FinMin likely to address Customs Act classification in telecom, auto equipment

Telecom industry has flagged classification issues around connectivity and transmission equipment

The Finance Ministry is likely to address classification disputes in the telecom and automobile sectors as part of its ongoing review of the Customs Act, set to be completed by February 1, 2025. The review is aimed at resolving disputes around customs duties, simplifying trade processes, and addressing the inverted duty structure, a person aware of the development said.

The telecom industry has flagged classification issues around connectivity and transmission equipment, including disputes over the customs duty on transceivers. "For example, a transceiver as an independent item attracts a higher duty of 10 percent, but when classified as part of transmission equipment, it is exempt," the person told Moneycontrol. This inconsistency in classification has led to confusion, with companies and field officers interpreting the rules differently.

"Telecom companies have filed several advance rulings to get clarity on the classification of items like transceivers. Different practices and duty rates are being used, causing uncertainty in the sector," the source added. The industry is hoping for clear guidelines from the government as part of the Customs Act review, which could settle disputes on 8-10 items in the telecom sector.

Similar disputes exist in the automobile sector, with more than 40 percent of items facing classification issues. "For example, some two-wheeler engine parts attract a lower duty of 10 percent, but when classified as part of a motorcycle, the duty rises to 15 percent," the source noted.

In her 2024 budget speech, Finance Minister Nirmala Sitharaman highlighted the importance of reforming customs laws to ease trade, reduce disputes, and eliminate inverted duty structures. "One of the key focus areas should be resolving classification disputes. Industry bodies have been making representations to the government, citing varied practices being adopted by field formations, industries, and courts," Gulzar Didwania, Partner at Deloitte India told Moneycontrol.

Didwania emphasised the need for industry consultations and a two-way dialogue to ensure effective dispute resolution. "This will not only increase the confidence of taxpayers but will also help the government reduce the burden on its machinery due to these classification disputes," he added.

The government is expected to issue clarifications, circulars, or notifications after the review to resolve these disputes as part of the broader customs reform agenda.