharashtra Authority for Advance Ruling (AAR) on levying 25 percent safeguard duty and 18 percent Goods and Service Tax  (GST) on contract value, respectively, will result in a 25 percent increase in the cost of solar projects, according to experts. The apex court, through its interim order Monday, has nullified the Orissa High Court’s stay order on levy of safeguard duty on imported solar cells and modules. The Directorate General of Trade Remedies (DGTR) had recommended levy of 25 percent safeguard duty on solar cell imports from China and Malaysia for the first year, followed by a phased-down approach for a second year. In the first six months of the second year, a safeguard duty of 20 percent will be payable by exporters to India and in the latter half of the second year, exporters will pay a safeguard duty of 15 percent. [caption id=“attachment_4494601” align=“alignleft” width=“380”]  Representational image. Reuters.[/caption] The Maharashtra AAR had early this month upheld that EPC contracts are works contract services and hence tax on such works contract service transaction would be 18 percent and not five percent applicable earlier. “These two rulings are a major blow to the sunrise solar industry as it would result in a nearly 25 percent increase in the cost of the project,” Gensol group founder and director Anmol Jaggi told PTI. He further said that this decision will severely impact a host of small and big players who are bidding for open access and rooftop projects. “Out of the projects that have been bid out so far, only 25 percent are by the Solar Energy Corporation (SECI), while the rest are non-SECI bids. While SECI bids assures passthrough, those who have bid for other projects will face a major setback as the cost will increase,” added Jaggi. According to another industry expert, the levy of safeguard duty will have a significant impact but since the prices of Chinese modules have come down to 26 cents, it will set off the impact to some extent. “Since the prices of modules have come down, the overall impact is 25 percent, which could have otherwise been 30 percent,” the expert added. Domestic module manufacturers, however, opined that with the implementation of the safeguard duty, during the initial phase, a diversion of around 30-40 percent of the demand for solar cells and modules towards the Indian manufacturers is anticipated. “The imposition is a respite from the uncertainty witnessed in the recent past. We can now say that domestic manufacturers have a level playing field, which will address the concern of underutilised manufacturing capacity of key national players. With time, 70 percent of the total demand will gradually be diverted to domestic players,” said Sunil Rathi, director, Waaree Energies.