Mobile phone industry body ICA shared its recommendations on GST roll out for the mobile handset industry.

Indian mobile phone industry achieved approximate 200 percent growth in the domestic handset manufacturing in India in value terms during 2015-16. Over 35 new mobile handset manufacturing plants have so far been established generating employment for approx. 50,000 people directly and over 90,000 indirectly.

Key issues:

# Existing CVD/ ED differential duty dispensation of 12.5 percent Vs 1 percent to promote domestic manufacturing needs to be maintained in the proposed GST.

# The industry is apprehensive about further investments till duty differential principle is settled – to realize the ‘Make in India’ vision.

# Reasonable SGST rate at merit rate is a must to promote Digital India and to prevent the grey market from rearing its ugly head again. Merit rate SGST coupled with domestic CGST of 1 percent (without goods tax credit) on domestic supply will ensure a miniscule grey market.

Recommendations:

State GST on entire ecosystem i.e. CBU mobile phones and tablets – imported, CBU mobile phones and tablets- manufactured, Inputs, parts, components and accessories imported and manufactured and Capital goods – all at 5 percent merit rate.

Import CGST on mobile phones CBU at Current CVD rate of 12.5 percent and subsequently 1 percent CGST at each stage without input tax credit.  (IGST will be equal to 1 percent plus 5 percent. The buyer will be able to take credit of the SGST component of 5 percent. The 1 percent CGST component will not be admissible for credit). If this is found to be administratively difficult, then CGST should be fixed at 0 percent. In that case IGST will be 0 percent + 5 percent.

Domestically manufactured mobile phones and tablets: CGST continues at 1 percent (without input tax credit), but now applicable at every stage in the value chain. Again, if this is found to be administratively difficult to implement, then 0 percent CGST should be considered.

Import CGST on inputs, parts, components and accessories (as explained in (c) above i.e. a different dispensation for non ITA-I and ITA-I. Non ITA-I will suffer appropriate BCD and ITA-I will work on the differential duty principle. (IGST will be equal to 1 percent plus 5 percent.

The buyer will be able to take credit of the SGST component of 5 percent. The 1 percent CGST component will not be admissible for credit). If this is found to be administratively difficult, then CGST should be fixed at 0 percent. In that case IGST will be 0 percent + 5 percent.

CGST on domestic manufactured inputs, parts, components and accessories which is currently 2 percent (without input tax credit) should be modified to 1 percent since 2 percent will have a much greater cascading effect. For supply to OEM, there will be no issue; but when sold in the market, the 2 percent will have a cascading effect. Therefore, we may need to look at a change of this 2 percent to 1 percent.

The present system of allowing CENVAT credit of service tax while paying the 1 percent excise duty without input tax credit may be continued.

“The GST dispensation for mobile handset and components’ industry must facilitate and catalyze establishment of India as a Global Manufacturing HUB for Mobile Handsets and Components,” said Pankaj Mohindroo, chairman – Task Force and National President, Indian Cellular Association.