Make in India programme- Amendment in Customs Needed

[Monalisa Khuntia]

Introduction:

The new government has acknowledged the importance of manufacturing in India by initiating the “Make in India” programme/ campaign. This programme is a necessity for employment and for trade expansion. As per the Central Statistics Office (CSO), the manufacturing activity in India has contracted by 0.7 per cent in 2013-14[1]. This led to thetardy overall economic growth down to sub-5 per cent for the second consecutive year.Hence, the Government has set forth the challenge to revive the manufacturing sector in India. PM Narendra Modi stressed that the dream of “Made in India” can be crystallised by channelizing the strength of the youth through manufacturing. Further, the Government has emphasised that "We should strive to be a nation that doesn't import, but exports”.

In order to achieve the goal of “Made in India” programme, there are many factors/ pre-requisites which have to be looked into to augment manufacturing in India and thereby exports. Some of them are as follows:

• financial help from the Government by way of government subsidies,
• rationalisation of complicated tax compliances,
• reduced duties/ taxes on raw materials,
• exemption of Customs duties for import of materials or parts thereof, etc.

One of such important factors is full/ concessional exemption of duties/ taxes on raw materials or parts thereof required for manufacturing of final product.

Benefit of exemption from Customs duty:

In manufacturing sector, situations may arise where the raw materials/ parts required for manufacturing final products may not be available in India. Such situations may necessitate import of goods from outside India. However, the high indirect tax component (i.e., custom duties on import) may restrict the manufacturer from getting into the manufacture and thereby may cause de-motivation to the poor manufacturer. Hence, to stimulate manufacturing and ‘Made in India’ programme, manufacturing sector should be given some relaxations by way of a general exemption notification. Following are few benefits which could be derived on account of the expected general exemption notification for parts or components:

1. growth in employment opportunities
2. facilitate economic development
3. equality of prices
4. help in maintaining balance of payment, etc.

Presently, there are few exemption notifications which allow exemption of Customs duty on components or parts thereof imported for the purpose of using the same on manufacturing the final products. Most of the notifications are however, industry specific and do not generally exempts imports of spare parts/ components of all categories of products, pertaining to any industry. AtBelow mentioned are such notifications:

1. Mega exemption notification i.e., notification no. 12/2012-Cus., dated 17.03.2012 provides a list of goods which are fully or partially exempted from Basic Customs duty and CVD. Following are some of the specific items which are exempted as parts:

• Electric parts for fitting on electric lamp / table lamp / wall lamp / ceiling lamp / door lamp / window lamp / garden lamp
• Parts, consumables and other items for use in the leather industry
• Parts of umbrella, including umbrella panels
• Parts and components required for use in high voltage power transmission project
• Parts of the machinery and equipment for use in man-made or synthetic fibre or yarn industry
• Parts and raw materials for manufacture of goods to be supplied in connection with the purposes of off-shore oil exploration or exploitation
• Parts of wind operated electricity generators, for the manufacture or the maintenance of wind operated electricity generators
• Parts for the manufacture or the maintenance of blades for rotor of wind operated electricity generators
• Parts of the machinery, instruments, apparatus and appliances required for the renovation or modernisation or for the maintenance of a fertiliser plant
• Parts of the kits required for the conversion of motor- spirit or diesel driven vehicles into Compressed Natural Gas driven or Propane driven or LPG driven vehicles
• Parts of catalytic convertors, for manufacture of catalytic convertors
• Parts of the specified goods required for basic telephone service, cellular mobile telephone service, internet service or closed users group 64 KBPS domestic data network via INSAT satellite system service
• Parts of the specified goods required for radio paging service
• Parts of the specified goods required for Public Mobile Radio Trunked Service (PMRTS)
• Parts of the specified goods required for the manufacture of goods falling under heading/sub-heading/tariff item 8523 52 00, 8541, 8542, 8543 90 00 or 8548 90 00
• Parts, for manufacture of specified machinery or equipment for use in the textile industry
• Parts, for manufacture of Coffee vending and brewing machines other than of a kind used for domestic purpose
• Parts and components of Tunnel boring machines for use in the assembly of Tunnel boring machines
• Parts, for manufacture of Shuttle less Looms for use in the textile industry
• Parts and components of Cash dispenser or automatic bank note dispenser
• Specified parts imported by a licensed amateur radio operator
• Parts of gliders or simulators of aircrafts (excluding rubber tyres and tubes of gliders)
• Parts and testing equipment, for maintenance repair, and overhauling of aircraft falling under heading 8802, by the units engaged in such activities

