Union Budget and Indirect Taxation – Customs and GST

Updated: 20-05-2024 10:31:34 AM

Unlike many prior Budget announcements, Union Budget announced various changes to the indirect taxation regime in India, including changes to both Customs Duty and GST rates. Read this article to know what changes have been made in terms of both laws and rates related to Customs Duty and GST. 

Effect of Union Budget on Customs Duty

Union Budget 2020 introduced various changes in the customs duty regime of India. The following is a short list of the major changes with respect to items exempted from customs duty and the goods for which customs duty has been changed: 

Withdrawal of Customs Duty Exemption

Union Budget 2020 announced withdrawal of Customs Duty exemption on 80 imported goods. Following is the list of these goods as mentioned in the Budget 2020 Annex to Part B:

Category	Specific Items
Agro and animal based products	Tuna bait, skimmed milk and specified milk products, sugar beet seeds, raw sugar, certain alcoholic beverages, whey and isolated soya protein, soya fibre, etc
Items of Metals	Lead bars, rods and wires Zinc tubes, pipes and tubes Tin plates, sheets and strips
Machinery	Machinery imported for use in specific projects such as specified electricity generation projects, specified Metro projects, etc. Specified goods required for construction of roads
Electronic Items	Copper and articles made of copper used in specified electronic items; Parts for manufacture of printers, CD Writers, MP3 or MP4 or MPEG 4 players, pre-recorded cassettes, audio cassettes, colour television tubes, etc.
Miscellaneous	Peanut butter, preserved potatoes Instant print film, exposed cinematographic films

Changes in Rates of Customs Duty

Union Budget 2020 also announced an increase in customs duty of the following goods to promote the Make in India initiative:

Category	Specific Items	Rate of Customs Duty
		From	To
Household goods and appliances	Tableware and kitchenware of porcelain or china, ceramic, clay, iron, steel, copper and aluminium, glassware, padlocks, brooms, hand-sieves, combs, vacuum flasks, etc	10%	20%
Electrical Appliances	Fans, food grinders/mixers, shavers and hair removing appliances, water heaters, hair/hand drying apparatus, ovens, cookers, toasters, coffee/ tea makers, insect repellents, heaters, irons, etc.	10%	20%
Footwear	Footwear Parts of footwear	25% 15%	35% 20%
Furniture goods	Seats, articles of bedding including mattresses, lamps, lighting, illuminated signs, and other articles of furniture	20%	25%
Stationery items	Filing cabinets, paper trays, binders, clips, staples, sign-plates, name plates, numbers and symbols etc. made from base metal	10%	20%
Toys	Tricycles, scooters, scale models, dolls, etc.	20%	60%
Machinery	Specified goods used in high voltage power transmission projects Railway carriage fans Compressors of refrigerators and ACs Commercial freezers Welding and plasma cutting machine Rotary tillers/ weeder	5% 7.5% 10% 7.5% 7.5% 2.5%	7.5% 10% 12.5% 15% 10% 7.5%
Other miscellaneous items	Glass beads, Artificial flowers, Bells, gongs, statuettes, trophies and like, statuettes, ornaments, photograph, frames, mirrors etc. of base metal.	10%	20%

Changes in Customs Duty for Electric Vehicles and Cellular Mobile Phones under Phased Manufacturing Programme (PMP)

The following changes to Customs Duty are applicable from 1st April, 2020 onwards. However, the change in customs duty for display panel and touch assembly will apply from 1st October, 2020.

Items	Rate of Duty
	From	To
Completely Built Units of Bus and Trucks	25%	40%
Semi Knocked Down (SKD) units of bus, trucks and two wheelers	15%	25%
Semi Knocked Down (SKD) units of passenger vehicles and three wheelers	15%	30%
Completely Knocked Down (CKD) units of passenger vehicles, three wheelers, two wheelers, bus and trucks	10%	15%
PCBA of Mobile phones	10%	20%
Vibrator/Ringer of Mobile phones	Nil	10%
Display Panel and Touch Assembly	Nil	10%

Changes in Customs Duty for the Electronics Sector

Quite a few imported electronics items have witnessed a change in the rate of duty applicable to them. The key ones to remember include:

Items	Rate of Duty
	From	To
Motors like Single Phase AC motors, Stepper motors, Wiper Motors etc	7.5%	10%
Specified chargers and power adapters	Applicable rate	20%
Fingerprint readers for use in cellular mobile phones	Nil	15%
Earphones and headphones	Applicable rate	15%

Reduction in Customs Duty on Raw Materials and Inputs Imported by Domestic Manufacturers

Union Budget 2020 also announced changes in the customs duty rate applicable to various raw materials such as:

Category	Specific Items	Rate of Duty
		From	To
Fuels, Chemicals and Plastics	Very low sulphur fuel oil meeting ISO 8217:2017 RMG380 Viscosity in 220-400 CST standards/Marine Fuel 0.5% (FO) Calcined Petroleum Coke Calendared plastic sheets used in manufacturing of smart cards Polyester Liquid Crystal Polymers for use in manufacture of connectors	10% 10% 10% 7.5%	Nil 7.5% 5% Nil
Precious Metals	Platinum or Palladium used in manufacture of: Colloidal precious metals, inorganic or organic compounds of precious metal, amalgams of precious metals Catalyst with precious metal or precious metal compounds as the active substance Spent catalyst or ash containing precious metal, subject to specified conditions	12.5% 12.5%	7.5% 11.85%
Machinery and Electronic Goods	Following parts of Microphone: microphone cartridge microphone holder microphone grill microphone body	10%	Nil
	Micro-fuse base, sub-miniature fuse base, Micro-fuse Cover and sub-miniature fuse cover for use in manufacture of micro fuse and sub-miniature fuse.	7.5%	Nil
Sports Goods	Willow is being included in the list of items allowed duty free import up to 3% of FOB value of sports goods exported in the preceding financial year	Applicable rate	Nil
Newsprint	Newsprint, when imported by importer registered with Registrar of Newspapers, India. Uncoated paper used for printing newspaper, when imported by importer registered with Registrar of Newspapers, India. Lightweight coated paper used for printing magazines subject to actual user condition.	10%	5%

