FEBRUARY 28, 2010

Customs - Key changes in the Finance Bill, 2010

Sonia Malik & Smita Singh

BUOYED by the prospects of economy bouncing back to 9% economic growth, the Finance Minister partially rolled back the stimulus package to cut down fiscal deficit and to achieve fiscal consolidation.

Past trends have proved that whenever import duty rates have been reduced, the economy has grown faster, become more competitive resulting into generation of high revenues. As a positive step towards power sector, the Finance Minister has reduced customs duty rates on import of machinery for initial setting up of solar power generation project, tunnel boring machines used for hydroelectric projects, etc.

In response to long awaited request of various stakeholders/ Industry to simplify complex duty regime, the Finance Minister has proposed to prescribe uniform, concessional 5% basic customs duty (‘BCD') leviable in terms of First Schedule to the Customs Tariff Act, 1975 (‘the Customs Tariff'); 4% additional duty of customs (‘CVD') leviable in terms of Section 3(1) thereof with full exemption from special additional duty (‘SAD') [leviable under Section 3(5) thereof] on specified medical equipments. Further import of part and accessories for manufacture of such equipments is proposed to be subjected to 5% BCD with exemption from CVD and SAD. Also to boost the medical sector import of inputs to manufacture orthopaedic implants has been proposed to be exempted from the customs duty.

With an objective of sustained development in agriculture and large investments in technology and infrastructure development various measures have been proposed. Project import status has been extended to certain cold storage, cold room or industrial project, Mono rail project for urban public transport, and setting up of Digital Head End which will provide boost to investment in agriculture and infrastructure sector. Also concessional customs duty of 5% to specified agricultural machinery not manufactured in India has been proposed.

To accelerate growth in telecom sector, BCD and CVD is being exempted on parts, components, and accessories for the manufacture of mobile handsets; sub-parts for manufacture of such parts and components; and parts or components for manufacture of battery chargers and hands-free headphone of such mobile headsets. SAD exemption on such goods has been extended till March 31, 2011. Accordingly to encourage the domestic manufacture of mobile phones accessories, exemptions from BCD, CVD and SAD are now being extended to parts of battery chargers and hands-free headphones .

Further reduction in the customs duty has been provided by exempting SAD on goods imported in a pre-packaged form for retail sale requiring declaration of the retail sale price under the Standards of weights and Measures Act, 1976, mobile phones, watches and ready-made garments even when they are not imported in pre-packaged form.

Presently electrical energy when imported into India is free from BCD. Now electrical energy imported into India [except clearance from Special Economic Zone (‘SEZ') to the Domestic Tariff Area] is being exempted from BCD and also exempted from SAD. Consequently electrical energy removed from a SEZ to the Domestic Tariff Area and non-processing areas of SEZ would now attract duty of 16% advalorem and Nil SAD with retrospective effect from June 26, 2009.

Shockingly stimulus provided to crude petroleum and refined petroleum products in June 2008 have been proposed to be withdrawn by restoring BCD of 5% on crude petroleum, 7.5% on diesel and petrol and 10% on other refined products. Restoration of customs duties on petroleum products will be inflationary in nature resulting into increase in freight and personal transportation costs and also possible increase in product prices due to increased transportation costs.

In the development of solar and wind energy India is far behind China, it is time to capitalize on the latest technology available in the world instead of relying on conventional coal and hydro sector projects to augment energy requirements of the Country. Accordingly specific exemption has been provided for development of renewable energy sector by providing for concessional customs duty of 5% to machinery, instruments, equipment and appliances, etc. required for the initial setting up of photovoltaic and solar thermal power generating units.

The Finance Minister has taken up and tried to resolve some of the problems faced by the film industry also. The customs duty on import of movies/ motion pictures recorded on cinematographic film or digital medium, music and gaming software recorded on medium to be charged only on the cost of carrier medium , freight and insurance as against earlier customs duty on such import on value equivalent to cost of print and freight and insurance charges, removing ambiguity in valuation of such imported goods.

It is laudable that the Finance Minister has touched upon and brought changes under diverse sectors ranging from agriculture, infrastructure, health, environment, entertainment sectors, etc. On one hand the Finance Bill, 2010 projects the Governments commitment to cleaner environment and rationalization and simplification of duty rate structure which has been counterbalanced with increase in customs duty rate which unfortunately brings in its encompass petroleum products, brunt of which would be ultimately faced by “Aam Aadmi”.

(The authors are associated with J Sagar Associates)