The Central Board of Excise and Customs (CBIC) has called out times when brands haven’t shared correct details or duties while importing phone display assemblies. Currently, the basic customs duty (BCD) on a mobile phone's display assembly is 10%, but there is no duty on importing parts or inputs that will be used to make a display assembly.
A smartphone's display assembly comprises a touch panel, a cover glass, an LED backlight, an FPC needed for displaying functions, and a film that makes the screen brighter.
The CBIC said that a 10% BCD would be charged if a mobile phone display assembly is brought in with only metal or plastic frame on the back to hold it up. And if the display assembly is brought in with other components, but with or without a metal/plastic back frame, a 15% BCD will be charged.
"If any other part, like the SIM tray, antenna pin, speaker net, power key, slider switch, battery compartment, Flexible Printed Circuits (FPCs) for volume, power, sensors, speakers, finger print, etc., are attached to a display assembly with or without a metal or plastic back support frame, the whole assembly is subject to a BCD rate of 15%," the CBIC said.
The CBIC made it clear that this setup, which is made up of the display assembly and other parts, is not eligible for the 10% BCD concessional rate.
EY India Tax Partner Saurabh Agarwal said that this clarification gives mobile phone manufacturers certainty about taxation for future imports. These companies have been at odds with customs officials for a long time over figuring out the right BCD rate for display assembly modules.
“What needs to be assessed is how would this unfold in the courts and impact existing litigation as the additional BCD cost (if any) on past imports would not be recoverable from customers but would have to be borne by the manufacturer importers only," Mr Agarwal adds.
Abhishek Jain, a partner at KPMG in India who works in indirect tax, said: "For the PMP and the Make in India program to work, it is important to make sure that the Customs classification is done right and that there is no duty evasion. At the same time, it's important to ensure that long, boring investigations don't slow down business.
"This circular should make it clear how to classify display assembly, which has been a problem for the electronics industry in the past. The circular makes it clear, with diagrams, how far the integration will be considered part of the display assembly and how far it will be considered part of the cellular device," remarks Mr. Jain.
India Cellular & Electronics Association (ICEA), an industry group for mobile devices, said that the circular would send a good message to all investors, both in India and around the world.
In 2016, the government announced a Phased Manufacturing Programme (PMP) for making mobile phones. The goal was to make it easier to make phones and add more value to products made in the country.
According to the PMP, BCD was put on display assembly on October 1, 2020, but some parts of the display assembly were still exempt.
ICEA said that the Ministry of Electronics and IT (Meity) had also sent a document to the Department of Revenue that listed the main parts of a display assembly that BCD will not tax.
"But field formations came up with a different meaning than what the document said and started looking into most manufacturers. ICEA talked to the right people about this problem. We hope that all of these questions will be answered by this clarification "ICEA said.
The industry body, whose members include Apple, Vivo, Lava, etc., said that Ashwini Vaishnav, the minister of electronics and information technology, led the effort to find a solution to the problem that industry players were facing because different authorities had different ideas about what the law meant.
"This circular is a big relief for the industry, and it will stop lawsuits that don't need to be filed. We are also very grateful that the Department of Revenue has taken MeitY's point of view on this important issue into account "ICEA Chairman Pankaj Mohindroo said.
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