The impact of the changes in Customs and excise duties on the capital goods industry has to be judged in the context of the general health of this industry. |
The capital goods industry includes machine tools, industrial machinery, process plant equipment, construction equipment, mining equipment, electrical equipment, textile machinery etc. and also the steel industry. It is not a homogenous industry in the sense that it consists of steel industry which produces the inputs for machinery. The interests of steel industry and that of the machinery industry do not often coincide. |
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The capital goods sector has been on the upswing since March 2002, due to investment in infrastructure, oil and gas sector, steel plant, automobile industries etc. |
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The industry has been able to withstand the impact of lower import duty over the last a few years because lower duty gives cheaper inputs. While the capital goods industry has not objected to the lowering of the Customs duty, it has rightly objected to the zero rate of duty in respect of many projects and individual industries. For example, exemptions still continue for petroleum operations, such as exploration, setting up of crude petroleum refinery, and for cellular mobile telephone service and sundry other industries and various projects. |
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The demand of the capital goods industry to remove the zero percent categories has not been adhered to. However, imposition of 4 per cent special countervailing duty (CVD) on some of the projects has been one of the demands, which has been acceded to and has, therefore, been a beneficial move. |
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The exemptions from CVD for some of the projects like aerial passenger ropeway project, some power generation projects and 23 specified equipment for high voltage transmission projects have been withdrawn. This is also a beneficial move because these industries would not get Cenvat credit of the countervailing duty paid. For the products of these industries are sold to the public and not to manufacturers and the products are not excisable also. To the extent of the above measures the Budget has been beneficial to the capital goods industry. |
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The Budget has also rightly not agreed to a few demands of the capital goods industry, which are not quite reasonable from the macro economic point of view. The first is about allowing parts and other major inputs at 2.5 per cent lesser rate of duty than the normal machinery rate of 7.5 per cent or 10 per cent. |
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f agreed to, such a measure would have completely ruined the Customs tariff by creating immense problems of classification since parts are interchangeable with different machines, which attract different rates of 0 per cent, 5 per cent, 7.5 per cent, 10per cent, 12.5 per cent and even 100 per cent (motor car). We should thank the finance minister for not agreeing to such a request. |
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Another request of the capital goods industry has also not been rightly agreed to. The request was to allow the machines 'not made in India' (NMI) at a lower rate of duty. But such a move would bring back the certification system by the Director General of Technical Development (DGTD) along with all the controls that used to plague the pre-reform days. |
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However, a few good measures could have been taken. |
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(i) Taking advantage of revenue buoyancy, the Cenvat credit for capital goods should have been allowed all at one time rather than staggering for two years. |
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(ii) Some zero rates of import duty for capital goods could have been abolished in favour of 7.5 per cent |
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(iii) All Customs duty rates should have been made 7.5 per cent rather than making another two slabs of 10 per cent and 5 per cent. That would have made the Customs tariff extremely smooth to operate. |
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