Union Budget 2022 - Certain progressive measures in Customs

Dr. G. Gokul Kishore and R. Subhashree

The annual budget exercise is sometimes a tame affair with no major changes. This year, on the Customs side, though the changes are not very many, a few of them are significant. Guillotining an introduction, we move to the article.

Tariffisation - A progressive move

This year's Budget will be remembered for this singular reformist measure - tariffisation. Historically, exemption notifications occupy a predominant position in respect of customs duty rates with multiple notifications. Even the effective rate notifications generally contain hundreds of entries with a good number of them having conditions attached and accompanying lists. While pruning of exemptions has been a constant exercise in the recent years, bringing the effective rate entries where partial exemptions operate into the Tariff Schedule itself as contemplated in this year's Budget will declutter the exemption notifications. Unconditional concessional rates covered under 124 serial numbers in the relevant notifications are being moved to the First Schedule of the Customs Tariff Act from 1st May, 2022. This means effective / concessional rate will become the tariff rate.

Exemption notifications can be amended by delegated legislation while tariff schedule requires nod of the legislative for amendments and therefore, flexibility in tinkering with the rates gets reduced for the government. However, the positive side of such tariffisation is certainty - at least the rate will not be subject to frequent changes and will be frozen for a reasonable period. This will significantly help the industry since one of the canons of taxation - certainty - gets codified when it becomes part of the statute itself. As per DO Letter of CBIC on Budget Changes, applicable BCD rates on sectors like textiles, chemicals and metals will operate almost entirely through tariff.

Another part of this move is withdrawal of around 350 exemptions based on feedback from stakeholders which are perceived as not relevant anymore. This is a move which has been carried forward from last year and such moves will certainly make the otherwise bulky tariff volumes leaner and less frightening.

Sunset date for exemptions

Last year, new Section 25(4A) was brought to provide for two years validity for conditional exemptions which means they will lapse on 31st March after two years from grant of such exemption. A new explanation is being inserted in Notification No. 50/2017-Cus., whereby serial numbers which will be impacted by such sunset date have been expressly specified separately for those expiring on 31-3-2023 and those lapsing on 31-3-2024. This is again in line with tariff rationalization / simplification objective along with the present-day thought process of keeping exemptions at the minimum and not taking them as granted for eternity.

The DRI story

The developments relating to jurisdiction and powers of Directorate of Revenue Intelligence (DRI) are more interesting to observe and analyse than the cases booked by it. The amendments proposed to Section 3 and Section 5 of Customs Act, 1962 on DRI and officers in preventive formations being included as classes of officers of customs and Board being empowered to assign functions to any officer who shall be the officer in relation to such functions are being interpreted as intended to overcome judgments like Canon India of the Supreme Court, 2021-VIL-34-SC-CU. In contrast, insertion of new Section 110AA which deals with transfer of documents by the investigating or audit officer to the proper officer for adjudication is being viewed as in line with such judgment of the Apex Court. A combined reading of the amendments proposed indicate that the intention of the government has been to avoid any fiasco as faced in the past in litigation on the ground of jurisdiction and therefore, to arm itself sufficiently. However, CBIC may come out with notification assigning specific functions to deem certain officers as proper officers which will clear the air.

Project imports - Phasing out concessions

The intention appears to be to provide impetus to Make in India initiatives. The concessional BCD rate for project imports (power projects, coal projects, gas projects, iron ore projects, water supply projects and other projects) is being phased out. Projects registered after 30th September 2022 will attract rate as high as 7.5% BCD. A silver lining is that those registered before such date will continue to be covered under concessional rate will 30th September, 2023. During times of Covid, it may be difficult to fast-track such imports and complete the entire process by such time but those who have almost on the verge of completion will not be jeopardized by such hike.

Phased Manufacturing Programme

From 2015-16 Budget, to promote indigenous manufacturing capacity in hi-tech sector or nascent technologies, tariff concessions for import of parts are being granted which are meant for specified period. While mobile handsets were part of such PMP initially, this year's Budget seeks to include smart watches and its inputs, hearable devices and smart meters with applicable BCD being NIL or lower rate this year gradually moving to tariff rate by 2025. While it is not clear as to the level of indigenization and local value addition achieved in cellular handset manufacturing, considering the fact that India is becoming a preferred hub for global manufacturers of niche products, PMP holds great promise and can be well be expanded to cover more products.

[Date: 03.02.2022]

(The authors are Advocates, Gokul & Subha Advocates, Chennai. The views expressed in this article are strictly personal.)