India: A budget claimed pivotal to promote "Make in India" and lash on duty evaders

published on 12 July 2019 | reading time approx. 4 minutes

The newly elected Finance Minister of the Government of India rose before the lower house of the Indian Parliament on July 05, 2019 to submit her maiden budgetary proposals for the year 2019-2020. From an indirect tax standpoint, certain changes were proposed to the Customs law and to the Goods and Services Tax ('GST') Laws.

Birds eye view of the Proposed Amendments

The prime focus of the Government seemed to protect and control the territorial borders from a Customs and Regulatory stand point while, GST proposals as expected, were limited to streamlining operation of the developing law. The budgetary proposals witnessed tweaking of duties of Customs on both upward as well as the downward side. For instance, duties of Customs on electric vehicles, defence equipment, etc. saw reduction of Customs duty whereas parts of automobiles, steel and base metal products, etc. saw an enhancement.

On the GST forefront, proposals were made to curtail the scope of litigation by proposing to set up a National Authority for Advance Ruling in order to iron out the conflicting rulings delivered by two or more State Appellate Authorities for Advance Rulings. In order to clear disputes/ litigations pertaining to the erstwhile Central levies such as Service tax, Central Excise Duty, etc., the Government proposes to roll out an Amnesty cum Dispute resolution scheme. The scheme provides for settlement of tax dues and corresponding interest, penalty and prosecution upon payment of 40 percent to 70 percent of the tax dues. The percentage bracket is dependent upon the situation prescribed in the scheme.

Re-jig Import duty

The present Government has been spearheading the flagship 'Make In India' campaign by framing policies to promote manufacturing and true value addition in the Indian sub-continent. With a vision to the make India a 5 trillion dollar economy, one of the measures that the Government has been implementing historically is to promote indigenous manufacturing by increasing customs duty on finished goods or by withdrawing exemptions.

The Finance Minister was very vocal in her speech by proposing to withdraw exemptions available on certain electronic items that are being now manufactured in India. At the same time, in order to boost domestic manufacturing, she proposed to reduce customs duty on certain inputs such as CRGO sheets, wood fibers, etc.

Another sector which took a major hit was the automobile sector. The rates of Basic Customs Duty ('BCD') on parts such as glass mirrors, locks, catalytic converter, vehicle horns, wipers, lamps etc. was increased from 10 percent to 15 percent. Other parts such as air filters, oil filters, etc. also saw an increase in the BCD rates. Additionally, BCD on Completely Built Units (CBU's) of cars falling under chapter heading 8702, 8704 has also been increased from 25 percent to 30 percent ad valorem. Further, BCD on chassis fitted with engines for motor vehicles was also increased from 10 percent to 15 percent. On the other hand, Electric vehicles were certainly in limelight for equitable reasons. Given the high pollution levels and rapid depletion of natural resources, the Indian Government has been incentivizing manufacture of electric vehicles in India. Parts used for manufacture of electronic vehicles in India (such as E-drive assembly, On board charger, etc.) have been proposed to be exempted from Customs duty. Reduction of GST rate on electric vehicles to 5 perchent is already under consideration and placed before the GST Council.

While the modus operandi of the present Government to hike Customs duty may favour the nation, the same needs to be balanced with the expectations of Foreign Governments to maintain healthy trade relations. The Indo-US import duty hike is a classic example where a strong Indian trade partner reacted with higher import duty on Indian goods pursuant to its produce being taxed at higher duties upon import into India.

Power to levy penalty, arrest and order imprisonment for fraudulent claims

]The amendments proposed to the Customs law were, inter alia, aimed at constricting and lashing out on duty evaders who prejudice interest of Revenue Authorities. New provisions have been proposed to be incorporated in the Customs law for persons who obtain and utilize instruments such as duty scrips, authorizations, licenses, etc. by committing fraud, collusion, wilful misstatement or suppression of facts. Apart from penalty equivalent to the face value of the instruments, the Government proposes to incorporate provisions for arrest of these evaders and for imprisonment up to 7 years where the duty relatable to the said instrument exceeds INR 50 lacs.

Smuggling of goods using the human body

In an attempt to forbid use of the human body as vessels to smuggle and carry prohibited goods across the Indian Custom borders, the Government of India proposes to amend the law to provide screening and scanning of the human body for drugs and other contraband goods where the officer at Customs is of the belief that such goods have been secreted in the human body. While the existing provision mandates production of the person before the nearest magistrate for further examination and inquiry, the proposed amendment permits scanning and screening with the available facility at the Customs station itself. The rights of the accused have however, been protected including but limited to not undergoing the said screening or scanning at the Customs station, which is in line with the Constitutionally guaranteed rights.

Mandatory verification using AADHAR number

The AADHAR number in India is a twelve digit unique number allotted to an individual as a valid proof of identity. After the constitutionality of AADHAR was upheld by the Supreme Court of India with certain reservations, the Government has been promoting linkage of AADHAR number for multiple reasons. As for instance, the Income Tax laws now require linkage of AADHAR with the PAN.

On a similar footing, the Government has now proposed a verification drive in order to authenticate the GST registration as well as Customs compliance through the AADHAR platform, failing which, certain repercussions have been proposed. For instance, under Customs, if a person fails to undergo authentication for verification, the officers are empowered to suspend clearance of imported goods, sanction of refunds, exemption from duty, etc. On the GST side, failure to verify the authenticity using AADHAR would result in cancellation of GST registration. Provisions have been proposed in the event of a person not holding AADHAR to provide alternate ways to authenticate for verification procedures.