Excise advantage for assembling phones restored
Given the surge in mobile phone shipments in India, from 183 million in 2011 to 275 million in 2014, it is not surprising that such a large number of global manufacturers are discussing assembly of mobile phones in India. Some like Taiwanese giant Foxconn—known globally for being the assembler for iPhones and iPads—has been talking of setting up 12 factories in India by 2020 and employing up to a million workers, to offset the cost of rising wages in its home base. While it is true that there are several disadvantages to manufacturing in India, finance minister Arun Jaitley sought to address this in his latest budget by bringing in a 1% excise duty for phones assembled in India while hiking the countervailing duty (CVD) on imports to 12.5%—in other words, a 11.5% advantage for manufacturing in India versus simply importing phones. A Supreme Court verdict, delivered after the budget in two cases involving ITC and SRF, however, put paid to this advantage. The CBEC notification after the budget offered importers two options—a 12.5% excise/CVD under the normal course and a 1% CVD/excise in case no Cenvat credit was being availed of in the process of manufacturing. The intention was to provide a duty benefit to those engaged in manufacturing but, as a result of the SRF and ITC rulings—which said importers had to be treated on a par with manufacturers who did not avail of cenvat credits—importers of mobile phones also began asking for the 1% CVD facility as FE reported last month.
This is what the CBEC has now fixed through an amendment to the original notification by clearly stating that the concessional excise advantage will only be applicable to those manufacturing in India, not those importing. The section says “ … no credit of such excise duty … has been taken by the manufacturer of such goods (and not the buyer of such goods) …”.
Even after this, however, one possible hitch still remains. And that is a CBEC order of 2002, when there was less awareness of how global supply chains work. Even when phones/tablets/computers are ‘made’ in India, it is really assembly that is being talked of since the main components such as the motherboards are still made in Taiwan—over a period of time, possibly, that too may migrate to India but for that to happen, India’s manufacturing infrastructure such as electricity supply needs to improve dramatically. But since assembling is labour intensive, this is also something India is encouraging. The CBEC order of 2002, however, says that if mobile phone parts/components are brought in a single consignment, they would be treated as a complete handset—in assembly operations, the parts/components will be brought in the same consignment. At some point, sooner rather than later, the CBEC will need to fix this as well. More so since, apart from the target of India having to produce 500 million handsets in the country annually by 2019, it has very large imports of electronic products—by 2020, it is estimated India’s imports of such products will cross $400 billion.