In the current budget the weight duty has been extended to cast iron housing units for bearings, which according to market sources will only encourage large scale smuggling of this item as is happening in the case of bearings.

It appears that the advice of the field staff has been ignored by the Tariff Research Unit in the CBEC.

The field formations have been suggesting reduction in the existing weight duty levied on imports of other ball and roller bearings to a rationalised level of Rs 60 per kg which can help in curbing smuggling of bearings. Even the domestic importers are asking for a cut in the currentweight duty rate.

Market sources claim that ever since the weight duty has been introduced, the government has been actually losing over Rs 100 crore worth of duty on bearings that are being smuggled in from Nepal and to some extent from Pakistan, since the duty on bearings in both countries is only 10 per cent.

Market sources claim that bearings is a money spinner for smugglers second only to drug smuggling where margins are higher. Bearing smugglers, especially the ones operating through Nepal earn a net margin of over 400-500 per cent on their CIF value. As all imports for Nepal are routed through Calcutta, it is easier for smugglers to source their requirements through Calcutta for onward transshipment to Nepal. In many cases the goods intended for Nepal are actually off loaded in and around Calcutta and only empty containers reach their declared destination, customs sources indicated.

Even when the goods actually reach Nepal, most of it is being diverted to the Indian market. Reports say that thearrangement between Nepal-based smugglers and their buyers in Mumbai is that the consignments are home delivered by the Nepal-based parties at a cost of Rs 30 per kg. Against Indian imports of ball bearings of all types and varieties, of Rs 300-400 crore, imports of Nepal are much more than its actual local consumption of about Rs 25 crore. According to four customs divisions at Varanasi, Lucknow, Bareilly and Gorakhpur manning the Indo-Nepal border, most seizures of contraband in this region comprises bearings of different varieties.

Bearing importers all over the country have been making representations to various government agencies that the concept of recovering weight duty on bearings was unrealistic as the uniform rate for like items imported from the European block and the east European block was causing heavy disparity and making the cheaper varieties more costlier than the expensive varieties.While bearings imported form European countries are ranged between Rs 600 to Rs 800 per kg, the importsfrom the east European block are place between Rs 70-90 per kg.

Imports from Japan are placed between Rs 150 to Rs 200 per kg. If a uniform rate of weight duty is levied on all these products, the importers of expensive varieties end up paying less than 20 per cent of their CIF value while importers of cheaper varieties from the east European block, China and Russia end up paying 200 to 500 times their CIF cost. Till last year the government's net earnings from import duty on bearing housing was less than Rs 15 crore as against the projected revenue from bearing imports worth Rs 259.81 crore.

There have been allegations that it is one particular company which stands to gain from the extension of the weight duty to bearing housings. By extending the weight duty concept to the bearing housings, the government has caused heavy disparity in prices leading to excessive profits for this Indian company which is all set to hike its prices, sources claimed.

Till last year the duty incidental on these imports wasto the tune of 42 per cent on the CIF value. With the introduction of the weight duty, the landed cost of the Japanese variety will now range between Rs 360-480 per kg whereas the cost of the Chinese variety will be between Rs 160-180 per kg instead of their original rates of Rs 120-150 and Rs 35-40 per kg respectively.

Market sources said that if the government brings down the weight duty to Rs 40-75 per kg, it will take away the smuggler's incentive. The market sources said that earlier the basic duty was 25 per cent on which weight duty was Rs 155 per kg. This was brought down to 20 per cent when the weight duty was brought down to Rs 120. Now the basic duty is 10 per cent only. If MNC products cost Rs 600 per kg and duty recovered on it is Rs 60, the government is going to earn what it used to earn when the duty incidental was higher as Rs 60 is earned from the 10 per cent basic duty and the rest can be earned from weight duty. This will also bring down the profit margins of the smugglers to less than20 per cent of the CIF value which is considered uneconomical for grey market operators.

But now the government has extended the excessively high amount of levy on iron castings which merely act as shells. While the weight of the housing case for bearing housing without bearing is 70 per of the body including the bearing, which does not cost more than Rs 10 to 12 per kg, the ministry intends to recover between Rs 80-150 per kg on the entire piece.