2. Notification no. 21/2012-Cus., dated 17.03.2012 as amended provides exemption of only additional duties of custom (SAD) under section 3(5) of the Customs Tariff Act. Following are the specific parts which are being exempted by virtue of this notification:
   • Parts of DVD Drive or DVD Writer, Combo Drives, CD-ROM Drives
   • Manually operated or animal driven agricultural implements, their spare parts, components and accessories
   • Parts and raw materials required for use in the manufacture of wind-operated electricity generator
3. Notification no.102/2007-Cus., dated 14.09.2007 provides exemption of additional duty of customs under section 3(5) i.e., SAD, by way of refund of SAD.

Further, following are some illustrative list of notifications exempting customs dutyon parts/ components when such goods are used in the manufacture of final products to be exported:-

1. Exemption to imports of capital goods, components and spares, etc. thereof imported under EPCG scheme- Notification no. 22/2013-Cus., dated 18-4-2013[2].
2. Exemption given specific to Textile industry [Notification no.12/2012-Cus., dated 17.03.2012, as amended by notification no.12/2014-Cus., dated 11-07-2014]:

• Non-fusible embroidery motifs or prints are included in the list of items eligible to be imported duty free for manufacture of garments for export.
• Specified goods imported for use in the manufacture of textile garments for export are fully exempt from BCD and CVD subject to the condition that the manufacturer produces an entitlement certificate from the Apparel Export Promotion Council.
• Fusible embroidery motifs or prints, anti-theft devices like labels, tags and sensors, pin bullets for packing, plastic tag bullets, metal tabs, bows, ring and slider and rings are being included in the list of items eligible to be imported duty free for manufacture of handloom made ups or cotton made ups or manmade made ups for export.

3. Certain goods used in the processing of sea food. [Notification no.12/2012-Cus., dated 17.03.2012]
4. Exemption to imports of tags, labels, stickers, belts, buttons or hangers, by bonafide exporters. [Notification no.12/2012-Cus., dated 17.03.2012]

Conclusion:

Now, in the backdrop of above, all the industry is eagerly waitingfor a general notification from the Government, exempting fully or partially (may be 50%) the basic customs duty on imports of spare parts/ components required to manufacture final products to be exported. This notification would not only boost manufacturing in India but would also encourage exports. Hence, there is a need for a general exemption notification.

In this regard, we have drafted a notification representing all the manufacturing Industries engaged in exports, which could be considered by the Government. The same is given below.

DRAFT

NOTIFICATION NO

1/2015- Customs, Dated: ....................

In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962(52 of 1962), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts parts/ components of any description imported for use in the manufacture of the final products of any category/ industry for export, from the whole of the duty of customs leviablethereon which is specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975).

Provided that the exemption under this notification shall not be available to the parts/ components imported for any reason other than for the purpose of use in the manufacture of final products of any category/ industry f.

Provided also that the exemption under this notification shall not be available to the list of goods of description specified in column (2) of the Table hereto annexed below.

TABLE

S. No.	Description of goods
(1)	(2)
1.	Pan Masala
2.	Acetate Tow
3.	Tobacco products
4.	Filter Cigarettes or bidis
5.	Filter rods used in the manufacture of cigarettes
6.	Narcotic Drugs and Psychotropic Substances
7.	Liquor
8.	Counterfeit goods and goods violating any of the legally enforceable intellectual property right
9.	Counterfeit Currency notes/coin or fake Currency notes
10.	Specified Live Birds and animals
11.	Exotic birds except a few specified ones
12.	Wild animals, their parts and products
13.	Hazardous wastes
14.	Sex determination kits
15.	Import of mobile handsets without IMEI number or with all zeros IMEI and CDMA mobile phones without electronic serial number (ESN)/Mobile equipment Identifier (MEID) or with all zeros as ESN/MEID
14.	Fire Arms
15.	Pornographic and obscene materials
16.	Maps and literature where Indian external boundaries have been shown incorrectly
18.	Import of beef in any form and products containing beef in any form
20.	Reptiles skin

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[1] http://www.thehindu.com/

[2] Also refer Chapter 5 of Foreign Trade Policy 2009-14