Chinese and Indian manufacturers served notices over duty evasion on import of components

The tax demand is a result of wrong interpretation by the Customs officials, the Indian Cellular and Electronics Association (ICEA) has told the IT ministry and the Finance Ministry’s department of revenue, media sources reported.

After China’s Vivo and Oppo, Indian phone makers have also come under the government’s scrutiny. India mobile phone manufacturers such as Micromax, Lava, and Karbonn have been served notices by the Customs department over duty evasion on import of display assembly panels, media reports stated. These phone makers have raised a total tax bill of nearly Rs 20,000 crore, which has been levied from 2017, also known as retrospective tax, industry people told media.

The tax notices come over the import of display assembly panel by phonemakers, industry sources told the media. Before September 2020, there was no import duty on such panels, but from October 1, 2020, an import duty of 10 per cent is levied under the Centre’s phased manufacturing programme.

Assembly panels come with a host of mechanics, where the government levies 15 per cent import duty since 2017. These components comprise 15 per cent of mobile phones’ bills of materials, media reports said. The tax demand is a result of wrong interpretation by the Customs officials, the Indian Cellular and Electronics Association (ICEA) has told the IT ministry and the Finance Ministry’s department of revenue, media sources reported.

“The mobile phone’s bill of materials’ supply chain is very complex and involves numerous parts, components and sub-assemblies,” ICEA chairman Pankaj Mohindroo had stated in a letter to the Meity secretary, revenue secretary, and the finance secretary in January this year, media sources reported.

“Display assembly along with touch panel and cover glass assembly (which are essentially composite parts of generic sub-assembly with display assembly) were brought under 10% basic custom duty from October 1, 2020. Post this directorate of revenue intelligence (DRI) has started questioning all the mobile phone manufacturers about the imports of display assembly,” the ICEA chairman told media.

China’s Vivo and Oppo face this tax evasion charge over and above the other irregularities which they are being probed for. According to the report, if the matter isn’t resolved soon, contract manufacturers like Foxconn manufacturer for Apple can also face ramifications.

Foxconn started manufacturing in India in 2020-21 under the production-linked incentive (PLI) scheme. However, South Korea’s Samsung has not come under the duty net, the media reports said. Also selected under the PLI scheme, Samsung has a significant manufacturing presence in India but much of its imports come from Taiwan, which is in a Free Trade Agreement with the nation.