While the Indian electronics sector has been witnessing a consistent growth in terms of market size, India lags behind in electronics hardware manufacturing capabilities due to innumerable challenges including high cost of power and finance, high transactional costs, prevalent tax structure and poor base of supply chain. Some of the issues and recommendations in this regard for the consideration of the government are given below:- 

Incentivize Design-led Growth Investment in R&D and IPR 

Electronics manufacturing in India is confined to low end value chain. There is need to transition to Design in India and IP creation. Currently, private sector R&D does not get Government  funding  unless  it  ties  up  with  Government  R&D  organizations.  India has a promising hardware engineering talent and vibrant design competencies; hence Design in India can lead to Make in India. There are various design elements such as the whole fabrication, mechanical design, the PCB (printed circuit board) layout, component selection, RF  testing  that  can  be  done  in  India.  It  is  suggested  that  suitable  incentives  may  be introduced by the Government to encourage Design in India to achieve Make in India with increased  focus  on  R&D  and  IPR.  Design in India will ultimately lead to job creation, generating intellectual property, address huge domestic demand and export opportunities, creation of local component ecosystem, and manufacturing of world class products in India.

Incentivize manufacturing by providing throughput based incentive 

All incentives available to manufacturing are capex based incentive. It is recommended that the  Government  may  consider  providing  throughput  based  incentive  (on  what  we manufacture) both for domestic and export for a timeframe of three to four years. One way to  provide  this  incentive  is  through  the  provision  of  production  subsidy  which  has  been introduced under the MSIPS Scheme vide notification of 3rd August 2015 (which includes high  value  added  items  such  as  semiconductor  wafering,  logic  microprocessors,  ICs  and added new components such as PCB, discrete semiconductors fab, Power Semiconductors Fab and ATMP etc.).This provides for a 10 percent Production Subsidy on the value addition by the manufacturing unit. Thus, higher the value addition, higher the subsidy and vice versa. It is recommended  that  production  subsidy  be  extended  to  include  all  components  and raw materials which are covered under Information Technology Agreement 1 and are subject to Zero Customs Duty.    

Increase Basic Customs Duty on Select Products 

The  BCD  on  import  of  select  non-ITA  goods  be  raised  to  a  permissible  limit  in  order  to discourage the traders from importing such goods into India and selling the final product with  mere  screw  driver  assembly  technology.  These products/Finished  Goods  should however  be  decided  with  Industry  consultation.  The  high  technology  and  low  volume products should not be considered for any such BCD raise and only the products which are in  voluminous  in  nature  and  have  developed  local  indigenization  capability  or  being manufactured  in  the  country  should  come  under  BCD  raise.  The  discrete  components however may be exempted from levy of BCD when imported into India for manufacture of these products/finished goods. However, the Populated Printed Circuit Boards be brought under the levy of Basic Customs Duty as it will give encouragement to local value addition.  

Encourage domestic manufacturing of Printed Circuit Board Assembly (PCBA) 

PCB is considered to be most important component of any Electronics/electronic product. India has potential to populate PCB in India. There are more than 500 sophisticated Surface-mount  technology  (SMT)  lines  that  are  available  which  can  take  up  manufacturing  of populated  PCBs  immediately.  In  absence  of  PCB  manufacturing,  many  of  the  companies have curbed their manufacturing operations and switched to trading and some of them get their  products  manufactured  through  overseas  EMS  providers  in  Taiwan/China.  These companies can entice their EMS providers, who have already shown inclination to relocate to India if the benefits being made available for domestic manufacturing on populated PCBs along  with  existing  demand  for  their  products.  It  is  accordingly  recommended  that  PCB assemblies of non-ITA-1 items should be subjected to minimum customs duty. This would ensure  that  the  basic  customs  duty  becomes  a  cost  in  the  import  of  PCBA  which  would create duty differentiation between imports and domestic manufacture.  

Provide Clarity on rate of GST on toner cartridges 

There is no clarity on the applicability of rate of GST on toner cartridges.  It is recommended that suitable clarity be provided on the rate of GST applicable to toner cartridges to avoid any litigation on this account in future.  

Provide  Clarity  on  availability  of  input  tax  credit  on  inputs  used  for  in-warranty/AMC supplies 

A  warranty  is  a  written  guarantee  for  a  product  and  it  declares  the  responsibility  of  the maker to repair or replace any defective products or parts. While the rectification is done on a free of cost basis, the cost of rectifying the defect is included in the original price at which the goods are supplied. Further, in case of annual maintenance contracts (AMC) supplies, the cost for providing the repair is collected at the time of entering into the AMC contract and  the  goods  are  supplied  free  of  cost  subsequently  when  the  time  arises  for  repair  of goods.  Under  the  GST  regime,  there  is  ambiguity  as  to  whether  the  supplier  would  be eligible  to  claim  input  on  procurement  of  parts  which  shall  be  used  for  warranty replacement and AMC. It is recommended that appropriate clarity be provided that ITC shall be allowed on parts used for warranty replacement or in case of AMCs.   

Provide clarity on refund of input tax credit in the case of inverted duty structure due to input services 

As per first proviso to section 54(3) of the CGST Act, 2017, refund of unutilized input tax credit is allowed in the following two instances:- 

(i) zero rated supplies made without payment of tax; 

(ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate  of  tax  on  output  supplies  (other than nil  rated or fully exempt  supplies),  except supplies  of  goods  or  services  or  both  as  may  be  notified  by  the  Government  on  the recommendations of the Council.” 

As per the above provision one of the cases where refund of input tax credit is allowed is when underutilized credit is on account of rate of GST paid on inputs being higher than the rate of GST on outward supplies made by the supplier. However, there is ambiguity regarding refund of input tax credit in case here the inverted duty structure arises as a result of rate of tax on input services being at a higher rate in comparison to the outward supplies. It is requested that appropriate amendment be made in the GST law to provide for allow ability of refund in case of inverted duty structure arising on account of input services. This would provide much needed clarity on this aspect.  

Reduce customs duty on compressors, motors, electronic components 

There are components like high efficiency compressors and motors, Electronic components, vacuum insulation panels (required for meeting the higher BEE energy regime) which either do  not  have  domestic  manufacturers  or  there  are  severe  capacity  and  competition constraints, accordingly the peak duty structure of 7.5 percent should be reduced. This will help the energy regime to deliver better products to the customer at reasonable prices. 

Consumer Durables 

Reduce GST Rates 

The  consumer  durables  has  been  placed  in  the  same  bracket  of  tax  as  applicable  to  sin goods.  These  goods  are  subject  to  the  highest  rate  of  GST  @  28 percent.  It  is  submitted  that consumer durables are essentials and cannot be considered as luxury especially items such refrigerators and washing machines in today’s era. It is emphasized that the rate of GST on consumer durables should be reviewed and reduced by the Government at the earliest.  – TV Veopar Journal Bureau