The prevailing rates of Countervailing Duty (CVD) and Special Additional Duty (SAD) on inputs used for the manufacture of IT/electronic hardware act as a major disincentive for undertaking manufacturing operations in India, said to industry body FICCI.

''Several components of computers like motherboards, base units/cabinets, memory modules, graphic cards attract CVD of 12% and SAD of 4%. Thus, the effective rate on these components is 16.48%, as against the effective rate of excise duty of 12.36% on the finished product,'' it said.

Owing to the perennial excess credit structure, several IT companies with large computer manufacturing facilities in India are operating at only fraction of their capacities leading to higher manufacturing cost. Further, the acute inverted duty structure for ITA bound products has resulted in very few companies setting up manufacturing units in India, FICCI said.

In summary, the impact of inverted duty structure is that it effectively makes direct import by end customers or trading (i.e. import and sale) of computers advantageous in comparison to manufacturing of computers in India; thus, making the Indian manufactured goods uncompetitive for the domestic market, the industry body said

In light of the above and with a view to encourage domestic manufacture of IT hardware (especially ITA goods), it is suggested that SAD on all components used for manufacture of ITA bound products should be exempted by making an amendment in Notification No 21/2012-Customs. Necessary safeguards can be imposed through the specification of a condition of end use (in manufacturing).

Further entry no 85 in Notification No 21/2012-Customs which exempts SAD should be amended to include other specified components, i.e. Motherboards for computers, Base units/ cabinets, memory modules and graphic card, used for manufacture of computers and other IT hardware, it said.

Alternatively manufacturer of ITA goods may be made eligible to set up operations under the Electronic Hardware Technology Parks Scheme, avail duty exemption on all eligible procurements on the input side and clear the manufactured goods upon payment of full excise duty to customers in India. This will address the issue of inverted duty structure to a large extent by mitigating duty payment consequent credit accumulation, it opioned.