New Delhi: To prevent the misuse of customs duty benefits, the Finance Ministry has made it mandatory for mega power equipment importers to furnish a bank guarantee till they provide mega power status report from the Power Ministry.

As part of its efforts to boost electricity generation in the country, the government has extended various tax concessions for the power sector.

The importers have to submit "mega power status" certificate within a period of three years from the date of import, failing which the financial guarantee would be deducted as customs duty.

For entities implementing mega projects, the Power Ministry issues a certificate of authorisation. Mega power projects are those having a capacity of 1,000 MW and above, while UMPPs have about 4,000 MW capacity.

Now, entities importing equipment for mega power projects are required to provide either a certificate from Power Ministry or a fixed deposit receipt to the government to avail duty concession.

The financial guarantee has to be furnished in the absence of authorisation certificate from the Power Ministry, which issues the same after detailed scrutiny of the project.

"The notification helps in safeguarding the interests of customs department as well as prevent misuse of the tax concessions extended for such power projects," leading consultancy Deloitte's Senior Director (Indirect Tax) M S Mani said.

In recent times, there has been instances of some entities misusing the tax concessions by importing equipment, which were meant for purposes other than mega power projects.

As per Finance Ministry's latest notification, the importer has to furnish "a security in the form of a fixed deposit receipt from any scheduled bank for a term of 36 months or more... for an amount equal to the duty of customs payable on such imports but for this exemption".

When asked whether providing fixed deposit receipt would be a financial burden for power sector players, Mani noted it would adversely impact them. "(However), there might be bit of pressure on working capital (of companies)," he added.

Since there are only a few domestic players to cater to rising equipment demand in the power sector, many entities import goods from countries, including China and France.

According to the notification, if the importer fails to furnish the "final mega power status" certificate within 36 months from the date of import, the security amount would be appropriated as customs duty.

Similar notification has also been issued for availing central excise duty concessions.

Capital goods imported for existing mega or UMPPs are given concessional excise duty. These goods are entitled for a concessional basic customs duty of 2.5 per cent as well as
exemption from Counter Vailing Duty.

To sustain good economic growth, the country needs high levels of capacity addition in the power sector. Going by latest estimates, over 50,000 MW capacity is expected to be added in the 12th five-year plan (2012-17).

So far, in the current plan period, there has been a capacity addition of about 37,000 MW.