FEBRUARY 27, 2010

Import duty exemption for road construction machinery - A sensible amendment in conditions

By J M Kishore

CUSTOMS Notification 21/2002 provides exemption from both Basic Customs Duty as well as CVD  in case of import of specified goods required for construction of roads .The relevant entry at Sl.No. 230 is given as below:

The condition for duty exemption is that the goods are imported by the Ministry of Surface Transport  or imported by a person who has been awarded a contract for the construction of roads in India by or on behalf of the Ministry of Surface Transport, by the National Highway Authority of India, by the Public Works Department of a State Government or by a road construction corporation under the control of the Government of a State or Union Territory;  Or the goods are imported by a person who has been named as a sub-contractor for the construction of roads in India by or on behalf of the Ministry of Surface Transport, by the National Highway Authority of India, by Public Works Department of a State Government or by a road construction corporation under the control of the Government of a State or Union Territory. Another condition is that the importer, at the time of importation, furnishes an undertaking to the Deputy Commissioner of Customs or the Assistant Commissioner of Customs, as the case may be, to the effect  that he shall use the imported goods exclusively for the construction of roads and that he shall not sell or otherwise dispose of the said goods, in any manner, for a period of five years from the date of their importation.

In the recent past, SIIB of several Customs formations booked cases on importers who have imported goods for construction of roads and started using elsewhere after completion of the specified project as such usage of the goods is in violation of the condition mentioned in the Notification.

It is true that the condition  of non-transferability condition  of  the imported machinery for five years even in cases where the initial project is completed within a short time of 2 to 3 years  is an illogical concept in the present times where in the constructions activity is required to be completed as quickly as possible . Vide budget 2010, Government rightly amended the condition for the notification by adding  the provision that Customs   may allow the importer to sell or dispose of any of the imported goods on payment of customs duties at the rates applicable at the time of import but for the exemption ,on the depreciated value of the goods to be calculated @5% on straight line method for each completed quarter starting from the date of importation of the said goods till the date of their sale subject to the condition that the concerned Ministry ,Authority, Department or Corporation certifies that the said goods in the project ,for which duty free import was allowed ,are no longer required for the project.  It is also clarified by the Board that it is permissible to relocate or re-deploy the machinery imported under the exemption to another road construction project for which the importer would have been otherwise eligible to claim the benefit of the exemption.

This kind of relaxation is a sensible one. This facility may also save foreign exchange, as it enables other Indian  companies engaged in similar projects to procure sophisticated import items from a fellow Indian importer.

A few questions are still there un-answered.

What if the importer opts for leasing  out instead of  a sale ? How to determine the value for the purpose of collection of the duties ?

Why should the exemption be limited to a contractor awarded the contract for the construction of Roads in India by or on behalf of the Ministry of Surface Transport, by the National Highway Authority of India, by the Public Works Department of State Government or by a road construction corporation only? Is it not a fact that road construction activity  is undertaken by several  other agencies such as other local administrative authorities ,  Ministry of Urban Transport etc ?

(The views expressed are strictly personal of the author)