Differential view taken by DRI, Noida regional Office regarding the rate of IGST to be applied on imported parts for the manufacture of mobile phone battery packs in India
Chairman-Mobile Advisory Committee, TMA
The differential IGST rates implemented by the Department of Revenue Intelligence, Noida regional on imported parts for the manufacture of mobile phone battery packs in India is causing distress among the mobile manufacturing ecosystem.
Last year, in August the customs authorities at Inland Container Depot (ICD), New Delhi, had taken cognizance of the issue and had decided that imported complete kits would be levied 18% IGST while any extras would attract 28%. This practice has been followed since the revision in GST rates in July 28, 2018, which reduced the rate on “Lithium Ion Battery” to 18% IGST.
However, a “lithium Ion Cell” was still considered to be at 28% under the same heading 85076000.
This led to protest by manufacturers, as it put severe pressure on the local industry. After representations to various officers at ICD, began the process of assessing kits for manufacture of mobile phone battery @18%, while any additional quantity imported which was not in the form of kits, but as a standalone product, was levied IGST of 28%.
In some cases when companies demanded on being charged 18% IGST, the government assesses insisted on 28% and only then agreed to release their goods. However, a few days later, the same BE was then re-assessed at 18% by the officer after their internal discussion on the matter. This practice has been followed since by the entire industry across various ports.
Now, the DRI is insisting that the manufacturers pay the differential IGST immediately, and are using their sweeping powers to ensure that this is complied with. They are neither giving any show cause notice to any manufacturers nor any detail is forthcoming from their side.
To highlight the basis on which various field formations of Customs as well as importers have relied upon, and the basis on which the assessments have been finalized for the IGST to be levied at 18%.
* To draw attention to CIRCULAR No.39/2005-Cus Dt. October 3, 2005, a copy of which is attached here for your reference.
At Serial # 5 of the circular, it reads:
“The Board had accepted the decision of the Conference. Accordingly, it is clarified that the goods have to be classified in the form as presented and rule 2 (a) of the GIR cannot be applied for the sake of allowing/disallowing the benefit of a notification, unless the exemption notification is based on classification of the item under a particular heading of the Customs Tariff. For the purpose of classification, Rule 2(a) of the General Rules of Interpretation could be applied.”
On the basis of this circular, the Customs authorities at various ports have classified complete kits (a complete kit here consists of the essential parts required for the manufacture of a mobile phone battery pack) under CTH 85076000, while any goods which were NOT in the form of complete kits have been classified under their various chapter headings.
Then Industry also need to see the duties applicable once the classification matter is settled as above. It clearly states that while for the purpose of classification, Rule 2(a) of the FRI could be applied, however, Rule 2(a) can’t be applied for the purpose of allowing/disallowing any benefit of any notification.
This takes us to applicable rate of IGST. Notification # 19/2018-Integrated Tax (Rate) dt. 27/7/2018 specifies 18% IGST under serial #
|376AA||CTH 8507 60 00||Lithium Ion Batteries|
The question here being raised is whether the “benefit of concessional rate” of 18% can be given on the goods classified above.
The DRI unit has taken a strong view on this, and have argued that the benefit of a lower rate cannot be applied here, claiming this to be an exemption.
However, the view taken by customs is that since the notification 19/2018-Integrated Tax (Rate) is a notification that “levies” a tax, rather than “exempts” it, this would not be under the purview of circular 39/2005, and would correctly merit a rate of 18% IGST. Hence, the applicable rate of “Lithium Ion Batteries”, even though in an unfinished/SKD/CKD state would be 18%.
TMA has already apprised Dr. John Joseph, Central Board of Indirect Taxes & Customs on the issue on differential rates. Now the government needs to clarify their stand on this issue and help the industry from further distress.