UNION BUDGET 2005-06

Budget 2005 – Changes in

Customs Law & Duty Rates
Towards fulfillment of its international trade
obligations the Government of India has been
reducing customs rates on various goods in
order to facilitate free flow of international trade
and encourage international competition.
However, concerns are being expressed that
reduction in customs rates may bring hardship
and consequent decline of the domestic indus-
try. The Government should come forward to
give protection by exercising its sovereign power
in the best interests of the nation. This article
gives an insight into the changes being proposed
by the Finance Bill, 2005 in customs law.

—Vipin Kumar Jain

A
s in the past several bud-
gets, this year too the peak
rate of customs duty on
non-agricultural products been
reduced by 5% (from 20% to 15%).
In percentage terms, this reduction
in duty which translates to a 25%
fall from the earlier rate of 20% is
by far the steepest one in the history
of Indian Customs. Now that the
tariff rates in India are more or less
aligned with the rates existing in
other ASEAN countries, one can
reasonably hope that the process of
continuous reduction of duty rates,
which have been on for the past
decade or so, is now nearing an end.
The next budget is therefore not
likely to further reduce the peak rate
The author is a member of the Institute. He can be reached at vip-
injain@hathway.com
of customs duty, which now stands
at a modest 15%.
As if to assuage the feelings of
the local industry, which has been
smarting under the impact of con-
tinuous tariff reduction, the
Finance Bill contains a rather inno-
vative method of giving a legiti-
mate protection to the local indus-
try without infringing India’s com-
mitment to WTO. The Finance Bill
contains a provision to impose a
levy of additional duty of customs
at 4% on all the ITA bound items to
counter balance various internal
taxes such as sales tax, VAT, local
tax etc. leviable on goods on their
sale or purchase in India. Presently,
this additional duty of customs will
be charged only on imports of
Information Technology Agree-
ment (ITA) bound items and on
specified imports / raw materials,
for manufacture of electronics /
Information Technology items
which have been exempted from
customs duty. Interestingly, only
the local manufacturers (and not the
service providers) will be able to
take credit / set off of the additional
duty so paid on the imported items
for discharging duty liability on
their final products. In this manner,
the local industry has been offered
an effective protection against the
onslaught of cheaper imports. This
provision, reflects the brilliance of
the Finance Minister who has been
able to come up with a levy which
affords protection to the local
industry while, at the same time,

