The Government of India has recently issued notifications under customs and excise (Notification 49/2012-Cus and Notification 34/2012-CE, both dated September 10, 2012) to limit the benefits of extant customs and excise benefits available to Mega Power projects (under the Mega Power Policy of the Government) to 111 specified Mega and Ultra-Mega power projects only.
Thus, for power projects other than the aforementioned specified projects, the only available duty benefit now
appears to be the eligibility to a concessional customs duty rate under the ‘project import’ scheme (leading to an effective customs duty rate of 23.08%). Clearly, this would lead to significant project cost enhancement for new power projects – given that power projects have no output excise duty and service tax, they cannot avail the benefit of CENVAT credit mechanism and the entire input side taxes become a cost for the project.
Background
The Mega Power Policy was introduced in November 1995 for providing impetus to development of large size power projects in the country. These guidelines were modified in 1998, 2002 and 2006 and were last amended on October 1, 2009 – exemption from customs duty for Mega Power projects were introduced for the first time in the 1998 amendment to the Mega Power Policy. The duty exemption at that time was restricted only to certain specified Mega Power Projects (the list of specified projects was increased over the years). It was only in 2003, that (vide Notification 26/2003-Cus) the exemption for Mega Power Projects was liberalized - instead of specifying certain specified projects, general parameters were laid down for eligibility towards customs duty exemption and any project meeting those parameters could avail the customs duty exemption.
Vide these new notifications (dated September 10), the situation has become somewhat akin to the pre-2003 period
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