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In an effort to boost the Make in India mission, the Heavy Industry Ministry plans to pitch for doubling the basic import duty on power generation equipment.
It wants the duty to be raised to 10 per cent from five per cent and the countervailing duty to be brought to ‘nil.’ If accepted, companies such as BHEL, L&T and Bharat Forge will gain.
“We have written to the Finance Ministry and the matter will be taken up again in inter-ministerial discussion on the Budget,” a senior Government official told BusinessLine . In 2012, the then UPA Government had ended the difference on basic import duty (or basic Customs duty, BCD) between power projects, by saying the same rate of duty would apply to all projects in the sector, irrespective of capacity.
Power equipment for projects of less than 1,000 MW used to attract basic duty of 5 per cent, but projects of over 1,000 MW were exempt. In September 2012, it was decided to impose duty on all, irrespective of capacity.
This meant that generation equipment for mega power projects / ultra mega power projects of 1,000 MW and above also attracted duty. The duty imposed was 5 per cent basic Customs duty, 12 per cent CVD (countervailing duty) and 4 per cent SAD (special additional duty) — a total of 21 per cent. Added to this was education cess. The final rate is 22.85 per cent.
Exemption If the basic import duty is raised to 10 per cent, and the countervailing duty brought to ‘nil’, domestic manufacturers will get effective protection, vis-à-vis foreign manufacturers. The reason is that except basic import duty, all other taxes and charges are paid by both foreign and domestic manufacturers. But when CVD is nil, domestic companies will not be required to pay excise duty, thus raising the effective protection from current 4.7 per cent.
The official also said that the list of exempt projects has now shrunk. Earlier, the notification on duty hike exempted 111 projects from paying higher duty as they were approved and had placed orders for power equipment with overseas suppliers.
Together, they accounted for the bulk of power generation capacity to be added during the 12th Plan period. As some of these projects are closed, the number of remaining companies is now around 80.
The duty revision is being proposed at a time when the largest power generation equipment manufacturer — BHEL — has, till date, got just five orders, worth ₹12,337 crore in the power sector for the current fiscal. It has an annual production capacity of 20,000 MW.
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