Budget 2021: CII seeks customs duty exemption for defence imports in pvt sector

The industry body said the taxes were affecting the private sector’s competitiveness across all projects, especially “large value, long-gestation period” programmes such as shipbuilding

In the run-up to the upcoming Union Budget, the Confederation of India Industry (CII) has sought exemption from customs duty to the private sector along the lines of the concession offered to defence public sector undertakings and ordnance factories for importing systems and equipment for manufacturing military equipment.

Representational image. (Getty Images/iStockphoto)

In its pre-budget recommendations for the defence sector, the industry body on Thursday said while the customs duty and other taxes are reimbursed to the industry on completion of the contract, a significant chunk of money gets blocked during the duration of the contract.

Currently, customs duty and Integrated Goods and Services Tax account for 31% of the value of imports in taxes. “Indirectly, it is an additional cost that the private industry has to bear vis-à-vis DPSUs and ordnance factories,” the CII said in a statement.

The industry body said the taxes were affecting the private sector’s competitiveness across all projects, especially “large value, long-gestation period” programmes such as shipbuilding.

The CII said it was critical to restore the level playing field for the private industry as was prevalent before a February 2020 amendment.

“It is discriminatory that the DPSUs are exempt from the customs duty while the private sector has to make upfront payments. It causes cash flow problems. Restoring the level playing field and creating a balance would be the right thing to do,” said Colonel KV Kuber (retd), director, aerospace and defence advisory, Ernst & Young.

In another recommendation, the CII asked the government to harmonise the GST rates for different types of war-fighting platforms for ease of doing business. “Warships, submarines and aircrafts are subject to 5% GST. However, most of army’s war-fighting equipment and systems see the incidence at 18%,” the CII said.

“The Society of Indian Defence Manufacturers wishes to seek your (government’s) consideration for its proposal to harmonise the GST rates for war-going apparatus of the armed forces that sees incidence of GST that varies from 5% to 12% to 18% depending on the category,” the statement said.

The GST on the entire range of war-fighting equipment of the armed forces and the para military must be harmonised and zero rated on par with exports, possibly considering these as deemed exports, the industry body recommended.