SC order won't make imported laptops easier on the wallet

The Supreme Court judgment - which recently held that the government cannot levy additional 7 per cent customs duty on notebook PCs (laptops) as in the case of desktop computers "" will not help in reducing laptop prices since the levy was already withdrawn two years ago.

The judge gave the ruling while dismissing a petition filed by the Commissioner of Customs. The court upheld the Customs, Excise and Services Tax Appellate Tribunal's earlier judgement, stating that the interpretation by the tribunal was in consonance with the Computers (Additional Duty) Rules, 2004.

The tribunal had passed the order on an appeal filed by Bangalore-based Acer India, which had challenged levy of the additional duty. Industry observers, analysts and vendors, however, point out that the ruling is two years late in coming. Much has changed since the case came up for hearing.

Raj Saraf, chairman and managing director, Zenith computers said, "The SC judgement will not make much of an impact because it was made for a provision that was valid two years back. That provision no longer exists."

Local manufacturers enjoyed complete exemption from excise duty on computers in 2005-06 and also enjoyed protection against imports as foreign computers were subjected to additional customs duty (levied in lieu of excise duty) equivalent to seven per cent levied under Computer (Additional Duty) Rules, 2004.

However, in 2006-07, the levy was withdrawn and the excise duty also got hiked to 12 per cent, presumably to enable local manufacturers get the benefit of Cenvat credit and achieve cost optimisation.

The SC ruling, however, made another important observation. "We are of the opinion that a laptop or a notebook PC being an integrated item cannot be a set of a CPU with monitor, mouse and key board."

A desktop is a combination of items like a central processing unit (CPU), monitor, mouse and keyboard, whereas, a laptop has all of these as a single integrated unit.

Till date, under indirect tax laws, no distinction was made between assembly and manufacturing of computers. Which means that laptops do not enjoy separate treatment when compared with desktops, and are subjected to same rate of taxes and duties.

The industry, though, is still not clear about the implication of the judgement in this regard. Vinnie Mehta, executive director, Manufacturers Association for Information Technology (MAIT), said: "We are studying the implications."

However, the important issue here is: "Why should bureaucrats split hairs over such issues when the PC penetration is so dismal in India?" India has around 22 million personal computers (around 6 million being sold every year). These include desktops and laptops, whereas China sells around 25 million PCs in a year.

Michael Dell, who was in New Delhi in April, had said: "India is losing investments because of its tariff structure." He urged the government to rationalise the duty structure to make local manufacturing more attractive as compared with imports. Taxes add 20-25 per cent to the cost of computers in the country.

"Why can't we forego short-term revenue to rake in long-term benefits like bridging the digital divide?" asks a prominent PC vendor who wished to remain anonymous. The industry, it appears, joins issue with this view.