Asean jewellery import at a halt

Cheaper jewellery import, especially at 1% duty from the 10-member Association of South-East Asian Nations (ASEAN) under Free Trade Agreement, has come to a halt from March after the Union government imposed excise duty on the gold jewellery.

Approximately 10 tonnes from Indonesia in first half of 2015 and 500 kgs to 1 tonne from South Korea in the past few months are estimated to have been imported in India by paying 1% excise duty.

However, Budget has imposed an excise duty of 12.5% with input credit option and 1% for those who are not taking credit for duty paid on inputs. Thus the new excise duty basis for input credit method plugs the gap that existed while importing jewellery using FTA route.

Analyst tracking gold jewellery said 12.5% excise becomes countervailing duty for importing jewellery even from countries with whom India has FTA and import duty of only 1% for jewellery is applicable when gold bars are imported at 10% duty.

 

The 1% import duty has always been a controversial issue since it began in 2014 when jewellery started coming in from Thailand. Imports from Thailand virtually stopped after the issue of violation of value addition norms was raised by the government and alerts against them were issued. This was substituted by imports from Malaysia and largely Indonesia.

In around June-July last year customs department started asking import of jewellery at 1% duty to submit bank guarantee worth 15% in case if 1% duty is not permissible. Since then imports from Indonesia which were a major source of such imports came to halt. Later importers found that even this type of 1% duty paid jewellery can be imported from South Korea. However with excise slab of 12.5% government effectively curbed that route while honouring FTA provisions.

Some importers are still trying to analyse a Supreme Court judgement. In last March, SC had ruled in case of SRF that when excise duty rates are different for input credit option and without that, than in that case lower excise duty rate becomes countervailing duty.

However according to Shailesh Sheth, advocate and practitioner, indirect tax, "In SRF's case, Supreme Court had allowed the exemption from CVD to the importer based on excise exemption granted subject to non-availment of CENVAT credit. Review petition reportedly filed by the department is pending as on date. Meanwhile, as a fall-out of the judgment, CBEC made certain amendments to the relevant excise exemption notifications in July, 2015 with a view to protect the domestic manufacturers and to save Make in India campaign. With these amendments, it is debatable whether CVD of 1% can be claimed by the importers of jewellery based on the concessional rate of excise of 1% without CENVAT credit."

Hence future of 1% import duty paid jewellery business hinges upon the review petition pending in the Supreme Court. Importers have halted such imports.