Exemption on Machinery Imported for Generation of Power

Section 25 of the Customs Act, 1962 empowers the Central Government to grant exemptions from Custom Duty, if the Central Government is satisfied that it is necessary in the public interest to do so. The Central Government in furtherance to the above mentioned powers, by notification in the Official Gazette, is empowered to exempt goods of any specified description from the whole or any part of duty leviable thereon.

The Ministry of Finance on February 2, 2017 vide notification no. 05/2017 – Customs^[1], exempted the payment of custom duty on all items of machinery required for;

1. The initial setting up of fuel cell based system for generation of power or for demonstration purposes; or
2. The balance of systems operating on bio-gas or bio-methane or by-product hydrogen.

It is pertinent to note that for the purpose of this exemption, machinery will include all instruments, apparatus and appliances, transmission equipment and auxiliary equipment (including those required for testing and quality control) and components.

Through the above notification, the amount of Custom Duty payable has been reduced to 5% on the value of machinery imported to India as against that previously mentioned in the First Schedule to the Customs Tariff Act, 1975. However, this reduction in the Custom Duty is subject to the below mentioned conditions;

1. The importer produces before the Deputy/ Assistant Commissioner of Customs, as the case may be, a certificate indicating the quantity, description and specification of such items. Such a certificate, recommending grant of the exemption, must be issued by an officer not below the rank of a Deputy Secretary to the Government of India in the Ministry of New and Renewable Energy.
2. The importer furnishes an undertaking to the Deputy Commissioner of Customs or the Assistant Commissioner of Customs, as the case may be, that such imported items shall be used for the purposes as specified above and, if the importer fails to comply with this condition, he shall be liable to pay, in respect of such items as is not proved to have been so used, an amount equal to the difference between the duty leviable before exemption on such items and that already paid at the time of importation.

The Indian Government had presented a report before the UN^[2]where they have claimed that India will reduce their carbon emissions related to its Gross Domestic Product (GDP) by 30-35% by the year 2030. It has also been claimed that 40% of all electricity generated in India, by the same year, shall be generated from non-fossil fuels such as solar and wind energy.

Currently, we understand that this notification of the Central Government has not been notified in the Official Gazette. However, this step of the Government should prove to be beneficial for all the companies who are involved in the production of renewable energy and shows the commitment of the Indian Government to generate a major portion of the country’s electricity needs from non-fossil fuels.