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Our Bureau

New Delhi , March 4

THE electronics hardware industry today sought abolition of four per cent Central Sales Tax (CST) for IT Agreement -1 items (ITA-1), saying the levy would render local manufacturing unviable, while making imported components attractive for electronic equipment manufacturers.

The ITA-1 list includes information technology and telecom items.

Pleased with the Union Budget 2005-06 for its clear focus on the electronics hardware sector, the industry said a major step had been taken to bring all inputs for ITA-1 products at nil duty in view of zero duty regime faced by the industry.

"However, the other disability factors like CST and higher cost due to infrastructural issues are not compensated, thereby forcing the local manufacturers to face zero duty regime without any positive compensation. The additional Customs duty imposed to provide a level playing field does not achieve its objective," Mr R.G. Deshpande, President, ELCINA, said after an interactive session organised by the Council of Electronic Hardware Associations (CEHA) with senior officials of Department of Information Technology.

CEHA was formed last year with support of all electronic hardware associations, including CETMA, ELCINA, MAIT and TEMA.

Highlighting the issues faced by the industry, the association pointed out that while a local component manufacturer will be subject to 4 per cent CST which is not VATable , a manufacturer-importer of electronic components would be able to offset the 4 per cent additional levy against excise duty, and to that extent the imported component will be more attractive for electronic equipment manufacturers.

"This would make local manufacturing unviable," Mr Deshpande said.

Abolishing CST for ITA-1 items has become an immediate need for the industry to survive, which faces 10 per cent price cuts.

Regarding depreciation, he said, "the enhanced rate allowed during the first year of installation of capital equipment has been disallowed for used imported equipment. This is a great disincentive as most fresh capacities are being created by importing used equipment from developed countries from where manufacturing is shifting to developing economies.

"This needs immediate correction. To capture the future growth opportunities for domestic manufacturing, composite Value-Added Tax (VAT), excise duty reduction to 8 per cent across the board and labour reforms need to be implemented," he added.

Mr Brijesh Kumar, Secretary, Department of IT, speaking on the occasion, assured the industry that the anomalies following the Budget announcement would be sorted out.

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