Department of Commerce Clears the Fog Around Fiscal Benefits for SEZ Solar Installations

The Department of Commerce has recently clarified fiscal benefits for the procurement and installation of solar panels within Special Economic Zones (SEZs), addressing long-standing confusion and regulatory challenges faced by IT/ITES developers and SEZ units, states Export Promotion Council for EOUs and SEZs (EPCES) notification. Clarification has come in response to requests from IT/ITES developers and SEZ units regarding the matter. 

The issue originated from ambiguities in the SEZ power guidelines dated February 16, 2016, and subsequent amendments on January 28, 2019, and June 7, 2021. These guidelines stipulated that SEZ developers could establish solar power units with fiscal benefits under Section 26 of the SEZ Act, provided they met the NFE obligation. However, developers found it challenging to comply with the NFE requirement while meeting municipal and development authorities' mandates to install solar power plants.

Similarly, SEZ units faced hurdles in obtaining fiscal benefits for setting up solar power plants for their captive use. 

The Export Promotion Council for EOUs and SEZs (EPCES) pursued the matter with the Department of Commerce, the Ministry of Power, and the Directorate General of Export Promotion, CBIC, seeking clarity.

The breakthrough came with the Department of Commerce's letter dated March 7, 2024, which explicitly stated that SEZ units are entitled to duty benefits under Section 26 of the SEZ Act 2005 for the installation, and operation & maintenance (O&M) of renewable energy equipment exclusively for captive consumption.

Further, Instruction No. 116 dated June 21, 2024, directed Development Commissioners to consider requests from SEZ Developers and Co-developers under Para 1(i) of the power guidelines dated February 16, 2016. This means SEZ developers can now set up non-conventional power plants as part of their infrastructure with fiscal benefits for the initial setup. 

However, no fiscal benefits will be provided for the O&M of these plants.