Society of Indian Automobile Manufactures

SIAM is the Apex National Body representing Indian Automobile Industry

Economic Affairs

SIAM EXIM Policy Suggestions

Credit of embedded tax

SIAM had got a study done through ICRA Advisory Services to estimate the cascading impact of embedded tax in manufacturing vehicles in India for which no set-off is available under any scheme.

ICRA looked at two states, Maharashtra and Tamil Nadu, which have automotive hubs and had estimated in July 2003 that the quantum of embedded tax amounts to around 12% of manufacturing cost.

Since this makes our vehicles less competitive by 12% in the international markets, SIAM suggests that any export incentive scheme offered to the exporters should factor this in the total value of credit. This should be in addition to the Drawback/DEPB for actual import duty suffered on raw material and component.

DEPB Scheme should be extended for at least two years till the internal reforms are done.
Drawback for 2% education CESS should be admissible for claim

Presently the import duty structure is as under
- Basic Custom Duty
- CVD in lieu of Excise Duty + 2% CESS on CVD
- 2% CESS on total Duty (a+b)
CVD and 2% CESS on all imported items are refunded as CENVAT credit. When the imported input is used for export production, basic duty is refunded as drawback. However, 2% CESS on total Duty remains non-CENVATable / refundable.

Since all duties on inputs stage are neutralised by way of drawback and or under licence route, the 2% CESS on total duty should also be refunded as drawback.
Brand Rate Fixation

Effective from 1st April 2003 - the authority for fixation of drawback delegated to jurisdictional central excise authorities. The central excise authorities are raising several points while verifying the data/fixing the brand rate.

Further all the rules concerning to fixation of brand rates are formulated by the drawback department, Ministry of Finance. For any clarification on these issues the central excise has to refer the matter again to the Ministry. There are problems which the Exporters are facing with the Central Excise Authorities - which is causing delay in fixation of brand rate.

It is suggested that the choice should be given to the exporter to get the brand rate settled from Ministry of Finance as was earlier done under Simplified Drawback Scheme.

Export Obligations under EPCG Scheme

Past exports average performance without EPCG licence should not be counted for imposing obligation on new EPCG licences.

Export under bond to Nepal & Bhutan

Currently the customs authorities do not entertain any refund of duty on exported to Nepal and Bhutan if the payment is other than Letter of Credit (L/C).

Payment terms such as TT / cheque, DD or Bank Guarantee may be allowed as applicable for export to other countries.
Despatch of Documents to overseas parties

Currently despatch of documents to overseas parties is allowed only through banks. This is a time consuming process and entail handling charges.

Wherever the payment is coming in advance the exporter be allowed to send documents directly to the party instead of routing through the banks.
Rejected material sent back to shipper by importer of repute

Customs should not insist on physical verification of rejected material sent back by importer of repute, under section 74 of Customs Act.

Customs may verify the export shipment with the incoming new import shipment for ensuring that the part being sent back is identical with the imported part. e.g. 100 pcs of Part A were imported by importer of repute and cleared from the Customs. When parts were examined at the factory it was found that 90 pcs of Part A are acceptable and 10 pcs of Part A are rejected.

Importer of repute will instruct the shipper to send replacement of 10 pcs of Part A on free of charge basis. On getting free replacement, importer of repute will process the documents under section 74 for these rejected 10 pcs of Part A for sending it to the shipper. At the time of export examination, to verify the physical identification of the material, Customs should examine the new import consignment of importer arriving at port/airport for Part A. On getting convinced that Part A being sent back is identical with the new imported Part A (except that earlier was rejected on quality ground), customs should allow clearance of the export shipment under Section 74 and should process the refund of duty.

Simplification of Notifications

Notifications issued by Departments should be minimum & user friendly. From the subject itself the user should get the theme of the notifications.
Interest on duty foregone under duty exemption schemes

The Exim Policy provides import of Capital Goods, raw materials, components, consumables etc. either under concessional duty rate or at zero duty for carrying out manufacturing activities with time bound export obligations.

Due to some unavoidable changed circumstances, if the importer is not able to fulfill the obligation, then importer needs to regularise the imports on payment of duty + interest @ 15% p.a.

Under the prevailing market conditions, the ruling interest rate is in the range of 6% to 8% p.a for all types of transactions. To reduce the burden and to bring down the transaction cost, the interest rate for regularisation of imports need to be plugged max. @ 10% p.a. Exporters who undertake the business risks can survive during uncertainties.
Self Assessment for Imports

Excise and Sales tax rules provide opportunity to the assessee to assess the duty and pay to the government periodically. Only audit check is done on post payment activities. Government need to come out with such self assessment schemes which will enable importer to move the goods from the ports on arrival and pay duty on self assessment basis. Customs can introduce Audit checks to check adequacy similar to excise and sales tax.

The above will help better utilization of scarce and expensive port facility and reduce the transaction costs.

