SC, Maha AAR rulings to up solar project cost by 25%: Experts

The rulings of the Supreme Court and the Maharashtra Authority for Advance Ruling (AAR) on levying 25 per cent safeguard duty and 18 per cent GST on contract value, respectively, will result in a 25 per cent 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 per cent 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 per cent will be payable by exporters to India and in the latter half of the second year, exporters will pay a safeguard duty of 15 per cent.

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 per cent and not five per cent applicable earlier.

"These two rulings are a major blow to the sunrise solar industry as it would result in a nearly 25 per cent 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 per cent 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 per cent, which could have otherwise been 30 per cent," 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 per cent 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 per cent of the total demand will gradually be diverted to domestic players," said Sunil Rathi, director, Waaree Energies.