The department of revenue moved swiftly on 06 March to restore the four percent countervailing vat/sales tax duty (known as special cvd in customs parlance) on mobile phones and computer parts by a notification issued on 6 March. The special cvd on these goods was exempted since both the basic as well as the cvd of excise on these two were exempted. The exception to the norms will protect domestic manufacturing and full zero duty will be available only to parts for manufacture, the final product import is now subject to a tariff barrier.

The Haryana Chief Minister recently inaugurated Samsung's first mobile phone manufacturing plant in Manesar in Haryana , Nokia is coming up in Sriperumbedur near Chennai. The others, namely, LG, Motorola Ericsson and Alcatel too are making plans to start manufacture. Even as the notification makes a deviation from the exemption norm, it provides continuity in terms of providing a uniform protection umbrella to manufacturing. The duty will, of course, keep the smugglers active will thrive on the margins generating by savings on customs duty and sales tax. The move is also bad in law since imported goods face the double levy of sales tax of four percent without the benefit of set off.

Computer parts: In the computer parts case , special cvd of 4% will be applicable on Microprocessor for computer, other than motherboards, Floppy disc drive, Hard disc drive, CD-ROM drive, DVD Drive , USB Flash memory and Combo drives. The announcement of zero excise duty on these parts in the recent budget has lost a part of the impact with the imposition of special cvd. Computer manufacturers can claim set off of the special CVD in the 12 percent excise duty on the final product but the small scale units, after sales service, repairs and accessories segments must pay up. The four percent cvd which will protect the computer manufacturers like HCL and Zenith who were also behind the imposition of 12 percent excise in the recent budget. They do not mind the hassles of excise duty as long as they score over competitors in the small scale and import segments with the blessings of the department of revenue. As in the case of mobile cellular phones, the smugglers too will get business with the partial return of duties, notwithstanding the zero duty environment in the IT agreement.

Duty calculations: The duty calculations in the new budget is a complex process, the final result often goes into seven decimals! Trade has learnt to do the calculations in the way of TRU (Taxation Research Unit) even though there are many theoretical and principled objections in the corridors of North Block.

Here is how to calculate the total duty:

Assume cif value of goods at Rs 100. Put the basic customs duty (normally 12.5 percent) on the value of goods, add this to the value of goods to get the landed value. Now multiply the cvd of excise with the landed value to arrive at the cvd incidence. Next, add basic duty and cvd of excise and calculate the two percent education cess on the total. Last, apply the four percent special cvd of sales tax/vat on the sum of all the that is the cif value and all the three different duties. Now total all four duties to get the final duty. (If you come across an anti dumping duty, it should be handled in the same manner as the cvd of excise.) Remember that education cess is not applicable on cvd of sales tax and cvd of sales tax applies on education cess, we feel that it should be the other way round, a cess is always the last part of duty calculation.

Drawback: the drawback commissioner has sen t out a circular asking the councils and others to sen d in their cost data in specified formats for determination of drawback rate. It is amazing that after more six decades of experience, the department should be asking the exporters for data which is certified only by the internal auditor who is paid by the exporter. The format of the data sheets does not have columns to calculate the incidence of various taxes on the products, standard cost heads and detailed notes on the meaning and scope of each column headings are also missing. The department has not bothered to set up standards even as it has tens of thousands officers in the field who have decades of experience in handling various industries.

Given that the service tax is included in the data sheets, and there is a hike in service tax by 2 percent, along and the imposition of four percent cvd of sales tax on all goods, the drawback rates will be hiked by a good amount. The continuation of the committee of economist, retired textile expert and taxation expert to oversee the drawback fixation will also help in evolving a practical and workable rate schedule. The DEPB too is expected to stay for another year with better rates since the substitute wto compatible scheme is not in sight.

There is no word from the drawback directorate on special cvd on export promotion schemes like EPCG on which marginal five percent duty is levied . These schemes should be exempt on the precedent set by the similar duty of SAD imposed by Yashwant Sinha.

Anti subsidy duty: The Department of Revenue is cleaning up its act by expanding the rules relating to the anti subsidy duty on imports. This duty is known as the countervailing duty in international trade. (The term cvd in India is loosely used for equivalent domestic duties slapped on imports but in world trade, the use of the cvd is restricted anti subsidy action.) The implementation of the revised rules will be from a date to be notified.

Detailed methods of calculating subsidy along with illustrative list of subsidies is contained in the notification issued on 1 March. The Government is preparing for anti subsidy action on imports action since the anti dumping and safeguard measures are suffering from severe limitations. WTO allows the most severe action against subsidy which are treated at par with physical control on the movement in movement of goods. There are applications on the anti subsidy front in India as yet even though Indian goods have been subjected to hundreds of anti subsidy action the world over. The DEPB, income tax holiday are named as subsidies by the European Union.