The facility needs to be extended for import clearances also. Indian Port Authorities to look up global standard of operations and eliminate multiple handling and improving the port productivity levels.
Export benefits like DEPB /DGFC / Advance License

The above export incentives are admitted only for exports against Hard Currency and denied for Rupee trade. As a result Rupee trade with neighbouring countries are less attractive and as a result full potential is not realised. This also affects our competitiveness vis-à-vis other countries in these markets. The above export Incentives need to cover export under rupee trade also, especially with SAFTA being negotiated currently.
Tools Imported For Specific Activity

Calibration equipments and tools brought by Overseas technicians / specialists for erection, commissioning and serving of equipments supplied , imports made on re-export basis is liable for Customs duty.

At present the provision is to pay customs duty and claim duty draw back under Section 74. The process is cumbersome and takes long lead time. Needs provision to custom clear against bond an cancellation after re-export

Imports in advance or as baggage be permitted without duty on condition of re-export.
Advanced Technology Has Demerits

Imports under CTH 49.11 attracts Nil duty if imported in Hard copy form. However, if the same is imported in the form of CD, Customs duty is applicable. The anomaly needs to be removed Manuals, drawings et covered under scope of CTH 49.11 if imported in CD ROM, customs duty to be exempted.
Duty Free Credit Entitlement Licence

Licensing authorities are issuing DFCE licence for service providers served from India as per para 3.6.4.1 of Foreign Trade Policy 2004-09, which is cover under Customs Notification 54/2003-cus dated 01-04-2003.

Whereas the Licensing authorities are not issuing DFCE Licence for Status Holders (Manufacturer & Exporters), which is covered under customs notification 53/2003-cus dated 01-04-2003. Even if they have issued, the licence is not operative, for the reason that Customs are insisting that the Licence should read as "DFCE issued for Status Holder", whereas it is mentioned as "Service Provider served from India Scheme".

Advance Income tax has been paid (approx. 36%) for this accrued export benefit-DFCE Licence, whereas it is not operational.

The last date for submission of DFCE application for Status Holder has been extended to 31-03-2005 from 31-12-2004 as per Policy circular No. 12/2004-09 dated 28-12-2004, which shows the intention of Licensing authority for issuing DFCE Licence for Status Holders.

Suggestion:

(i) The licensing authority should consider Manufacturer Exporters (Status Holder) at par with Service providers served from India, and issue DFCE Licence, as stated in Exim Policy 2002-2007. For the Licenses already issued, the amendment as required by Customs "DFCE issued for Status Holder" may please be incorporated in the Licence, so that it can be made operational.

(ii) Customs Notification 53/20036 dated 1-4-2003 may be amended permitting the Status Holder to pay CVD at the time of Import, so as to enable them to avail Cenvat Credit, as in the case of DEPB Licence amended as per Cus. Notfn. 96/2004 dated 17-09-2004 (para v & vi).

Under Para 3.7.7 of Foreign Trade Policy, for the Target Plus Scheme, "the CVD Paid in Cash or through debit under the said licence, shall be adjusted as CENVAT Credit or Duty Drawback as per rules framed by Dept. of Revenue."

TARGET PLUS Scheme

Even though Target Plus Scheme is announced in the Foreign Trade Policy 2004-09 on 31-08-2004, the Application form - Appendix 17D is yet to be provided by the Licensing Authority. Dept of Revenue is required to issue Customs Notification for the same, with a provision that CVD paid by cash at the time of importation, by the Status Holder is eligible for CENVAT Credit as mentioned in the Foreign Trade Policy Para 3.7.7.
Conditions of Import of Vehicles

The existing conditions of import of new and used vehicles should be retained as such.

Exim Policy

SIAM EXIM Policy Suggestions

Export under bond to Nepal & Bhutan

Payment terms such as TT / cheque, DD or Bank Guarantee may be allowed as applicable for export to other countries.

Due to some unavoidable changed circumstances, if the importer is not able to fulfill the obligation, then importer needs to regularise the imports on payment of duty + interest @ 15% p.a.

Licensing authorities are issuing DFCE licence for service providers served from India as per para 3.6.4.1 of Foreign Trade Policy 2004-09, which is cover under Customs Notification 54/2003-cus dated 01-04-2003.

The last date for submission of DFCE application for Status Holder has been extended to 31-03-2005 from 31-12-2004 as per Policy circular No. 12/2004-09 dated 28-12-2004, which shows the intention of Licensing authority for issuing DFCE Licence for Status Holders.

Suggestion:

(ii) Customs Notification 53/20036 dated 1-4-2003 may be amended permitting the Status Holder to pay CVD at the time of Import, so as to enable them to avail Cenvat Credit, as in the case of DEPB Licence amended as per Cus. Notfn. 96/2004 dated 17-09-2004 (para v & vi).

SIAM Members