The Department of Heavy Industry (DHI) has exempted 35 of the capital goods used in manufacturing electronic goods from basic custom duty (BCD). This is to promote domestic manufacturing. Relief from duty on high-investment machinery is expected to lead to a major reduction in capital expenditure for businesses.
By Baishakhi Dutta
In a notification dated September 28, 2018, the finance ministry exempted 35 items such as printed circuit board (PCB) coating machines, and PCB assembly loaders and unloaders from basic custom duty. These 35 capital goods (mentioned in the circular with Notification No. 71/2018) are used for manufacturing components such as lithium-ion batteries, speakers and receivers for mobile phones, data cables, etc. Industry body ELCINA expressed its appreciation of the notification, with a spokesperson saying that all the goods in the new list have HS Codes (the codes required for imports) at the eight-digit tariff level, which will aid in fast customs clearance.
The background
Recently, various electronics associations had raised their concerns about many new capital goods that were not covered under the original customs notification (No. 25/2002). According to them, these needed to be exempted from the basic custom duty (BCD) to encourage the manufacturing landscape of the country. So the associations and industry bodies listed a total of 200 such capital goods, of which 35 items have been accepted for the exemption, with effect from September 2018.
The Department of Heavy Industry (DHI) has also highlighted the fact that a lot of items covered under Notification No. 25/2002 did not have HS Codes. Ashish Saurikhia, policy coordinator, ELCINA, says that the government was unaware about the absence of HS Codes and specifications for certain capital goods. “Let’s consider X-ray machines. These are of different kinds—some are used for SMT, some are used for component-manufacturing, some monitor human health, while others are used for security purposes at airports. Previously, X-ray machines were mentioned on the list, but no categorisation or usage was specified clearly,” explains Saurikhia.
Currently, the matter has been taken up by the Department of Revenue, DHI and the Ministry of Electronics and IT (MeitY), and they have decided to jointly review the products covered under Notification No. 25/2002 and remove the obsolete machinery from the list. This will also include all the machinery already being manufactured in India. To do so, the ministry has sought detailed data from the industry, such as HS Codes, import and export data for the past five years, the cost of the machinery being manufactured in India, as well as the cost of the machinery being imported from China and elsewhere.
| The list of 35 capital goods exempted from basic custom duty under Notification No. 71/2018 (https://howtoexportimport.com/CUSTOMS-Notification-No-71-of-2018-dated-28th-Sept-20641.aspx) | |
| Machinery | Functional area |
|---|---|
| (1) PCB coating machine (2) PCBA loader and unloader |
Mobile handsets |
| (3) Powder dryer (4) Automatic feeding and blending machine (5) Slurry transfer system (6) Cathode extrusion coating machine (7) Anode extrusion coating machine (8) Cathode compression (cold press) (9) Anode compression (cold press) (10) High vacuum pump (11) Negative electrode automatic production machine (12) Negative electrode automatic plate machine (13) Fully automatic winding machine (14) Semi-automatic winding machine (15) Auto EL filling machine (16) Heating and pressing machine for lithium (17) Auto degassing sealing machine (18) Electric coin cell crimper with die (19) Handheld electrode cutter (20) Vacuum oven without vacuum pump (21) Electrode slitting machine (22) Evaporator re-circulating chiller |
Lithium-ion cells for use in the manufacture of batteries for mobile handsets |
| (23) Winding machine | Speakers and receivers of mobile handsets |
| (24) Fully automatic USB soldering machine | Data cables |
| (25) Optical fibre cable stranding machine (26) Optical fibre colouring line machine (27) Optical fibre cable buffering tube machine (28) Optical fibre draw tower machines (29) Optical fibre draw furnace system (30) Optical fibre rewinding machine (31) Optical fibre glass core manufacturing machine (32) Optical glass preform manufacturing machine (33) Fibre spin device |
Optical fibre and optical fibre cables |
| (34) Plasma etching machine | Printed circuit boards |
| (35) Automatic/semi-automatic screen printing machine | Printed circuit board assembly |
What now?
The information collected has been presented to the concerned ministry and 165 capital goods are in the pending list, awaiting review. However, these 165 items are primarily equipment with dual functions and hence their specifications are not mentioned clearly. Saurikhia says that ELCINA is pushing for duty exemption on these 165 pending items too.
On the other hand, DHI believes that these items do not need any duty exemption. Those in this department are of the opinion that the equipment on the list are already being manufactured in India. “The discussion has been taken up to the next level, by which time DHI will have scrutinised the specifications of the 165 items listed, which in turn will help confirm whether these are being manufactured in India or not,” says Saurikhia, who remains confident about getting a conclusive response from DHI within the next three to four months regarding the pending items.
What to expect?
This move leads to another crucial question—how will this impact the valuation of second hand manufacturing machinery? Saurikhia believes that this move is not going to have any effect on the import of second hand machinery, which a number of MSMEs are still heavily reliant on. It is only large players like Dixon, Lava and Xiaomi that are bringing in new capital goods at a heavy price.
Industry veterans have welcomed this move. Saurikhia is optimistic that these exemptions will boost the Make in India initiative further, since the removal of the import duty will significantly cut manufacturing costs for the Indian electronics industry.
