Centre clarifies customs duty on phone displays in possible relief to Chinese firms

The Central Board of Indirect Taxes and Customs (CBIC), on Friday, cleared the air on the customs duty applicable on import of mobile phone parts. The regulator said that a concessional 10% customs duty is applicable on display assembly units, along with the back support frame but the normal 15% duty will apply when more parts are attached to it.

The move seeks to bring certainty to businesses and avoid their disputes with the customs department. The clarification is based on inputs from the ministry of electronics and information technology. The department said mis-declaration of products have in the past led to tax demand notices being sent to some importers.

As per the clarification, a display unit that includes ten specified items such as touch panel, cover glass, indicator guide light, LCD backlight and polarisers will attract a basic customs duty of 10%. However, if the product includes additional parts such as antenna pin, sim tray, speaker net, battery compartment or other items, then the whole assembly is liable to 15% duty. 

Such assembly consisting of a display assembly of a mobile phone with or without back support frame, plus any other parts is not eligible for the concessional duty rate, CBIC said. The order provides display assembly pictures and schematic representations for the ease of identification.

This clarification brings in certainty of taxation on future imports to mobile phone manufacturers who have been at loggerheads with customs officials since long for determining appropriate basic customs duty (BCD) rate for display assembly modules, said Saurabh Agarwal, Tax Partner at EY. 

“What needs to be assessed is how would this unfold in the courts and impact existing litigation as the additional BCD cost (if any) on past imports would not be recoverable from customers but would have to be borne by the manufacturer importers only,” said Agarwal. 

This circular is a big relief to the industry and will avoid unnecessary litigation, said Pankaj Mohindroo, Chairman of India Cellular & Electronics Association (ICEA). 

In July, the Directorate of Revenue Intelligence (DRI) issued a notice to Oppo and accused them of allegedly evading customs duty worth ₹ 4,389 by not declaring the items correctly.  Soon after, the customs department served notices to three Indian smartphone brands too. 

Back then, Oppo told Mint that it had a different view on the charges mentioned in the show cause notice. Oppo had called it an industry-wide issue impacting many corporations.

In March, the Ministry of Electronics and Information Technology (MeitY) had sent a letter to the Department of Revenue, to clarify that the part needed to make display assembly was exempt from import duty. In its letter MeitY had detailed the constituents of display assembly that were exempt from BCD. 

BCD was imposed on display assembly in October 2020 as part of the phased manufacturing program (PMP) to expand local manufacturing capabilities. Some components used in display assembly were exempted from the tax. According to industry experts, display components account for 25-35% of the overall Bill of material (BOM) of a smartphone.