Auto parts to attract MRP-based valuation

EXIM MATTERS

The finance ministry has brought toothbrushes, auto parts and plant-growth regulators under the maximum retail price-based system of valuation for the purpose of levy of excise duty with effect from June 1, 2006. This move was proposed in the Budget. But what is surprising is that auto parts under any heading will attract MRP-based valuation.

Toothbrushes covered under heading 96032100 will attract an abatement of 28.5 per cent, plant-growth regulators covered under heading 38083040 will attract an abatement of 30 per cent whereas parts, components and assemblies for automobiles falling under any heading will attract an abatement of 33.5 per cent.

Automobiles are covered under Chapter 87 of the Customs Tariff Act, 1985. Heading 87.08 covers parts and accessories of motor vehicles of heading nos 87.01 to 87.05, that is, parts of tractors, cars, buses, light commercial vehicles, heavy commercial vehicles, special purpose vehicles etc. Similarly, heading 87.14 covers parts and accessories of vehicles of heading 87.11 to 87.13, that is, parts of scooters, motorcycles, mopeds, bicycles, wheelchairs etc. These headings cover only parts of specific use, that is, parts or accessories which are suitable for use solely or principally in the specified vehicles. Parts of general use and articles of base metals or plastics or machines under chapters 84 or 85 are not covered.

The coverage of MRP-based valuation extends to "parts, components and assemblies for automobiles" falling under any heading. This means even items like bearings, even if they are "for automobiles," will attract MRP-based valuation. Whether an item is "for automobiles" has to be determined by each manufacturer. There is ample scope for litigation on this issue.

The expression, "for automobiles," is rather wide. The field formations will hold that any item capable of use as a part of automobiles will get covered under the expression. Whether "for automobiles" means for use in complete automobiles is another issue. In that case, supplies to automobile manufacturers by the original equipment manufacturer may not be covered under the expression. In some cases of supplies to replacement markets, it may be difficult to determine whether an item is "for automobiles."

Exporters of auto parts covered under MRP-based valuation must now mention on the ARE1 form the assessable value as MRP minus abatement and either pay duty on that basis under a rebate claim or debit the amount of duty on that basis to the running bond account.

Inclusion of the above three items in the third schedule of the Central Excise Act, 1944, means that with respect to these goods, the process of packing or repacking in a unit container or labelling or re-labelling of containers, including the declaration or alteration of the retail sale price on it or any other treatment to render the product marketable, will amount to manufacture.

This means that even dealers, if they buy these items in bulk and repack them for sale in retail packs, will be treated as manufacturers requiring registration with the Central Excise.

tncr@sify.com