FEBRUARY 20, 2014

By Pradeep Jain, CA & Neetu Sukhwani,CA

THIS article is written by us not to discuss the impact of the amendment made in the Customs Notification no. 12/2012-CUS dated 17.03.2012 by this interim budget but is an attempt to discuss the complicated way to withdraw an exemption extended earlier to various products. We are all aware that this budget has withdrawn exemption of Additional Customs Duty (also called as Countervailing Duty i.e. CVD) as well as from Special Additional custom duty (popularly known as SAD) to certain goods required for road construction. But the way the change has been proposed is so complicated that it is very difficult for a layman to analyse the impact of the amendment. The position prior to presentation of the interim budget and the post budget implications are summarized in the foregoing paragraphs.

Earlier Position:- Before presentation of the interim budget, certain goods required for the construction of roads were specified and were eligible for BCD and CVD exemption in terms of serial no. 368 of the Notification no. 12/2012-CUS dated 17.03.2012. The extract of serial no. 368 from the last amended notification no. 12/2013-CUS dated 01.03.2013 is produced for the sake of quick reference as follows:-

From analysing the above serial no. 368, it is very clear that the goods specified in List 16 required for construction of roads whether covered by chapter 84 or any other chapter were enjoying full exemption from the levy of BCD and CVD provided the condition no. 9 as stated above was satisfied by the importer.

The List 16 mentioned in above notification reads as follows:-

List 16 (See S.No. 368 of the Table)

1) Hot mix plant batch type with electronic controls and bag type filter arrangements more than 120 T/hour capacity

2) Electronic paver finisher (with sensor device) for laying bituminous pavement 7 m size and above

3) Slip form/fixed form paver finisher for laying concrete pavement

4) Surface dressing equipment (self propelled) (chips spreader)

5) Slurry seal machine for filling up cracks in roads

6) Kerb laying machine

7) Mobile bridge inspection unit

8) Mechanical broom with blower

9) Toll collection and traffic control equipment

10) Electronic Total station instrument for topographic survey

11) Global Positioning System (GPS) Instrument

12) Stone crushing (cone type) plants

13) Hydraulically operated self propelled piling rig with accessories

14) Hydraulically operated rough terrain self propelled 100 tons crane with telescopic boom

15) Hydraulically operated self propelled soil boring equipment with casing pipes for deep earth anchor

16) Mobile concrete pump placer of 90/120 cu m/hr capacity

17) Automatic asphalt extraction equipment

18) Fully automatic, hydraulically operated, pre-cast segment moulds

19) Hydraulic gantry crane of 100 tonnes capacity for launching truss

20) Skid steer loaders

21) Tunnel Excavation & Lining Equipments consisting of Drilling jumbos, Loaders, Excavators, Shotcrete machine and 3 stage crushers.

Furthermore, the condition number 9 is to be fulfilled to avail this exemption. The aforesaid condition read as follows:-

Condition no. 9

If,-

(a) the goods are imported by-

(i) the Ministry of Surface Transport, or

(ii) a person who has been awarded a contract for the construction of roads in India by or on behalf of the Ministry of Surface Transport, by the National Highway Authority of India, by the Public Works Department of a State Government, Metropolitan Development Authority or by a road construction corporation under the control of the Government of a State or Union Territory; or

(iii) a person who has been named as a sub-contractor in the contract referred to in (ii) above for the construction of roads in India by or on behalf of the Ministry of Surface Transport, by the National Highway Authority of India, by Public Works Department of a State Government, Metropolitan Development Authority or by a road construction corporation under the control of the Government of a State or Union Territory;

(b) the importer, at the time of importation, furnishes an undertaking to the Deputy Commissioner of Customs or the Assistant Commissioner of Customs, as the case may be, to the effect that he shall use the imported goods exclusively for the construction of roads and that he shall not sell or otherwise dispose of the said goods, in any manner, for a period of five years from the date of their importation:

Provided that the said Deputy Commissioner of Customs or the Assistant Commissioner of Customs, may allow the importer to sell or dispose of any of the imported goods on payment of customs duties at the rates applicable at the time of import but for this exemption, on the depreciated value of the goods to be calculated @ 5% on straight line method for each completed quarter starting from the date of importation of the said goods till the date of their sale subject to the condition that the concerned Ministry, Authority, Department or Corporation referred to in condition (a) above certifies that said goods in the project, for which duty free import was allowed, are no longer required for the project.

(c) in case of goods of serial no.12 and 13 of List 16, the importer, at the time of importation of such goods, also produces to the Deputy Commissioner of Customs or the Assistant Commissioner of Customs, as the case may be, a certificate from an officer not below the rank of a Deputy Secretary to the Government of India in the Ministry of Surface Transport (Roads Wing), or an officer not below the rank of Chief Engineer of the National Highways Authority of India, to the effect that the imported goods are required for construction of roads in India.

The condition no. 9 was basically an assurance to be given by the importer that the said imported goods would only be used for the purpose of construction of roads and would not be disposed off. The certificate from the Ministry of Surface transport was also to be taken to avail the exemption. This exemption was available to sub-contractor as well as to ministry also.

Proposed Amendment:- Now, with the notification no. 05/2014-CUS dated 17.02.2014, following amendments have been made:-

Deletion of items in List 16:- With this proposed notification, certain items that were mentioned in the List 16 in the earlier notification have been deleted as follows:-

(a) items no. (1), (2), (6), (16) and (20) and entries relating thereto shall be omitted. The effect of this deletion means that the following items are now not eligible for claiming the benefit of duty exemption under this notification.

