Local producers can avail of concessional 1% excise duty rate even if duty-exempt components are used in production
The Central Board of Excise and Customs (CBEC) on Thursday eased the condition for local producers to avail of the concessional 1% excise duty rate on ‘made in India’ phones by clarifying that this benefit can be claimed even if duty-exempt components are used in production.
The original condition for claiming the concessional 1% duty against the otherwise applicable 12.5% excise duty was that the producer should not have claimed any credit for the taxes paid on inputs or capital goods used in the production. This, however, has led to the interpretation that locally made mobile handsets would be denied this benefit if any duty-exempt input goes into production.
The notification explained that instances of not having claimed credit for input taxes also covers using inputs on which ‘nil duty’ is applicable.
“It is a very timely and important clarification which will help domestic manufacturers who may be using inputs which are currently not subjected to duty. They would continue to get the benefit of the concessional excise duty,” said Pratik Jain, Partner at KPMG India.
Thursday’s clarification follows an earlier one on July 17 that effectively restored the sharp duty differential that locally-produced handsets could enjoy against imported ones. CBEC had in that notification specified that the rate of concessional duty given to local producers under certain conditions cannot be claimed by importers for discharging their countervailing duty liability. Importers have to pay countervailing duty at 12.5%, the same rate at which domestic producers pay excise duty when cenvat credit on raw materials and capital goods are claimed.
That clarification reinstated prospectively the 11.5% duty differential that the government wanted to give to locally produced phones.