Violation of Court Directive by Imposing 25% on Safeguard Duty

The Finance Ministry’s decision to impose a 25% safeguard duty on imported solar panels and modules will benefit only a small section of the industry while hurting consumers. The decision is going to get mired in legal disputes. The Adani group, dissatisfied with the duty, continues to lobby for a duty exemption on its products manufactured in Special Economic Zones.

On 30 July, the Ministry of Finance notified a two-year safeguard duty regime on imports of solar cells and modules. The decision ratified a 16 July recommendation by the Directorate General of Trade Remedies (DGTR) in the Ministry of Commerce and Industry that is ostensibly meant to protect Indian manufacturers of equipment to generate solar energy from incurring losses on account of “dumping” of cheap imports.

However, the decision will benefit only a small section of the domestic industry because a much larger proportion of the capacity to manufacture solar equipment in India is located inside “export-oriented” Special Economic Zones (SEZs) and will not be exempt from payment of safeguard duty.

The safeguard duty, which is set at 25% for the first year and 15% and 10% for the subsequent six-month periods respectively, is expected to bring the price of foreign solar panels and modules – almost 90% of which are imported from China and Malaysia – closer to the prices of products produced within the country. There will, however, remain a gap of 5-7% between domestic prices and the landed cost of imported goods.

The 30 July notification imposing the safeguard duty has apparently violated an order of the Odisha High Court. On 23 July, a division bench of the court comprising Justices I Mahanty and B Mohanty admitted a petition filed by Acme Solar, a solar developer, against the DGTR’s recommendations. On the same day, the bench passed an interim order restraining the central government from notifying the duty “without leave of the Court” until the next hearing on 20 August.