Custom Duty Exemption for Solar Power Systems Cannot Be Claimed for Inverters Alone: Kerala High Court Rejects Duty Relief on Partial Imports

“Notification Benefits a ‘System’, Not Isolated Components” –  In a decisive ruling Kerala High Court held that standalone inverter units imported by M/s Solgen Energy Pvt. Ltd. do not qualify as Solar Power Generating Systems for the purpose of availing customs duty exemption under Notification No. 12/2012-Central Excise dated 17.03.2012.

The Division Bench of Dr. Justice A.K. Jayasankaran Nambiar and Justice P.M. Manoj upheld the orders of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) which denied the benefit, emphasizing that “import of an inverter alone, in absence of photovoltaic modules, cannot be equated to a Solar Power Generating System.”

M/s Solgen Energy Pvt. Ltd., the appellant in three connected customs appeals (CUS. Appeal Nos. 2, 3, and 4 of 2024), had imported Grid-Tied Solar Inverters claiming exemption from additional customs duty under Notification No. 12/2012-CE, which grants such relief to complete Solar Power Generating Systems.

The original customs authority rejected the exemption claim, stating that the import did not represent a complete system, but merely a component. However, on appeal, the First Appellate Authority reversed this decision, relying on the absence of proof of alternate use and advocating a liberal interpretation of the exemption in favour of the assessee.

The Customs Department then appealed to CESTAT, which agreed with the original view and reversed the Appellate Authority's order, reiterating that the notification applies only to a fully integrated system and not to partial imports like inverters alone.

At the heart of the matter lay the question:
Does an import of standalone solar inverters, unaccompanied by photovoltaic (PV) cells or modules, qualify as a 'Solar Power Generating System' eligible for exemption under Notification No. 12/2012-CE?

The appellant contended that a liberal interpretation should allow such inverters to be treated as part of a Solar Power Generating System, even if imported separately. It argued that the inverters had no other industrial or commercial use and were intended solely for solar applications.

However, the High Court dismissed this plea, holding: “Had they imported both the above components together as an integral unit, then perhaps they could have obtained the benefit of the notification that granted an exemption in respect of Solar Power Generating Systems.”

The Court emphasized the essential role of photovoltaic cells, without which the inverters could not function as a complete system. The notification, in the Court’s view, clearly aimed to benefit integrated systems and not components in isolation.

Further, rejecting the plea for a broader reading of the exemption, the Court reasoned:

“Exemption applies to full systems, not to partial components when imported alone – Liberal interpretation does not extend exemption beyond the express language of the notification.”

Tribunal's View Affirmed, Appeals Dismissed

Agreeing fully with the CESTAT's reasoning, the High Court found no perversity or legal infirmity in the appellate tribunal’s conclusions. It observed:

“The Appellate Tribunal rightly found that the essential photovoltaic component required to form a solar power generating system was absent.”

The Court noted that the Tribunal had not acted on speculation, but on the admitted facts – that only inverters were imported, with no solar panels or PV cells, and therefore no integrated system was presented.

Accordingly, the Bench held that the exemption notification did not apply, and no interference was warranted in the well-reasoned order of the Tribunal.

The appeals were dismissed in their entirety.

This judgment provides much-needed clarity on the interpretation of tax exemption notifications, especially in sectors like renewable energy where component-based imports are common.

The Kerala High Court has reaffirmed a principled distinction between systems and parts, emphasizing that “beneficial notifications must be interpreted liberally, but not beyond their scope or contrary to their text.”

For importers and industry players, the ruling sends a clear signal: partial imports cannot avail full exemptions under notifications meant for integrated systems.

Date of Decision: 27 May 2025