The Centre is examining concerns over the alleged misuse of the Manufacture and Other Operations in Warehouse Regulations (MOOWR) route by battery energy storage system (BESS) developers to defer customs duties on imported battery systems for up to 10-12 years, amid fears that the mechanism could distort India’s rapidly expanding storage market, weaken domestic manufacturing and defer customs liabilities running into several thousand crore rupees.
The issue assumes significance as India aggressively scales up battery storage deployment to support renewable energy integration and rising evening peak electricity demand, with more than 43 GWh of viability gap funding-backed BESS capacity already announced.
The issue surfaced during a Ministry of Power meeting with BESS industry representatives on April 24, where developers and manufacturers flagged concerns over long-term Basic Customs Duty (BCD) deferment being sought for imported storage systems under the MOOWR framework.
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According to the meeting minutes, industry representatives informed the government that “some BESS developers are seeking the Basic Customs Duty (BCD) deferment for the useful life of the BESS project i.e. 12 years under the current MOOWR Regulations of CBIC, Department of Revenue (DoR).”
The ministry of power observed that the Department of Revenue and the Central Board of Indirect Taxes and Customs (CBIC) may issue clarification regarding the applicability of MOOWR regulations on BESS projects.
Queries sent to ministry of power were not responded till the press time.
Regulatory Grey Areas
Under the MOOWR framework introduced in 2019, imported capital goods kept in bonded facilities can defer customs duty payments until the goods are cleared for domestic consumption or exported.
However, industry documents reviewed by Financial Express alleged that some developers were importing fully built or near-complete battery systems as “capital goods” and using them in grid-scale electricity storage projects, even though the final output is electricity and not an exportable manufactured product.
The document termed the practice a “misuse” of the scheme that “undermines the domestic industry and threatens Aatmanirbhar Bharat goals.”
Alekhya Datta, Director, Electricity and Renewables Division at TERI, said the real policy concern is whether fully imported BESS systems should get a long-term duty deferment advantage without any corresponding domestic value addition, especially when India is simultaneously trying to build domestic battery manufacturing, pack assembly, BMS, EMS, PCS integration, testing and recycling capability.
“MOOWR was designed to support manufacturing and other approved operations under customs bond, improve working capital, and support Make in India. It was not primarily intended to provide long-term duty advantage for fully imported project assets used for domestic services,” Datta said.
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Aniket Tiwari, Research Associate at TERI, said the issue creates a regulatory grey area because BESS projects store electricity and later discharge it into the grid instead of producing exportable goods.
“The concern is whether imported BESS systems should receive long-term duty deferment without corresponding domestic value addition, while Indian pack, container, BMS, EMS, PCS and system-integration players compete with higher upfront costs,” Tiwari said.
Financial Arbitrage
Industry estimates cited in the documents suggest imported systems may gain an effective 15-20% cost advantage because customs duty and GST payments are deferred over the operational life of projects, typically 10-15 years.
The financial implications could be significant given the scale of upcoming storage tenders.
India already has a 13.2 GWh BESS viability gap funding (VGF) scheme with budgetary support of ₹3,760 crore, while another 30 GWh VGF programme has been approved with ₹5,400 crore support from the Power System Development Fund.
Datta said imported BESS systems costing ₹700-1,000 crore per GWh could translate into deferred customs duties of ₹105-150 crore per GWh at a 15% BCD rate and ₹140-200 crore per GWh at a 20% duty rate.
“If a large part of such capacity were imported under long-term duty deferment, the deferred customs exposure could run into several thousand crore rupees,” he said.
The issue also intersects with India’s ₹18,100-crore ACC Production Linked Incentive (PLI) scheme, which aims to establish 50 GWh of domestic battery manufacturing capacity with phased localisation requirements rising from 25% to 60%.
Tiwari warned that long-term duty deferment for imported systems could weaken the economics of domestic battery manufacturing at a time when Indian companies are still investing in localisation of cells, battery packs, thermal management systems, electronics and recycling infrastructure.
“Imported systems already benefit from global scale, especially from China’s mature battery supply chain. If they also receive long-term BCD deferment, domestic manufacturers could face a 15-20% effective cost disadvantage in tenders,” he said.
TOPICSBatteryThis article was first uploaded on May thirty-one, twenty twenty-six, at two minutes past nine in the night. © The Indian Express (P) Ltd