Indirect Taxes - Indian Budget 2006 – 2007 (130 - 139)

Indirect Taxes

130. I propose to give some concessions to vital drugs. I propose to reduce the customs duty on 10 anti-AIDS and 14 anti-cancer drugs to 5 per cent. I also propose to reduce the duty on certain life saving drugs, kits and equipment from 15 per cent to 5 per cent. These drugs will also be exempt from excise duty and countervailing duty (CVD).

131. Packaging machines serve a wide variety of industries, including food processing. I propose to reduce the duty on packaging machines from 15 per cent to 5 per cent.

132. I propose to extend the concessional project rate of 10 per cent to pipeline projects for transportation of natural gas, crude petroleum and petroleum products.

133. Honourable Members would recall that last year I had taken the power to impose a CVD on all imports to compensate for State level taxes. This levy was applied only to imports of ITA bound items and their inputs, except IT software. After the introduction of VAT in most States, I have received representations from trade and industry that this levy should be extended to all imports. The argument is persuasive, and I propose to impose a CVD of 4 per cent on all imports with a few exceptions. Full credit of this duty will be allowed to manufacturers of excisable goods.

134. In order to protect the domestic vanaspati industry, I propose to increase the customs duty on vanaspati to 80 per cent, the rate applicable to crude palm oil.

135. Export oriented units (EOUs) are allowed to clear their goods to the Domestic Tariff Area (DTA) at a concessional rate. With declining import duties, DTA units and EOUs should have a level playing field as regards excise duty or CVD. Hence, I propose to adjust the duty rates on clearances by EOUs to the DTA at 25 per cent of basic customs duty plus excise duty on like goods. This will still give the EOU a tariff advantage or, at any rate, in most cases, it will be on par with a DTA unit.

136. Finally, I have an important proposal that involves both excise and customs duties. Cotton textile industry has greatly benefited from the relief granted two years ago. The man-made textile industry is a growth- and employment-driver. It deserves encouragement. Hence, I propose to reduce the excise duty on all man-made fibre yarn and filament yarn from 16 per cent to 8 per cent. Simultaneously, I propose to reduce the import duty on all man-made fibres and yarns from 15 per cent to 10 per cent. Consequently, the import duty on raw materials such as DMT, PTA and MEG will also be reduced from 15 per cent to 10 per cent. The import duty on paraxylene is proposed to be reduced to 2 per cent.

137. I have a few proposals on the excise side. I reiterate that it is our intention to converge all rates at the CENVAT rate which is now at 16 per cent. There are only two items – aerated drinks and cars – that still attract the higher rate of 24 per cent. I propose to correct this substantially. I propose to reduce the excise duty on aerated drinks to 16 per cent. On cars, I propose to reduce the excise duty to 16 per cent, but only for small cars. A small car, for this purpose, will mean a car of length not exceeding 4,000 mm and with an engine capacity not exceeding 1,500 cc for diesel cars and not exceeding 1,200 cc for petrol cars. I am confident that industry will seize the opportunity to make India a hub for the manufacture of small and fuel-efficient cars.

138. I propose to impose an 8 per cent excise duty on packaged software sold over the counter. Customized software and software packages downloaded from the internet will be exempt from this levy.

139. I propose to fully exempt from excise duty DVD Drives, Flash Drives and Combo Drives.