Siddharth Surana, Director, RSM India
The Indirect Tax proposals, specifically the Customs proposals announced by the Hon’ble Finance Minister “aim to promote exports, boost domestic manufacturing, enhance domestic value addition, encourage green energy and mobility.” The focus is to create a simplified tax structure with fewer tax rates and improve tax administration.
In this article author covered 5 Major Custom Duty Proposals of Union Budget 2023-24 which includes Clarifications with regards to “conditional exemptions” issued by Central Government, Time Limit of Nine Months for Applications before Settlement Commission, Amendments to Customs Tariff Act, Exemptions from Basic Customs Duty (BCD) on select commodities and Exemptions from Social Welfare Surcharge.
Under Section 25 of the Customs Act, the government has the power to exempt, by way of notification, certain goods from customs duty. These exemptions can be conditional or unconditional. Where any exemption is granted subject to any condition and expiry date of such notification is not mentioned expressly, such exemption is generally valid upto the 31st day of March falling immediately after two years from the date of such notification. This means that if the Central Government issues any notification to conditionally exempt a product from the levy of Custom duty, and if such notification is silent on period for which exemption is granted, it is presumed under law that such exemption is in force till the 31st March falling 2 years after date of notification. Thus, for a notification issued on 1st February 2023 the notification would be valid till 31st March 2025. The Budget proposes to clarify that the clause of 2 years will not apply to certain conditional exemptions such as:
(a) any multilateral or bilateral trade agreement;
(b) obligations under international agreements, treaties, conventions or such other obligations including with respect to United Nations agencies, diplomats and international organisations;
(c) privileges of constitutional authorities;
(d) schemes under the Foreign Trade Policy;
(e) the Central Government schemes having validity of more than two years;
(f) re-imports, temporary imports, goods imported as gifts or personal baggage;
(g) any duty of customs under any law for the time being in force, including integrated tax on imports, other than duty of customs leviable under section 12.
Settlement Commission provides a mechanism to settle high stakes tax disputes through conciliation rather than going for litigation. The Budget proposes that in respect of any application made to the Settlement Commission, the order needs to be passed within nine months from the last day of the month in which said application was made. If the Commission fails to pass the order within this time limit, the application will stand abated.
Section 9(6) and Section 9(7) of the Customs Tariff Act, 1975 is being amended to remove ambiguity and clarify that determination and review for Countervailing Duty refers to determination and review of Countervailing Duty in a manner prescribed by rules under the Act.
Section 9A(5) and 9A(6) of the Customs Tariff Act, 1975 is being amended to remove ambiguity and clarify that determination and review for anti-dumping duty refers to determination and review in a manner prescribed by rules under the Act.
Exemption in the form of concessional BCD (i.e. 5%) for the items such as specified drugs, medicines, diagnostics kits has been further extended to 31 March 2025.
Similarly, the exemption for items such as lithium-ion cell for use in the manufacture of battery or battery pack of cellular mobile phone and lithium-ion cell for use in the manufacture of battery or battery pack of electrically operated vehicle (EVs) or hybrid motor vehicle has been further extended up to 31 March 2024. [Notification No. 02/2023-Customs dated 1 February 2023]
The Budget emphasised focus on making India a manufacture hub for lab grown diamonds. It was proposed to, with effect from 2 February 2023, exempt seeds used in manufacture of rough lab grown diamonds from the whole of BCD. The earlier rate of BCD on these seeds was 5%.
Further, BCD exemption has also been provided to camera lens and its inputs/parts for use in manufacture of camera module of cellular mobile phone.
With a view to achieve green growth, specific capital goods/machinery for manufacture of Lithium-ion cell for use in battery of Electrically Operated vehicles have also been exempted from Basic Customs Duty.
In addition to BCD, a Social Welfare Surcharge is also levied on importation of certain goods. The Budget, with a view to reduce the number of custom duties, has done away with and provided exemption from levy of Social Welfare Surcharge on several items. These include silver, gold, imitation jewellery, bicycles, specified motor vehicles, specified aeroplane and aircrafts, toys and parts thereof etc. It must be mentioned that while the exemption is provided, the overall incidence of custom duties i.e. the effective total customs duty rate on these products is the same as earlier. It is only the Social Welfare Surcharge that is done away with.
Views expressed are personal.