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A ‘Make in India’ Budget! Way to the ‘New India’…

February 1, 2018 7408 Views
Gautam Khatter
Partner-Indirect Tax at PWC
.Nikhil Mediratta
Assistant Manager – Indirect Tax at PWC

With the Hon'ble Finance Minister of India, Shri Arun Jaitley presenting the much awaited Budget before the Parliament, the Government seemed determined to take India to its glorious days and to make it a captivating destination for investors. The Hon'ble Minster also mentioned a famous quote by Swami Vivekananda and said that 'New India which we aspire to create now will emerge'. With determination to bring benefits and improvements to the agricultural & rural sector to launching 'Operation Green', the focus of the government seemed to provide maximum livelihood to the rural areas and improve rural infrastructure.

Coming to the indirect tax proposals, surprisingly there was nothing to propose apropos GST law and emphasis was more on Customs. As was expected, the Government is focused to promote its flagship 'Make In India!' campaign pursuant to which the Hon'ble Minister, in his speech, emphasised on increasing the incidence of Customs Duty upon importation of goods into India. The move seemed to be aimed at encouraging indigenous manufacturing as opposed to importation. While some may also view these measures as means to garner additional revenue, as it is signifies a major shift in Government policy of reducing duty rates to those prevalent in ASEAN countries. Abolishment of cess (of 3%) and its replacement by a Social Welfare Surcharge (of 10%, 3% in certain cases-gold, silver, etc.) also adds on to the burden to an importer's pocket.

It seems that the industries, amongst others, that were impacted by the budget were electronic, furniture, automotive and consumer goods. Snippets of some of the changes, forming part of the Finance Bill, in the customs duty on popular imports are as under:

Particulars From To
Mobile phones 15% 20%
Parts of mobile phones 10% 15%
CKD import of motor vehicles 10% 15%
Some of the parts and accessories of Motor Vehicles 10% 15%
Sunglasses 10% 20%
Wrist watches, smart watches, pocket watches and clocks 10% 20%
Certain forms of furniture and mattresses 10% 20%
Perfumes 10% 20%
Footwear 10% 20%
LCD/LED/OLED panels and parts 7.5%/10% 15%

It is evident that the tariff changes, even to the extent of a 100% increase (i.e. from 10% to 20%), go on to show that the Government indents to strongly promote in-house manufacturing by discouraging imports. This move of the Government is somewhat, a theory of deterrence (as used under criminal laws) in the sense that enhancing duties upon import to discourage them and as an a fortiori encouraging indigenous manufacturing. Also, within indigenous manufacturing, the objective seems that there should be enough value addition in India. Even critical parts (such as parts of motor vehicle) have also faced the wrath of enhancement in duty which goes on to show that the Government aims to attract the 'entire ecosystem of manufacturing', to be set-up in India.

A duty of customs upon import and a duty of excise upon manufacture/production, by the name of 'Road and Infrastructure Cess' has also been proposed to be levied on Petrol and Diesel if they are meant for the purpose of financing infrastructure projects. However, it seems that there should be no change in the overall duty structure for the reason that additional duties of excise has been abolished and basic customs duty has been proportionately reduced.

Certain amendments have been also proposed to the Customs Law in order to further improve ease of doing business in cross border trade and to align with commitments made under the Trade facilitation agreements, entered into by India. For instance, the Advance Ruling authority can now be approached by a larger number of importers, exporters and other people to avoid future rounds of litigations. The Law also now will provide the basis on which IGST will be levied under Customs when the goods are sold while they are lying in the warehouse. The question now remains whether IGST under the GST law will also be levied upon supply of the said goods by the seller to the purchaser? Will there be a double taxation to that effect?

Another instance is of providing dispute resolution mechanism by way of introducing the concept of pre-consultation notices in cases where there is no allegation of suppression, etc. Timelines have also been set for adjudication of demand notices to 06 months and 01 year depending upon whether charges for collusion, suppression, etc. have been invoked.

While this budget can be viewed as mainly focusing on promoting indigenous manufacturing and economic and rural development, it is to be seen whether these proposals will have any material impact on the bilateral relations, which India has with other countries.

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