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According to the Central Board of Indirect Taxes and Customs (CBIC), imports of mobile phone display assemblies—which include components including speakers, a SIM tray, and a power key—will be subject to a 15 percent basic customs duty (BCD). According to the CBIC, there have been cases of misdeclaration when importing cellular mobile phone display assemblies. Currently, imports of inputs or parts used individually to make a display assembly are tax-free, whereas imports of mobile phone display assemblies are subject to a 10 percent customs duty.
The touch panel, cover glass, LED backlight, FPC (flexible printer circuit), which is required specifically for rendering display functionalities, and brightness enhancement film make up the display assembly of a cell phone.
The CBIC warned field offices in a circular that importing a mobile phone display assembly with only a metal or plastic rear support frame connected would result in a 10% BCD.
However, if imported separately, the metal/plastic back support structure will incur a BCD of 15%.
"The whole assembly attracts a BCD rate of 15% if any other item, such as the SIM tray, antenna pin, speaker net, power key, slider switch, battery compartment, Flexible Printed Circuits (FPCs) for volume, power, sensors, speakers, etc., come fitted along with a display assembly with or without a back support frame of metal or plastic," the CBIC stated.
The CBIC made it clear that such assembly, which includes display assembly and any other parts, is not eligible for the benefit of the concessional rate of 10% BCD.
This clarification, according to EY India Tax Partner Saurabh Agarwal, gives the mobile phone makers, who have been at odds with customs officials for a long time over identifying the proper BCD rate of display assembly modules, certainty of taxing for future imports.
The additional BCD cost (if any) on prior imports would not be recovered from customers but would instead have to be borne by the manufacturer importers exclusively, according to Agarwal. "What needs to be considered is how would this unfold in the courts and effect the existing litigations," he continued.
The proper Customs categorization and the absence of duty evasion are essential for the successful execution of the PMP and the Make In India programme, according to Abhishek Jain, Partner Indirect Tax at KPMG in India. At the same time, it's critical to prevent time-consuming inquiries from impairing corporate operations.
"Regarding the classification of display assemblies, which has hitherto been a problem for the electronics sector, this circular should offer sufficient clarification. The circular outlines in explicit detail how far integration will be taken into account during display assembly and when it will be taken into account as a component of cellular devices." India Cellular & Electronics Association (ICEA), the trade group for the mobile device industry, claimed that the circular will send a favourable message to all investors, both domestic and foreign.
In order to develop the manufacturing capabilities and boost domestic value addition in the nation, the government announced a Phased Manufacturing Programme (PMP) for the production of mobile phones in 2016.
According to the PMP, the BCD on display assembly went into effect on October 1, 2020, with some display assembly components still being excluded.
According to ICEA, the Department of Revenue has also received a document from the Ministry of Electronics and IT (Meity) outlining the key components of Display assemblies from which BCD will be exempt.
"Field formations, however, came to a conclusion that differed from the document and started looking into the majority of manufacturers. The ICEA brought up this matter with the appropriate authorities. This explanation, we hope, will set all such challenges to rest," ICEA added.
The industry group, which is made up of companies like Apple, Vivo, and Lava, claimed that Electronics and IT Minister Ashwini Vaishnaw was in charge of the effort to find a solution to the problem that industry players were experiencing as a result of various authorities' differing interpretations of the same law.
"This circular will save the sector from needless litigation, which is a huge relief. We also continue to be grateful that the Department of Revenue has acknowledged MeitY's perspective on this important matter "Pankaj Mohindroo, the ICEA chairman, remarked.
