By Mahesh Jaising, Partner, BMR & Associates LLP
Recognizing the huge potential in the IT hardware manufacturing sector, especially on account of burgeoning demand for mobile handsets and tablets, the government provided duty concessions and benefits for manufacturers in the recent Budget 2015.
This move was aimed at reducing India’s reliance on imports of mobiles and tablets, and in consequence providing a competitive edge to the indigenous manufacturers.
The Government reduced the excise duty at the rate of 1 percent and 2 percent for mobile handsets and tablets respectively (as against 12.5 percent of duty), but it didn’t provide the benefit of CENVAT credit for capital goods used in manufacturing the end product.
These initiatives had spurred enthusiasm of various mobile and tablet players, evaluating the possibility of investing huge sums to set up manufacturing facilities in India or engaging with contract manufacturers in India. However, the enthusiasm of the industry seemed to have short-lived on account of the recent rulings of the Supreme Court in the cases of SRF Limited and AIDEK Tourism Services P Ltd.
In these rulings, the Supreme Court has categorically held that the concessional rate of excise duty that is contingent or conditional on non-availing of CENVAT credit (in similarly drafted notifications for other products) shall apply to manufacturers as well as traders.
The industry players who had set out to make substantial investment and expand their manufacturing facilities in India, are now anxious as they can’t avail CENVAT credit.
In these developments, the industry is hopeful that the Government will take up this issue by possibly making amendments/ changes to the SC ruling by explicitly providing the benefit only for manufacturers.
Accordingly, the need of the hour for the Government is to assuage the concern of industry and engage in meaningful interface with the industry to understand how best the issue can be redressed to ensure the success of ‘Make In India’ program.
(The author is Partner at BMR & Associates LLP. He can be reached at Mahesh.Jaising@bmradvisors.com. The views expressed in this article are those of the author and do not represent the views of Channel Times or any of the websites managed or operated by Trivone Digital Services)