Other Changes in Customs Duty

A few other items witnessing a change in customs duty that are not mentioned above are as follows:

Category	Specific Items	Rate of Duty
		From	To
Food processing	Walnuts, shelled	30%	100%
Chemicals and plastics	Colloidal precious metals, inorganic or organic compounds of precious metal, amalgams of precious metals	7.5%	10%
	Other prepared binders for foundry moulds or cores; Chemical products and preparations of the chemical or allied industries	10%	17.5%
	Butyl Acrylate	5%	7.5%
Auto and auto parts	Catalytic converter	10%	15%
	Noble metal solutions and noble metal compounds used in the manufacture of catalytic converter and related parts	5%	10%
	Platinum or Palladium used in manufacture catalytic converter and related parts	5%	Applicable rate
	Parts and other specified inputs for manufacturing catalytic converters.	5%	7.5%
	Completely Built Units (CBUs) of commercial vehicles apart from electric vehicles (effective 1st April, 2020)	30%	40%

Imposition of Health Cess on Medical Equipment Imports

Union Budget 2020 also took the step of imposing a health cess on specific imported medical devices. The details of this cess are as follows: 

• Union Budget 2020 announced imposition of health cess at the rate of 5% on the import of medical devices for financing health services and infrastructure in India.
• The health cess will be imposed by increasing the customs duty applicable to the item.
• Please note that this new health cess will not be applied on medical devices which are currently exempt from Basic Customs Duty (BCD).
• Furthermore, the cess is applicable to finished medical devices inputs/parts used to manufacture medical devices will be exempted from health cess.

Other Noteworthy Customs Duty Changes

Revocation of anti-dumping duty on Purified Terephthalic Acid

Union Budget 2020 announced discontinuation of anti-dumping duty on import of Purified Terephthalic Acid from the following countries:

• South Korea
• Thailand
• China
• Iran
• Indonesia
• Malaysia
• Taiwan

Increase in National Calamity Contingent Duty (NCCD) on cigarettes and tobacco products

National Calamity Contingent Duty (NCCD) refers to an excise duty on certain manufactured goods as per Finance Act, 2001. This duty has been increased on the following tobacco products:

Product	Change in NCCD
Cigarettes	An increase of Rs. 200 to Rs. 735 per thousand depending on the length of cigarette and whether the product is filtered or non-filtered
Smoking mixtures for pipes and cigarettes	Increased from 45% to 60%
Other forms of smoking tobacco and forms of chewing tobacco	Increased from 10% to 25%
Bidis	Unchanged

Effect of Union Budget 2020 on GST

Union Budget 2020 announced both prospective and retrospective changes in GST. The changes in this regard have been discussed in the following sections.

Proposed Changes in GST after Union Budget 2020

The following changes to GST have been proposed in Budget 2020, however they will be implemented as per the government notifications and corresponding changes/amendments in the GST Act at a later date:

• The date of issuance of debit note will be delinked form the date of issuance of underlying invoices required for availing input tax credit (ITC). 
• Issuance of TDS certificate by a deductor is no longer compulsory, and hence there will no late fee for delay in issuance of such TDS certificate.
• The following categories of taxable persons have been excluded from the scope of composition scheme:
• Suppliers of services exempt from GST as per CGST Act.
• Inter-state outward suppliers of services.
• Outward suppliers of services through an e-commerce operator.
• Unlawfully availing ITC is now a non-bailable and cognizable offence, as per Section 132 of the CGST Act.
• Both beneficiary of fraudulent ITC and the one committing such specified GST offences will be penalized similarly. 
• Provision for cancellation of GST registration has been introduced for those registered for GST on a voluntary basis. 

Retrospective Changes in GST after Union Budget 2020

The following changes in GST are retrospective in nature, which means they will be applicable from a date earlier than the date of announcement. 

• CGST, UTGST and IGST on fishmeal (HS 2301) is exempted from 1st July, 2017 to 30th September, 2019. However, GST already paid on supply of fishmeal during the period will not be refunded. 
• Rate of IGST has been reduced to 12%, while rates of CGST and UTGST have been reduced to 6% on pulleys, wheels and other parts (heading 8483) and parts of agricultural machinery under headings 8432, 8433 and 8436 for the period 1st July, 2017 to 31st December, 2018. However, GST paid at any other rate (other than 12%) will not be refunded.
• Refund of accumulated compensation cess on tobacco products due to inverted duty structure in Compensation Cess which was already disallowed with effect from 1st October, 2019 has now been retrospectively expanded with effect from 1st July, 2017. As a result, no refund resulting from inverted duty structure will be allowed on tobacco products from the date of GST implementation.

Other GST Announcements in Union Budget 2020

The following are some of the other changes in GST as announced in Union Budget 2020:  

• Simplified GST Return will be implemented from 1st April, 2020 on a trial basis. This will make GSTR filing simpler with features such as SMS based filing of nil GST returns and availability of pre-filled returns. Moreover, it is expected to improve input tax credit (ITC) flow leading to overall simplification of the GST filing procedure. 
• GST refund process is now fully automated with no human intervention at any stage of the process.
• A centralized system for electronic invoice has been implemented in a phased manner from February, 2020 on an optional basis. It is expected to improve GST compliance by increase in the filing of returns.