Mobile accessories turns expensive

Introduction:-

With the hype created regarding implementation of revolutionary taxation reform, i.e., GST in the financial year 2016-17, the government attempted to mentally prepare the assessees as regards substantial reduction in the exemptions available. This is reflected by the levy of excise duty on jewellery except pure silver jewellery. Furthermore, government has also withdrawn exemptions on charger/adapter, battery, wired headsets/speakers etc. usually accompanied by the mobile handsets. This article is an attempt to present the excise duty rates applicable to parts and accessories of mobile handsets.

Glance at the erstwhile provision:-

Condition no. 2:- Where such use is elsewhere than in the factory of production, the exemption shall be allowed if the procedure laid down in the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001, is followed.

Glance at the amended provisions:-

Apart from above, new serial entries have been inserted with respect to charger, adapter, battery, wired headsets and speakers which is reproduced for the sake of quick reference as follows:-

For the exemption following conditions should be fulfilled:-

Condition no. 2:- Where such use is elsewhere than in the factory of production, the exemption shall be allowed if the procedure laid down in the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001, is followed.

Condition no. 16:- If no credit under rule 3 or rule 13 of the CENVAT Credit Rules, 2004 has been taken in respect of the inputs or capital goods used in the manufacture of these goods.

Analysis of the amendment:-

In Budget 2016-17, excise duty exemption has been withdrawn on accessories i.e. charger/adapter, battery and wired headsets/speakers for use in manufacture of mobile handsets including cellular phones. However, concessional rate of 2% only if used by mobile handset manufacturers but this concessional rate is not applicable in case where charger/adapter, wired headsets/speakers etc. are sold in open market. Moreover, the exemption is continued on Inputs or parts for manufacture of charger or adapter, battery and wired headsets/speakers of mobile handsets including cellular phones.

Furthermore, the reduced rate of 2% is applicable on accessories subject to the condition that Cenvat Credit on Inputs and Capital Goods has not been availed.

It is worth noting that similar changes have also been made in Customs. Basic Customs Duty, CVD and SAD exemptions are being withdrawn on charger/Adapter, Battery and Wired Headsets/Speakers for use in manufacture of mobile handsets. Furthermore, Basic Customs Duty and CVD are being exempted on inputs and parts for manufacture of charger/adapter, battery and wired headsets/speakers of mobile handsets including cellular phone and inputs and sub-parts for use in manufacture of parts of charger/adapter, battery and wired headsets/speaker. Consequently, these goods will also be exempt from SAD.

Good bye words:-  The manufacturers of mobile handsets including cellular phones have the option to clear mobile handsets at the concessional excise duty of 1% provided no cenvat credit on inputs/capital goods is being availed. Now, concessional rate of 2% without cenvat is being specified for adaptors, chargers, wired headsets/speakers etc. Hence, the mobile manufacturers may either opt for cenvat credit facility by paying excise duty at full rate or adopt the practise of expensing the concessional excise duty without availing any cenvat credit.

An article by:-
CA Pradeep Jain
CA Neetu Sukhwani &
Monika Tak