In perhaps the first move of its kind, the computer manufacturers' lobby body, MAIT, has recommended that the finance minister restore the 8 per cent excise duty levied on finished computers before the Budget -- this was abolished in the Budget proposals.
MAIT has recommended that, as a first choice, the ministry should consider abolishing the 16 per cent excise duty on computer components, but if this is not done, the ministry should restore the 8 per cent duty on finished computers.
Industry sources say that since reducing the 16 per cent excise on components will result in a revenue loss, the ministry may go in for the option of restoring the 8 per cent duty on finished computers.
Here's how the maths pans out. Assume that the excise duty paid by component manufacturers at the rate of 16 per cent is Rs 100. Since the excise duty on the finished computer is less than or equal to 100, despite the pre-Budget 8 per cent excise duty, the computer producer paid no duty.
Under the Budget proposal, however, if there is no excise to be paid on the final product, the Rs 100 of duty paid on the components is not cenvatable. According to sources, there is around Rs 750 crore (Rs 7.50 billion) of unclaimed cenvat duty lying with the government.
MAIT's move to ask for a restoration of the 8 per cent excise duty is also important for another reason. On April 1 next year, the basic customs duty on computers will become zero, and if the excise duty is zero, the cenvat duty on imports will also be zero.
In other words, computers will be importable in the country duty free. If, however, the excise on finished computers is restored to 8 per cent, the the cenvat duty will also become 8 per cent, and so will still afford some protection to domestic producers after April 1, 2005.