THE CHARTERED ACCOUNTANT 1180 MARCH 2005

 UNION BUDGET 2005-06
complies with India’s commitment
to the WTO.
There are a host of items on
which import duties have been
reduced. Before dealing with these
changes, I will first discuss the
amendments proposed in the
Customs Act, 1962.
A significant amendment rela-
tes to review of orders passed by
the Commissioner of Customs and
Commissioner of Customs (App-
eals). Presently, Central Board of
Excise and Customs (CBEC) was
empowered to review orders
passed by the Commissioner of
Customs. The orders passed by the
Commissioner of Customs (App-
eals) were reviewed by the
Commissioner of Customs. Now
suitable amendments are being
suggested in Section 128A, 129A
and 129D of the Customs Act,
1962 for vesting the review powers
to a committee of two Chief
Commissioners that may be noti-
fied by the CBEC.
Section 127MA of the Cust-
oms act, 1962 is being amended so
as to make a provision for sending
back a case by the Settlement
Commission to the Tribunal in the
event of non-co-operation by the
applicant.
The provisions relating to the
advance ruling are proposed to be
amended so as to expand their
scope and coverage. The definition
of ‘applicant’ in section 28E of
Customs Act, 1962 is being
enlarged for allowing an existing
joint venture in India to avail the
benefit of Advance Ruling. The
Central Government is also being
empowered to notify any class or
category of persons as eligible for
availing of the benefit of Advance
Ruling.
Section 28H of Customs Act,
1962 is being amended so as to pro-
vide that Advance Ruling may also
THE CHARTERED ACCOUNTANT
be sought in respect of determina-
tion of Rules of origin of goods and
matters relating thereto.
Section 28F of the Customs
act, 1962 is being amended for
renaming “Authority for Advance
Ruling” as “Authority for Advance
Ruling (Customs, Central Excise
and Service Tax)”.
The existing section 3 and 3A of
the Customs Tariff Act, 1975 are
being substituted by a new section 3.
Having discussed the provi-
sions of the Finance Bill with refer-
ence to Customs Act, 1962 and
Customs Tariff Act, 1975, I would
now deal with the salient features
in respect of Customs Duties as
introduced in the Finance Bill,
2005.
Peak rate of duty
Peak rate of customs duty on non-
agricultural products has been
reduced from 20% to 15% with a
few exceptions. As regards tex-
tiles, only the ad valorem compo-
nent has been reduced to 15%, the
specific component wherever
applicable, remaining unchanged.
Metals
Customs duty has been reduced
from 15% to 10% on primary and
semi-finished forms of metals,
namely, Stainless Steel, Ferro-
alloys and other alloy steel
(excluding seconds and defec-
tives), Aluminium, Copper, Zinc,
Tin and Base metals of Chapter 81.
Customs duty on lead has been
reduced from 15% to 5%; on articles
of lead from 20% to 10%; and on
battery separators from 20% to 5%.
Customs duty on Calcinated
Aluminia has been reduced from
20% to 10%.
1181
Refractories and their inputs
Customs duty has been reduced
from 15% to 10% on refractories
and graphite electrodes. Customs
duty has also been reduced
from 15% to 10% on raw materials
for refractories, namely, natural
graphite powder, aluminous cem-
ent, boron carbide, reactive
alumina, silicon metal (99%
purity), micro/ fumed silica, brown
fused alumina, fused zirconia,
silicon carbide, sodium hexa-
meta phosphate, phenolic resin,
sintered/tabular alumina and
fused silica.
Ashes and Residues
Customs duty has been reduced
from 15% to 10% on ashes and
residues of copper and zinc.
Catalysts
Customs duty has been reduced
from 15% to 10% on catalysts of
heading 38.15.
Agriculture
Concessional rate of 5% customs
duty + Nil CVD, presently avail-
able to specified plantation
machinery upto 30.4.2005, has
been extended by one more year.
Customs duty on cut flowers
including orchids has been
increased from 30% to 60%.
Customs duty on cloves has
been reduced from 70% to 35%.
Customs duty on oleo pine
resin has been reduced from 10%
to 5%.
Customs duty on Alpha pinene
has been reduced from 15%/20%
to 5%.
Customs duty on refrigerated
motor vehicles for transport of
goods has been reduced from 20%
to 10%.
MARCH 2005
 UNION BUDGET 2005-06
Information Technology
Customs duty has been exempted
on specified items covered under
the Information Technology
Agreement (ITA). With this, all 217
ITA bound items are now fully
exempt from customs duty. All
goods imported for the manufac-
ture of ITA bound items have also
been exempted from customs duty
subject to end-use condition.
Petroleum Products
Customs duty on crude petroleum
and petroleum products has been
reduced as follows:
(a) Crude petroleum from 10% to
5%;
(b) Kerosene for public distribu-
tion system from 5% to Nil;
(c) LPG for domestic use from 5%
to Nil;
(d) Motor Spirit (Petrol) from 15%
to 10%;
(e) High Speed Diesel oil from
15% to 10%; and
(f) Other petroleum products from
20% to 10%.
Additional duty of customs on
motor spirit and high speed diesel
oil has been increased from Re.1.50
per litre to Rs.2 per litre.
Chemicals and Petrochemicals
Customs duty has been reduced
from 15% to 10% on Polymers of
Ethylene, Polypropylene and
Propylene copolymers, Polymers
and copolymers of Styrene and
Polymers of Vinyl Chloride;
Customs duty has been reduced
on Ethylene, Propylene, Butylene,
Butadiene, Benzene, Toluene, O-
Xylene, Styrene, Ethylbenzene,
Ethylene Dichloride, Vinyl Chlo-
ride Monomer and Acrylonitrile,
from 10% to 5%.
Customs duty on other organic
THE CHARTERED ACCOUNTANT
chemicals falling under headings
2901 to 2904, has been reduced to
10%.
Customs duty on Ethyl Vinyl
Acetate has been reduced from
20% to 10%.
Customs duty on molasses has
been reduced from 15% to 10%.
Customs duty on industrial
(denatured) ethyl alcohol has been
reduced from 15% to 10%.
Capital Goods
Customs duty on specified textile
machinery, and raw materials and
parts for manufacture of such
machinery, has been reduced from
20% to 10%.
The concessional rate of 5% on
specified textile machinery and
parts is being extended beyond 28th
day of February, 2005.
Customs duty exemption for
specified inputs for manufacture of
leather goods, travel goods, foot-
wear, etc. for export has been exte-
nded to some more items, subject to
the existing 3% overall value limit.
Concessional rate of customs
duty of 5% presently available to
specified goods designed for use in
leather/footwear industry has been
extended to 7 more specified
machinery.
Customs duty of 5% on mono or
bi-polar membrane electrolysers
1182
and parts thereof presently available
to caustic soda industry, has been
extended to caustic potash industry.
Customs duty on railway loco-
motives, railway rolling stock and
railway equipment and their parts
(of chapter 86) has been reduced
from 20% to 10%.
Customs duty on specified
parts of printing presses has been
reduced from 20% to 10%.
Customs duty on specified
machinery/equipment for use in
Inland Container Depot
(ICD)/Container Freight Station
(CFS) has been reduced from 20%
to 10%.
National Calamity Contingent
Duty (NCCD)
For replenishment of the National
Calamity Contingent Fund, duty
of Rs. 50 per metric tonne on
imported crude oil, and a duty of
1% on polyester filament yarn,
motor cars, multi-utility vehicles,
and two-wheelers, was imposed
in Finance Act 2003. This levy,
which is valid upto 31.3.2005 has
been extended without any time
limit.
Baggage
Customs duty on passenger
baggage has been reduced from
40% to 35%.
Miscellaneous
Customs duty has been reduced on:
● Second hand motor cars/motor
cycles from 105% to 100%.
● Coking coal of high ash content
(12% or more) from 15% to
5%.
● Boron ore from 15% to 5%.
● Atmospheric Water Generators
from 20% to 5%.
● Specified parts of battery oper-
ated road vehicles from 20%
to 10%. ■
MARCH 2005