CVD on Capital Goods Slashed to 10%

Excise Duty on Motor Vehicles Cut by 4% to 8%

New Deal for Mobile Industry Manufacture in DTA

Arun Goyal, Editor

The Finance Minister P Chidambaram in his farewell Budget granted many sops to boost investments in machinery by cutting excise duty, and the corresponding CVD on imports by 2%. Similarly, the excise in motor vehicles and two wheelers were also slashed by 4%.

The highlight of this cut is that the measure is valid only for four months, that is, 30 June 2014. A final view in the matter will be taken by the new Government who should present a regular Budget after the Lok Sabha election in May 2014.

The change is messy since the producers as well as importers will not be able to plan price cuts and the consumer may not benefit from the duty reduction. Further, the slash has created an imbalance in duty structure. For example, the CVD on instruments in Chapter 90 continues at 12% but excise with just a four month assured window for the duty cuts. Machinery in Chapter 84 and 85 which include electronics parts is at 10%. Similarly, project import CVD is 12% but the same goods imported outside project imports will attract CVD of 10%.

In the mobile phone case, the differential between imported mobiles and domestically produced ones is five percent. But the fact is that there is no mobile manufacturing unit in the DTA! Production in India is confined to SEZ and EOUs, both of which are considered as foreign entities and their DTA clearances will attract six percent excise. (May be the units in the two schemes will debond to take advantage of the duty differential).

Imports on the other hand, will suffer. Mobiles priced at less than Rs. 2000 MRP will face six percent CVD as compared to the one percent in the previous dispensation.

All in all, it is a quick fix budget, it will unfix what is already fixed.

Tail piece: In addition, there is a loss of revenue. We calculate the revenue loss of Rs. 8240 crores on CVD in Chapter 84 and 85 alone based on 2012-13 imports. In addition, there will be a loss of excise duty on cuts in motor vehicles estimated at Rs. 18,000 crs on a domestic production base of Rs. 450,000 crs and domestically produced capital goods. And this is in the face of falling in customs and excise collections!

This is no way to fix the economy and the revenue collections!