Smartphone Display Assembly With Parts Fitted to Attract 15 Percent Import Duty, CBIC Says

Import of mobile phone display assembly, which are fitted with items like speakers, SIM tray and power key, will attract a 15 percent basic customs duty (BCD), the Central Board of Indirect Taxes and Customs (CBIC) has said. The CBIC said there have been instances of mis-declaration while importing display assembly of cellular mobile phones. Currently, display assembly of mobile phones attracts 10 percent customs duty, and nil duty on imports of inputs or parts separately for use for manufacturing of a display assembly.

The display assembly of a cellular mobile phone consists of touch panel, cover glass, LED backlight, FPC (flexible printer circuit) specifically needed for rendering display functions and brightness enhancement film.

In a circular to field offices, the CBIC said if a display assembly of mobile phone is imported with merely a back support frame of metal or plastic attached to it, it will attract 10 percent BCD.

However, the back support frame of metal/plastic, if imported individually, will attract a BCD of 15 percent.

"If any other item like the SIM tray, antenna pin, speaker net, power key, slider switch, battery compartment, Flexible Printed Circuits (FPCs) for volume, power, sensors, speakers, finger print etc, come fitted along with a display assembly with or without a back support frame of metal/plastic, then the whole assembly attracts a BCD rate of 15 percent," the CBIC said.

Such assembly, consisting of display assembly and any other parts, is not eligible for the benefit of concessional rate of 10 percent BCD, the CBIC clarified.

EY India Tax Partner Saurabh Agarwal said this clarification brings in the certainty of taxation to the mobile phone manufacturers for future imports who have been at loggerheads with customs officials since long for determining appropriate BCD rate of display assembly modules.

"What needs to be assessed is how would this unfold in the courts and impact the existing litigations 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”, Agarwal added.

Abhishek Jain, Partner Indirect Tax at KPMG in India, said: "Ensuring that the Customs classification is done appropriately and there is no duty evasion is key for the successful implementation of the PMP and the Make In India programme. At the same time, it is important to ensure that tedious investigations don't affect business operations.

"This circular should provide ample clarity regarding the classification of display assembly, which has been an issue in the past for the electronics industry. The circular clearly lays down along with diagrammatic presentation as to upto what extent will the integration be considered at display assembly, and beyond what point will it be considered as parts of cellular devices." Mobile devices industry body India Cellular & Electronics Association (ICEA) said that the circular will give a positive message to all investors - Indian and global.

The government had notified a Phased Manufacturing Programme (PMP) in 2016 for mobile phone manufacturing to create the manufacturing capabilities and increase domestic value addition in the country.

As per the PMP, BCD on display assembly was imposed on October 1, 2020 and parts of display assembly remained exempted.

ICEA said that the Ministry of Electronics and IT (Meity) has also submitted a document to the Department of Revenue that detailed the prominent constituents of Display assembly on which BCD will be exempted.

"However, field formations arrived at an interpretation which was at variance from the document and began investigations against most manufacturers. ICEA took up this issue with the relevant authorities. This clarification, we hope, will set all such challenges to rest," ICEA said.

The industry body, whose members include firms like Apple, Vivo, and Lava, said that Electronics and IT minister Ashwini Vaishnaw led the issue to find the resolution to the challenge that industry players were facing due to different interpretations by various authorities.

"This circular is a big relief to the industry and will avoid unnecessary litigation. We also remain deeply appreciative that the Department of Revenue has acknowledged the view of MeitY on this critical issue," ICEA Chairman Pankaj Mohindroo said.