(b) for item no. (21) and entry relating thereto, the following item and entry shall be substituted, namely “(21) Tunnel Excavation and Lining Equipments”. Earlier, this serial no. consisted components such as “Drilling jumbos, Loaders, Excavators, Shotcrete machine and 3 stage crushers”. The effect of the deletion of such components from List 16 is that now such components would not be eligible for the exemption under this notification. However, “Tunnel Excavation and Lining Equipments” would be governed by the above exemption even in the present scenario.

This implies that the exemption of Basic Custom duty and Additional duty was withdrawn for these road construction machineries. But the amendment does not end here. A new entry was also included.

Insertion of a new serial no. 368A:- The new notification also proposes to introduce a new serial no. 368A which is reproduced below:-

Primarily, introduction of an additional serial number in an existing exemption notification would mean that the benefit of the exemption is further extended with respect to certain other items. However, this is not the case in the present notification. This notification although introduces a new serial no. which may prima facie appear that it further provides BCD and CVD exemption to some more products, but this is not the reality. Further, as regards the new List 16A is concerned, it is observed that the deletions made in the List 16 as stated above, are included in the new List 16A. The new List 16A is reproduced for easy reference as follows:-

List 16A (See S. No. 368A of the Table)

1) Hot mix plant batch type with electronic controls and bag type filter arrangements more than 120 T/hour capacity

2) Electronic paver finisher (with sensor device) for laying bituminous pavement 7 m size and above

3) Kerb laying machine

4) Mobile concrete pump placer of 90/120 cu m/hr capacity

5) Skid steer loaders

6) Drilling jumbos, Loaders, Excavators, Shotcrete machine and 3 stage crushers.

These are the same goods that were deleted from earlier entry. Even the condition is also same i.e. condition number 9. Whether the same exemption is continued? Then what is need of new entry. This is not the case. This has been done with a purpose.

It is also worth observing that this proposed serial no. is similarly worded as the serial no. 368 but there are noticeable differences. Firstly, it provides exemption to the goods specified in List 16A. Secondly, the CVD rate is being mentioned as “_”. The duty being mentioned as “_” might be fairly conceded by a layman as “NO DUTY” but this is not the situation. The actual situation would be revealed on reading the implication section of the article.

Implications of the amendment:- The overall impact of the amendment made vide insertion of serial no. 368A and List 16A along with change in List 16 is summarized as follows:-

+ The amendment made in serial no. 368 and the newly created entry 368A are similar inasmuch as both refer to goods of chapter 84 or any other Chapter except as regards mentioning of List 16 and new List 16A and the change in the column for CVD rate.

+ The items that were earlier mentioned in List 16 have been deleted from the List and have been included in List 16A.

+ The serial no. (21) has been amended whereby the words “Drilling jumbos, Loaders, Excavators, Shotcrete machine and 3 stage crushers” have been deleted and have been included in the List 16A. The effect of the same being that the exemption of “Nil” rate of CVD is admissible only if Tunnel Excavation & Lining Equipments are being imported as mentioned in List 16. Further, if components such as “Drilling jumbos, Loaders, Excavators, Shotcrete machine and 3 stage crushers” are imported, they are now part of List 16A.

+ The drastic change that has been made in the column specifying “NIL” rate of CVD by substituting it by “_” thereby meaning that the items that have been specifically included in the new List 16A would be restricted from enjoying the benefit of Nil rate of CVD as prevalent in the earlier notification. The implication of inserting “_” is that no exemption is available now to the items specified in the new List 16A and that the import of items of List 16A would now be leviable to Additional rate of customs duty or CVD. On the contrary, a layman would not be able to distinguish the said implication of inserting “_” in the said exemption notification.

+ However, no change has been made in the condition no. 9 of the earlier notification. Moreover, the exemption from levy of basic customs duty is still continued.

SAD Effect:- It is also worth observing that as CVD has been imposed on the items specified in List 16A, it has lead to consequential effect that the items of List 16A would be leviable to SAD (Special Additional Duty of Customs leviable under section 3(5) of the Customs Tariff Act, 1975). How this has happened? It can be seen in next paragraph.

It is submitted that as per Serial no. 1 of the Notification no. 21/2012-Cus dated 17.03.2012, all goods which are exempt from BCD and CVD are also exempted from levy of SAD. However, since goods mentioned in List 16A are leviable to CVD, they would also be leviable to SAD. This consequential effect could be very well understood by a customs officer or an expert but it is difficult to expect that a layman or an importer would have the knowledge of levy of SAD on the items specified in the List 16A. This also clearly reflects the inappropriate drafting of the proposed amendment.

Before Parting:- We can very well conclude the fact that the government has adopted a very complicated technique to deny the CVD exemption in the present notification. The proposed notification denies CVD exemption and at the same time also sustains BCD exemption as provided in the earlier exemption notification. Moreover, consequent to the levy of CVD on the items mentioned in List 16A, the said items would also be leviable to SAD. When the analysis of this notification was such a tedious task for consultant regularly dealing in customs matters, we can say that the expectations of the legislature from the importers and common people are very high. It has been rightly said that “Tax Laws in India are very complicated” and this is truly reflected with the drafting of the present notification. In the budget speech, it has been clarified that the exemption of CVD has been withdrawn in order to encourage the domestic production of certain road construction machineries. We appreciate the encouragement and favour given by the Hon'ble Finance Minister to the domestic industries but how many would be able to really acknowledge the impact of the proposed amendment is a matter worth observing. We hope that the changes favourable to the domestic industries are made in a manner that is easily understood by a layman without putting excessive efforts.