JULY 07, 2009

Union Budget 2009: Customs – A balanced act

Sonia Gupta & Smita Singh, J. Sagar Associates

THE Union Budget 2009-10 proposes to retain current custom duty rates marking a few exceptions and has done a balancing act keeping in tune with steps for revival of the economy reeling under effect of the global economic crunch. The Finance Minister in his budget speech has said “The paramount need is to provide industry with a stable framework. My proposals on indirect taxes seek to achieve this by maintaining the overall rate structure for customs and central excise duties as well as service tax. I must hasten to add that I have not hesitated to act where distortions provide a compelling reason or where relief would provide a healing touch”.

The budget proposes certain key changes in the electronic industry. Exemption from payment of basic customs duty provided to Set Top Boxes in 2006 for smooth introduction of Conditional Access System has been withdrawn. Further, to encourage domestic value addition basic customs duty on Set Top Boxes has been imposed at a nominal rate of 5%. Furthermore taking into account the potential of electronic hardware industry to create employment opportunities, the basic customs duty on LCD panels has been reduced from 10% to 5% in order to promote indigenous production of LCD televisions. Additionally, exemption from payment of additional custom duty (CVD) of 4% available on import of accessories, parts and components imported for manufacture of mobile phones has been reintroduced for another year.

In health care sector basic customs duty on 10 specified life savings drugs/vaccine and their bulk drugs has been reduced from 10% to 5% with Nil CVD by way of excise duty exemption. Customs duty on specified heart devices has also been reduced from 7.5% to 5% with Nil CVD by way of excise duty exemption.

To obviate the difficulties faced by IT industry in assessment of software which involves transfer of the right to use after levy of service tax on IT software service, the Budget proposes to exempt value attributable to the transfer of right to use packaged software from levy of CVD.

Basic custom duty on gold and silver has been doubled which was hitherto being levied at the prevailing rates since 2002 even as price of gold touched the skyline. The increase in rates for gold and silver including ornaments (excluding ornaments studded with stones or pearls) is also applicable when imported as personal baggage.

Further, in order to promote exports, certain additions has been made to the list of specified raw materials and equipments imported by manufacturer-exporter of leather goods, textile products and foot wear industry, which are fully exempt from customs duty. Similarly additions have been made to the existing exempt list of raw materials/ inputs imported by manufacturer/exporter of sports goods.

Keeping in view potential of new and renewable energy in today's growing shortage of energy and environmental concerns, the budget proposes reduction in the rate of basic customs duty on permanent magnets, which is critical component for Wind Operated Electricity Generators from 7.5% to 5% and on bio diesel from 7.5% to 2.5%.

Further, subsequent to decisions by the High Court of Delhi in the case of Commissioner of Central Excise Vs. Kandhari Radio , the budget proposes amendment to section 130 and 130A of the Customs Act to empower the High Courts to condone delay in filing appeals/ applications/ memorandum of cross objections where it is satisfied that there is sufficient cause of such delay.

The budget further proposes amendment to section 28F of the Customs Act so as to provide that the Central Government may by way of notification authorize the authority for advance rulings constituted under section 245- O of the Income tax act to act as an authority for the purposes of customs, central excise and service tax subject to some modification regarding the constitution of the authority.

In keeping with the election promises, the Finance Minister has rolled out a budget heavily focused on maintaining continuity of the current tariffs and structural changes in taxation . In the given the current economic scenario, the budget 2009-10 comes out as a very balanced budget in terms of growth and stability. The key focus of the budget is primarily on putting the economy back on fast growth track.