US tariffs not the only factor for Customs duty changes: CBIC chairman

CBIC Chairman Vivek Chaturvedi explains the Budget's calibrated customs duty exemptions, SEZ flexibility and tariff reforms amid global trade headwinds

In a post-Budget interaction with Monika Yadav and Asit Ranjan Mishra in New Delhi, Central Board of Indirect Taxes and Customs (CBIC) Chairman Vivek Chaturvedi defends the government’s exemptions on Customs duty as a “calibrated and nuanced approach”, driven by sector-specific priorities rather than external pressures. Edited excerpts. 

What was the rationale for the Customs duty tweaks in the Budget? 

We adopted a calibrated and nuanced approach to duty exemptions. Priority sectors and priority areas were identified. For energy security, duty exemption has been provided for goods required to set up nuclear-power plants regardless of generating capacity; on capital goods for the manufacture of lithium-ion cells for battery energy storage systems; on monazite for magnets used in electric vehicles; and on sodium antimonate for solar glass panels. 

For micro, small, and medium enterprises, there is a focused approach. For example, a composite duty has been imposed on umbrellas — a duty rate of 20 per cent or ₹60 per piece, whichever is higher; and for parts, 20 per cent or ₹25 per kg, whichever is higher. This is to counter cheap imports. For leather exports, exemption has been given on inputs used for manufacturing shoe uppers. On health, 17 anti-cancer drugs have been exempted. And medicines or food items for treating seven rare diseases have also been exempted. In defence, exemption has been provided for raw materials used for the manufacture of parts for the maintenance and repair of defence aircraft. 

All these measures have been calibrated with industry needs to provide protection against cheap imports and allow duty-free inputs to make industry more competitive and resilient, especially in the context of global headwinds on exports and upcoming free-trade agreements (FTAs), which open up markets both ways. 

Some experts have said the removal of duties on key capital goods and strategic inputs aligns with the American stance. Is this linked to tariffs imposed by America? 

The rationale behind it is sector-specific and nuanced. While there may be some correlation, it is not the only factor. 

Is there a sunset clause for these exemptions? 

We have undertaken a review of about 124-odd notifications on conditional exemption. In 102 cases, the exemptions have been continued and extended till March 2028, because these are subject to periodic review. Twenty-two entries are lapsing this March. There is no point in having an exemption notification if no imports are taking place. 

What is the thinking behind allowing units in special economic zones (SEZs) to sell in the domestic tariff area (DTA)? 

SEZs are primarily for exports. With global headwinds, exports are not happening and there is idle capacity. There is a business case for utilising that capacity, and manufactured goods need a market. The idea, therefore, is to provide market access in the DTA to SEZ units. 

At the same time, we have to ensure a level playing field for domestic manufacturers. The modalities will be worked out.   Will it require amendment to the SEZ Act?

 

One possibility is through a notification in concessional duty. 

Is the proposal for synergy between transfer pricing (income tax) and the special valuation branch (Customs) being considered? 

We are examining that. Related-party transactions are examined from the valuation perspective of Customs, based on valuation rules of the General Agreement on Tariffs and Trade. And there is some consideration underway within the CBIC. 

What changes have been made on tariffs and what is the structure now? 

We have eight slabs — largely ranging from zero to 2.5 per cent, 5 per cent and 10 per cent ... and we have not tinkered with these. 

But we have taken a couple of steps. One is “tariffization” — a Customs schedule where rates are prescribed to give predictability and clarity to trade. Another is creating nearly 140 tariff lines to resolve classification disputes. The third is a review of exemption notifications. Unused ones have been allowed to lapse while others are being kept under annual review. 

Is there scope for further rationalisation in the structure? 

We examined this only last year. It is an evolving and dynamic environment, and we have to remain alert. However, at present, since this was done only last year, there is no immediate change. 

How is the CBIC addressing difficulties in obtaining certification for an authorised economic operator (AEO), especially when businesses are in litigation? 

The certification process is exhaustive because the government places significant trust in AEOs in terms of solvency and compliance. We are expanding benefits. Duty deferral will now be available once a month instead of twice. 

More importantly, we want to expand the AEO network. A new class of manufacturer-importers will be invited and given virtually the same benefits as AEOs, such as duty deferral and expeditious clearance, for a period of two years till March 31, 2028. This will serve as a preview to nudge them towards applying for full AEO status. 

When will these intermediary provisions become effective? 

From the date of the President’s assent to the Finance Bill. These provisions will be prospective.