Rate changes in the Budget

In the interim Budget presented by the finance minister recently, excise duty rates were reduced from 12 per cent to 10 per cent on most machinery, equipment, appliances, etc, and parts thereof under chapters 84 and 85 of the Central Excise Tariff. Other existing duty concessions, by way of tariff entry or notifications, continue to be available.

The excise duties on small cars, motor cycles, scooters, commercial vehicles (CVs) and trailers have been reduced from 12 to eight per cent and on sports utility vehicles from 30 to 24 per cent. Those on large and mid-segment cars have been reduced from 27 and 24 per cent, respectively, to 24 and 20 per cent. In line with the duty reduction on CVs, the duty on chassis was reduced appropriately. Duty has also been reduced on hybrid motor vehicles and hydrogen vehicles. The existing concessions (e.g. on tractors) by way of notifications continue to be available as before. These duty reductions notified on February 17 be available till June 30.

Customs duty rates have been reduced on some items that interest only a few importers. The reduction in excise duty means the additional duty payable on goods of chapter 84 and 85 of the Customs Tariff will also see a reduction. Consequently, the aggregate import duties on most capital goods come down from 25.85248 per cent to 23.5494 per cent, a reduction of 2.3 per cent. Whether these reductions will help revive investor sentiment or demand for capital goods and vehicles is doubtful.

Manufacturers of items covered under Chapter 84 or 85 with very little value addition might now find higher duty rates on their inputs and lower duty rates on their final products could lead to accumulation of unutilised Cenvat Credit, as service tax on input services also add to their credit balances. Such manufacturers with high import intensity are finding ways to import through their own trading arms, so that goods imported can be resold by the trading outfits to the manufacturers on payment of value added tax and refund of four per cent special additional duty can be claimed. That way, credit accumulation of four per cent special additional duty can be avoided.

Reduction of aggregate import duty on capital goods would mean the amount of duty saved on imports under the Export Promotion Capital Goods (EPCG) scheme would go down. Consequently, the amount of bond to be furnished, as well as the export obligation under the EPCG scheme, will also go down. More capital goods can now be cleared under duty credit scrips issued under the Focus Market Scheme, Served from India Scheme, etc, as a lesser amount of duty will be debited to the scrips than earlier.

In his Budget speech, the minister said the modest export growth rate of 6.3 per cent had to be seen in the context of a 2.7 per cent growth in global trade. Imports are down and this does not augur well for either manufacturing or domestic trade, he said. He outlined many measures to revive manufacturing and infrastructure projects but could not generate much confidence that the economy would revive quickly. However, his claims that the economy was more stable now than six months earlier were credible. Hopefully, the commerce minister would include more products under the Focus Product Scheme before the election code of conduct takes effect.

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