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Tuesday, March 1, 2011

Union Budget 2011-12: Supply of goods for expansion to mega power projects, UMPPs exempted from excise

In his Union Budget for 2011-12, the Finance Minister, Pranab Mukherjee, has sought to provide a level playing field to domestic suppliers of inputs to expansions to mega- and ultra mega power projects (UMPP). At present, while capital goods imported for such expansion projects enjoy a concessional basic customs duty of 2.5%, along with full exemption from countervailing duties, domestic players are expected to pay central excise duty on such supplies.
  • This creates a disadvantage for Indian companies, the prices quoted by which are found to be uncompetitive in any global bidding process for the supply of power generation equipment. 
  • The minister, has now proposed to provide an excise duty exemption for all goods supplies to expansions of these massive projects. It may be noted that goods supplied to greenfield UMPPs and mega power ventures are already exempt. 
  • The Mega Power Policy of the power ministry was introduced in 1995, in order to provide for rapid generation capacity ramp up in the country by utilizing the economies of scale available to large projects. The policy provides for fiscal sops to developers of 1000 MW+ (1000 MW in NER, Sikkim) thermal and 500 MW+ (350 MW in NER, Sikkim) hydel projects, in the form of duty exemptions.
  • Guidelines under the policy were modified in 1998, 2002 and 2006, while another amendment, to rationalize the procedure for grant of the requisite mega certificate and facilitate quicker capacity addition, was made in 2009.

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