The Hindu Business Line : Docking on to Customs

Reduction in peak rate, a new uniform levy of 4 per cent additional duty on all imports and duty reduction for commodities spread over various sectors are the major changes announced with regard to Customs duties in the 2006 Budget.

The peak rate of Customs duty has been reduced from 15 per cent to 12.5 per cent for non-agricultural goods. Over the years, the peak rates of Customs duties were brought down by 5 per cent every time; but this year the reduction has been restricted to 2.5 per cent. Several agri-based products will, however, continue to attract higher Customs duties.

Imposition of 4 per cent additional duty: In terms of Section 3(5) of the Customs Tariff Act, 1975, a uniform 4 per cent additional duty is being brought into force on all imports. This is supposed to counterbalance sales tax, value-added tax, local tax, and so on, leviable on a like article on its sale or purchase in India. This duty will be in addition to the countervailing duty on imports now being levied under Section 3(1) of Customs Tariff Act.

Last year, this was imposed on the Information Technology Agreement (ITA) items, when such items attracted nil Customs duty. Now, barring certain exclusions, this additional duty will be applicable to all imports.

However, last year, the 4 per cent additional Customs duty paid on ITA products was not available as credit of duty for manufacturers. Now, manufacturers can take credit of this duty.

Rebirth of SAD: In 1998, a special additional duty of 4 per cent was imposed in terms of Section 3A of the Customs Tariff Act for similar purposes. This was withdrawn in 2004. Now, the same 4 per cent is imposed in term of a different provision. Where credit of this 4 per cent is not possible, this will mean an effective increase in Customs duty, though the peak rate has been reduced.

Rationalisation of duty structure: Overall, only 12 notifications have been issued for Customs duty changes. Issues relating to rationalisation of duty structure and removal of duty anomalies between inputs and finished goods have not been addressed. Commodity-based exemptions are being continued.

Overall, while the new 4 per cent levy will take care of the duty reductions announced, the changes as such have not thrown any surprises and will have moderate impact.

(The author is a Chennai-based advocate.)

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