The Central Board of Excise and Customs has said only those firms making goods in India can enjoy a concessional 2% duty regime without availing tax credit on inputs, not importers who will have to pay 12.5% countervailing duty.
India has restored a key tariff advantage to local manufacturers that was snatched away following a Supreme Court judgement, giving a boost to prime minister Narendra Modi’s `Make in India’ campaign. Domestic manufacturers of electronic items such as mobile phones, laptops and tablets will get a boost from this incentive, as will others such as coal producers.
The Central Board of Excise and Customs, the apex indirect taxes body , has said only those manufacturing goods in India can enjoy a concessional 2% duty regime without availing of tax credit on inputs, not importers who will have to pay 12.5% countervailing duty .
The Supreme Court, in a case related to SRF Ltd, a manufacturer of chemical-based intermediates, had ruled that importers could avail of lower duty regime if they did not take tax credits. This had put to risk the nascent plans of foreign investors such as Taiwan-based Foxconn Technology Group and Softbank of Japan to set up manufacturing facilities in the country and placed at a disadvantage the existing plants of Samsung Electronics Co. and Huawei Technologies Co.
However, mobile phone manufacturers assembling devices in the country with imported inputs may not benefit so much from the government’s move.
“In case of mobile phones, appropriate duty would need to be paid on inputs to be able to avail the benefit of concessional rates on final products. Accordingly, assembly of parts alone may not be a beneficial proposition,“ said Bipin Sapra, a partner at EY.
The government has been trying to en courage domestic manufacture of electronic goods in view of large domestic market being serviced mainly by imports. India shipped in almost $37 billion worth of telecom instruments, computer hardware and peripherals, electronic instruments and components, and consumer electronics goods in FY15, a 14% rise over the previous year.
“If the said excisable goods are manufactured from inputs or capital goods on which appropriate duty of excise leviable….“ said a notification by the CBEC correcting the anomaly .
Mobile phones attract excise duty of 1% and a 1% National Calamity and Contingency Duty if no central value added tax (CENVAT) credit on inputs used is claimed, while a 12.5% countervailing duty is levied on imported devices. This gave a clear tariff advantage of 10.5% to local manufacturers. But the SC ruling in the SRF case said importers would pay only 2% duty if they did not avail of CENVAT credit, putting them on par with local manufacturers.
The government has filed a special leave petition against the decision but keeping in view the urgency of the situation, issued a notification that will apply prospectively. For the period March to July, the decision of the apex court on its petition would apply.
Experts said the move will boost the government’s `Make in India’ programme. “The government has reinforced its commitment to promoting manufacturing in India by restoring the duty incentives to manufacturers of certain commodities,“ said Sapra.