Indian defence companies may get customs duty relief

Nayanima Basu New Delhi | Updated on January 09, 2018

Move can create a level playing field as foreign OEMs already enjoy the tax break

In an effort to soothe the nerves of Indian defence firms, the Centre is mulling Customs duty exemption on the import of spare parts under programmes that were rolled out before April 1, 2017.

The exemption will be granted in order to bring the Indian firms on a par with foreign OEMs who are provided tax exemption on the projects they develop. The Customs duty is being paid by the Indian government on behalf of the foreign OEMs, sources in the Ministry of Defence said.

According to current norms, while foreign original equipment manufacturers (OEMs) in the country are given tax concessions on the items they import into the country to build a certain armament, Indian companies end up paying Customs duty.

“If the government is serious about advancing ‘Make in India’ in defence manufacturing, this tax concession has to be given to private Indian defence companies. For us, the Customs duty becomes a part of our working capital,” a top executive of an Indian defence company told BusinessLine.

The executive also said that moving forward on a project had become more difficult following the GST rollout.

The issue was raised at a meeting between Defence Minister Nirmala Sitharaman and Indian defence companies last Saturday.

Representatives of the Indian defence industry asked Sitharaman if Customs duty paid at the time of import can be reimbursed immediately upon producing a receipt. This will also boost defence exports from the Indian companies.

The Defence Minister is believed to have assured the Indian defence firms that she would take up the matter with the Ministry of Finance.

However, as per the Budget 2017-18, not all projects rolled out after April 1, 2017 will be liable for Customs duty exemption, regardless of whether it is being executed by an Indian or a foreign OEM.

“Most of the defence manufacturing in the country has been happening in the public sector. Now, with greater private sector participation, it is advisable that a level playing field is created,” said YD Parande, Senior Advisor (GST), Deloitte India.

Published on October 30, 2017

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