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MeitY writes to revenue dept re tax claim on cellphone makers

A letter sent by the ministry of electronics and information technology (MeitY) to the department of revenue in March this year has highlighted apparent differences on the validity of customs duty levies on a key component in cellular phones, the touch panel or cover glass. The seeming differences in views between the two departments, government and industry executives say, is relevant for duty evasion notices that the Directorate of Revenue Intelligence (DRI) has served on Chinese smartphone majors Oppo and Vivo.

Further, the impact may not be confined to Chinese companies and could potentially disrupt India’s aspirations of becoming an electronics manufacturing hub, if not resolved immediately, industry officials say. An official from the revenue department confirmed receiving the letter and said, “they will look into concerns of the industry.”

After the MeitY letter, an industry body representing smartphone companies in India wrote to the revenue department, the Prime Minister’s Office and the IT ministry in June, describing the duty demands as “preposterous”.

The smartphone industry expects other companies, including Indian manufacturers, also to face similar notices. It warned that the issue could hurt the industry to the tune of Rs 20,000 crore, and impact India’s image as an investment destination with an attractive and stable business environment.

On July 13, the Directorate of Revenue Intelligence (DRI) issued a notice to Oppo, demanding Rs 4,389 crore of customs duty, citing wrongful misdeclaration of items imported.

A spokesperson at rival Chinese smartphone company Vivo said that it had also received a similar notice. The company is reviewing the notice, will cooperate with authorities and “follow the course of law as required”, the Vivo spokesperson said.

Oppo, in a media statement, said it held a different view on the charges, and that it was an industry-wide issue many corporates were working on. The company will take appropriate steps in this regard including legal remedies provided under the law, it said.

Government officials and industry executives said a February 2020 revenue department notification on the levy of the duty was ambiguous on the definition of the items covered under it. This led to different interpretations of the rule and the issue of the show-cause notices.

The notification states that the touch panel/cover glass assembly for use in the manufacturing of mobile phones would attract a duty of 10%. But there would be no import tax on inputs or parts for use in local manufacturing of the display.

The notices come despite MeitY writing to the secretary of the revenue department in March this year, saying that while there was now a 10% basic customs duty on touch panel/cover glass assembly, its definition was ambiguous in the notification. It also clarified that the inputs and parts for use in the manufacture of display assemblies were exempted as part of the phased manufacturing programme (PMP) to boost local mobile phone production.

Customs field officers are of the view that display assembly comprises only the screen, which is effectively the outer surface of the display, MeitY wrote in the letter. According to it, the officials were wrong in demanding customs duty on the components imported for display assembly other than the outer screen.

MeitY said interpretation challenges were “leading to ambiguity and unnecessary litigation that is detrimental to the growth of this (mobile phone manufacturing) segment”.

A senior DRI official said that the notice sent to Oppo was not only limited to ambiguity of rate. “There are many serious lapses and charges, which their management has admitted to during questioning for which the department has already issued a detailed statement. They can respond to the notice. We would examine if they came up with fresh facts which were not shared earlier,” the official told.

In its letter to the Central Board of Indirect Taxes and Customs, the India Cellular and Electronics Association (ICEA) said field officers were not “happy” with the interpretation of the customs notification, specifically around what constitutes the display assembly.

“We request you to issue the necessary clarification for smooth functioning of the mobile phone manufacturing industry,” the ICEA said. “The interpretation by field formations and the ‘informal ask’ of enormous demands of duty running into hundreds of crores is nothing short of preposterous. We urge an immediate curb on such adventurism which puts a question mark on the nation’s credibility.”

In the letter to the PMO on June 23, citing the MeitY letter, the ICEA said: “Even after three months of this detailed clarification, the enforcement field formations have not been reined in.” It requested that “revenue authorities work in consultation with MeitY, and immediately stop the harassment”.

The industry association followed that up with a letter to the MeitY joint secretary on June 24, noting that the revenue authorities had continuously been summoning all the mobile phone manufacturers and questioning their import of display assembly since 2017, the start of the PMP implementation.

“The potential impact on the industry is Rs 20,000 crore, and is having a chilling effect on the industry for future expansion and continuity of business. This is seriously jeopardising India’s position as an attractive and stable business environment,” the letter said. URAllNews

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