Earlier yesterday, when Mr Pranab Mukherjee gave Budget 2011, car manufacturers in India were relieved to know that there were no changes in the excise duty rates. But, there was a minor clause which has proved very costly for vehicle manufacturers selling CKD units in India.
India has a separate import duty for completely built unit’s (CBU’s) and completely knocked down unit’s (CKD’s). Till date, when car/bike manufacturer’s used to import parts like completely built engines, they were considered in CKD’s and enjoyed a lower rate of import duty.
Cars like Mercedes Benz C Class and E Class, BMW 3 Series, 5 Series and X1, Audi A4, A6 and Q5 are imported as CKD’s and thus enjoy lower import duty rates compared to the one’s which are imported as CBU’s. Though these manufacturers were importing readymade engines for their respective cars, it was still considered under CKD unit.
According to a new clause in the Budget 2011, “A definition for ‘CKD unit’ of a vehicle, including two-wheelers, eligible for concessional import duty is being inserted to exclude from its purview such units containing a pre-assembled engine or gearbox or transmission mechanism or chassis where any of such parts or sub-assemblies is installed.”
This means that car manufacturers will not be able to consider engines and gearbox under CKD’s as they are CBU’s. Parts like engines, gearbox, etc used to enjoy 10% import duty till date, but after this their import duty will shoot to 60% + other additional taxes like VAT, making the cost of engine go up by 110%. Expect the prices of such cars to increase by approximately Rs 8 lakhs or more.
Mr Pawan GOenka, President, SIAM, said, “This apparently seems very restrictive, if you go by the literal translation. We have to understand what is the intent of the government. We will seek a clarification from them as early as tomorrow.”