Chairman of Central Board of Indirect Taxes and Customs (CBIC) Sanjay Agarwal does not expect the US to impose higher tariff on Indian exports. In an interview, he also said that with post-tariff rate cuts, the focus would now be on rationalising Agriculture Infrastructure Development Cess.
The Budget has rationalised custom tariff structure by removing seven tariff rates, but added Agriculture Infrastructure and Development Cess (AIDC), making the effective rate the same. What was the logic behind that?
The logic is that the present customs duty structure is seen to be very complex, with too many rates – 15 in total. During Union Budget 2023-24, seven tax rates were cut. This time, another seven have been cut. The rates, which were perceived to be very high, such as 150 per cent, 125 per cent or 100 per cent, now have been brought down to 70 per cent with an equivalent to or slightly lower amount of AIDC. Similarly, rates less than 70 per cent – in the range of 40 per cent, 35 per cent, 30 per cent and 25 per cent – have been raised to 70 per cent with an equivalent amount of AIDC.
There are very few items on these rates, so people are not exactly going into key complete tariff because there are 12,500 tariff lines. Nobody can go through 12,500 tariff lines. Now the items, on which AIDC has been imposed, have been placed in a different schedule. You can see how many items are attracting high AIDC. We have cleaned up our basic custom tariff schedule and now that flap has gone into AIDC schedule.
This exercise gives a perception that India does not have very high tariff. We have rectified the optics. The average rate is calculated only on BCD, so that has come down from 11.65 per cent to 10.66 per cent. So, this is an optics correction and identification. With this, you can straightaway refer to AIDC schedule and see that which has higher rate of AIDC. We can have a very targeted approach and after stakeholder consultation, we can bring down the AIDC on specified items. We’ll be starting that process now. Had we not imposed AIDC, it would have been a major shock for the industry. We don’t want our industry to feel any kind of major shock. We are referring the matter to the line Ministries now to get their inputs after doing the stakeholder consultation about how much it can be reduced.
Another argument is that since you are shifting more from BCD to cess, the Centre is going to gain more as the amount to be transferred to States through devolution will come down. What do you have to say?
Our objective is to not gain anything at the cost of the States. The point you are raising is correct. AIDC is not shared with the States, whereas BCD is. So, there will be a shift towards non-shareable pool. But this exercise has been conducted not with this objective. It was for correcting the optics and clearly identifying our targeted items. Anyone can access that AIDC schedule and see which items are attracting higher protection.
Next stage would be to see whether higher protection is required. Higher protection has been provided to certain segments of the industry for a short duration. We have done the identification exercise and this will be the beginning of a consultative process. Wherever we find no requirement for such a high protection, it can be lowered. Ultimately, we want to be a low-tariff nation, so that upper-end industry is very competitive. If the industry is not very efficient, it can cater to only domestic market. It can never be in exports. But we will have to export also because we have to import. Therefore, we want to keep the industry efficient so they can withstand competitiveness in global market.
What kind of measures can CBIC think of to protect exporters’ interest from Trump’s tariff action?
We keep on hearing or listening or reading about speculations that things might change. But it is entirely uncertain. So far as the rate of duty applied on the imports from the US is concerned, we have analysed top 30 import items and found that the rates are very low– either nil or nearly nil. On crude oil or LNG, it is very low. On items like diamonds, coal and waste scrap, it is within 10 per cent mostly at 2.5 per cent or 5 per cent. So it is not high. We don’t see any reason for high rate of duty being imposed on Indian exports. At the same time, India imposes very reasonable rates of duty on most of the items. There may be some outliers. We have identified those outliers and placed them in a basket so that further action can be taken.
Is there any thinking about a custom amnesty scheme for the past non-compliance issues?
In customs history, the amnesty scheme was brought only once in 1998. After that, such schemes have been brought in multiple times in case of both direct and indirect taxes. But they were confined to taxation. Most notices issued by customs are not only related to customs duty but to many other aspects. And any amnesty given by customs department should only be related to the Customs Act.
If other issues are involved, we cannot dissect the show-cause notice. A show-cause notice, which will fall in the category of customs amnesty scheme, will be a limited number. In many cases, such notices will be issued on default of export obligation. But that is DGFT scheme. So, amnesty scheme was brought last year or the year before that. Many of the cases where amnesty is required are related to default in export obligation. So there is already an amnesty scheme and people have availed of benefits. But on the custom side, there is not much traction. Even in the 1998 amnesty scheme, there was not much traction and not much revenue collection.
When will the GST Appellate Tribunal become operational?
The process is on for the appointment of members and fixing infrastructure, and hiring office premises, etc. The president has already been appointed. It will take some more time (for GSTAT to be operational).
It is difficult to give a timeline.
Published on February 9, 2025
