Customs Act change: IAF asks Defence Ministry to find way out

Removing blanket duty exemption for defence goods may delay modernisation and maintenance programmes of fighter planes

The Indian Air Force has asked the Defence Ministry to find a way out in the wake of a recent armendment in the Customs Act removing blanket duty exemption for defence goods, a move that may delay modernisation and maintenance programmes of fighter planes like Mirage and Jaguar.

Under the new rules, which came into effect from April 1, customs duty exemption has been given to specific projects, all of which are in production in the country.

However, components and spare parts for Mirage, Jaguar and MiGs combat aircraft have been left out of the list of exempted goods.

IAF came to know about the new changes only in the first week of April, defence sources said, adding that various imported spare parts and components, worth several millions of euros, are now lying at various ports.

"This is not something which affects IAF alone. It affects other two Services also," an official said, adding that since it is a new rule, clarifications have been sought.

Defence experts say that if the matter is not resolved soon, at least 20 per cent of the Mirage fleet, which is being modernised under a multi-million euro deal with France, will be grounded.

Sources said the "thinking" behind the move to give duty exemption in project-specific cases was to ensure that the domestic industry thrives.

"It is clear that someone missed a few points as genuine shipments are stuck," a source said.

Under the agreements that have been signed, the country exporting the spare parts and equipment takes care of the duties sand taxes in that country while the importer takes care of the same in the country.

Till last year, aircraft, aircraft parts, aircraft engines and aircraft engine parts, along with others were exempted under Section 93 (C) of the Customs Act if they were imported by central and state governments, contractors to them or PSUs and the sub contractors of such PSUs.

"Nowhere in the world there are duties and taxes on military goods. It is hoped that the issue would be resolved soon," the source said.