Finance Ministry Plans 10% Duty on Select Telecom Gear Amid Tax Disputes

The Union finance ministry is reportedly considering a policy revision that could introduce a 10 per cent Basic Customs Duty (BCD) on a specific class of mobile tower components. This change is intended to curb the perceived misuse of duty exemptions and to support India's domestic manufacturing goals under the 'Make in India' initiative.

The proposed duty may be introduced through a new tariff classification that distinguishes certain telecom components based on their independent functionality.

The Tax Disputes Triggering the Policy Rethink

Two major cases involving multinational telecom equipment manufacturers have drawn attention to potential gaps in classification norms:

Samsung India and the $520 Million Tax Notice

Earlier this year, Samsung India was issued a tax demand amounting to $520 million. The issue stemmed from the alleged misclassification of remote radio heads (RRHs), a critical base station component responsible for signal processing in mobile towers. By categorising these under duty-exempt items, the authorities argue, Samsung availed zero customs duty incorrectly.

The matter is currently under review by the Customs Excise and Service Tax Appellate Tribunal (CESTAT) in Mumbai. Samsung has defended its position by stating that the classification used followed established industry norms and had not previously been objected to by customs authorities.

Nokia's Relief in the SFP Classification Case

In a parallel case, Nokia Solutions challenged a classification that sought to impose a 20 per cent duty on small form-factor pluggable (SFP) transceivers. The Authority for Advance Ruling had classified these components as complete telecom apparatus. However, the Delhi High Court ruled in February that SFPs are merely network components and not standalone machines. Consequently, they fall under a category attracting zero customs duty.

The government is reportedly preparing to file a special leave petition (SLP) in the Supreme Court to contest this decision.

Targeting Components with Independent Functionality

As per media reports, the ministry’s aim is not to impose duties on all telecom components but specifically those with standalone or independent functions. These are often integrated into broader telecom infrastructure, leading to ambiguities in classification.

The policy may be implemented either by:

• Narrowing or withdrawing current exemptions, or
  
   
• Creating a new tariff line for reclassified products.

This approach seeks to differentiate between genuinely essential components and those which, while part of larger systems, can operate independently and thus might warrant a duty.

The Bigger Picture: Make in India and Revenue Assurance

While the proposed duty structure is positioned as a step to prevent revenue loss through misclassification, it also aligns with the government's broader manufacturing push. By levying duties on selectively classified components, the aim is to:

• Discourage dependency on imports of components with alternative domestic sourcing potential
  
   
• Encourage local assembly or manufacturing of high-end telecom equipment
  
   
• Maintain zero-duty benefits only for components that are essential, non-functional on their own, and meant for advanced technological applications

Read More: India Imposes 5-Year Anti-Dumping Duty on Chinese and Vietnamese Solar Glass.

Conclusion

The consideration of a 10% customs duty on select telecom gear components signals a shift in regulatory posture, one that balances revenue collection with strategic industrial policy. As litigation in high-profile cases like Samsung and Nokia continues, the final contours of this policy will likely shape the import dynamics of India's telecom sector in the years to come.
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