Following the corporatisation of BSNL, local telecom equipment manufacturers (LTEMs) have to pay a central sales tax (CST) of 12 per cent, as opposed to the earlier CST of 4 per cent to the erstwhile DTS. That pinches because the BSNL is the biggest consumer of telecom equipment in the country.

Adding to the local manufacturer's woes is a second issue: the threat of cheaper imports. "The problem is that suppliers who are importing equipment only pay an Special Additional Duty (SADD) of 4 per cent, while a local manufacturer has to pay a sales tax of 12 per cent," said Mr Deepak Vasdev, founder president, C-DoT Manufacturers and Vendors Association. SADD is levied in lieu of CST on imported goods to ensure a level playing field for the local manufacturers.

"This discrepancy in favour of foreign suppliers comes on top of the proposed move to reduce the import duty on telecom equipment from 20 per cent to 5 per cent. With the excise duty hovering between 15 to 30 per cent, this could kill the domestic telecom industry," says Mr Sanjay Aggarwal, managing director, Paramount Communications Limited and member, Cable Manufacturers Development Association.

For instance, he explains when the BSNL buys from Paramount Taiwan, the goods only bear a SADD of 4 per cent, but when the goods are bought from Paramount India, there is a 12 per cent burden due to sales tax.

``Therefore, its probably cheaper to export products to a neighbouring country and then import them back in order to sell to the BSNL,'' he adds sarcastically.

As per the CST Act, 1956, in case of inter-state sales by a registered dealer to another, CST at 4 per cent is charged against the issuance of a "C" form by the buyer.

Restore sales tax benefits, beg local suppliers To avoid the possibility of tax evasion and channeling of goods into underground economy, penal rates of 10-12 per cent are charged on inter-state sale of goods to non-registered dealers, without ``C'' forms. Since government departments are consumers and not registered dealers, they were given the facility of using "D" forms-which were the government-equivalent of the C forms-which qualified for concessional CST of 4 per cent.

The DTS, earlier being a part of the Government, enjoyed the facility of issuing the ``D'' form, as a result of which the goods supplied to DTS were chargeable to concessional sales tax at 4 per cent. However, with the BSNL corporatisation, while the ``D'' form facility was withdrawn, the equivalent ``C'' form facility was not issued.

According to the pre-Budget 2001 memorandum submitted to the Government, "The impact of loss of ``C/D'' form facility to DoT alone shall be minimum Rs 1600 crore for the year 2001-2002 and Rs 10,000 crore for the 10th plan."``The CST should be reduced to zero, and in case that is not feasible immediately, at least the IT and telecom sectors should be allowed the benefit of `C' forms,'' according to Mr Arun Khanna, president, Telecom Equipment Manufacturers Association of India (TEMA).