Auto-makers confused over customs duty clause in Budget 2011

Cars like the BMW X1, assembled here but using completely built imported engines could see a price rise

Dig into the pages of the Customs Memorandum from the 2011 Union Budget, and you will find a few lines that have sent the alarm bells ringing amongst the high-end vehicle manufacturers around the country. “A definition for 'Completely Knocked Down (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 a chassis where any of such parts or sub-assemblies is installed”, the lines say.

The Volkswagen Beetle which comes in as a CBU will not see a change in its pricing

What the statement, past its techno-legal jargon means, is that companies which are currently importing fully-assembled engines or transmissions separately and then putting them in bodies made locally may not be able to classify their creations as CKDs. Currently, CBUs attract a duty of 110 percent, SKDs (semi-knocked down units) incur around 62 percent in duties while CKDs receive an additional 10 percent concession. Until now, most international vehicles being assembled in India were coming with pre-assembled engines and transmissions. The new classification could mean that the vehicles lose their 10 percent concession bringing duties up to 62 percent, and after factoring in the taxes, raising prices for the end users.

Bikes like the Kawasaki Ninja 250R may also be affected with the new duty structure

Meanwhile, voices from the industry are waiting for clarity on the issue. While most manufacturers seem to be choosing the wait-and-watch policy, it is not difficult to see them pass on the additional costs to buyers, already paying significantly larger sums of money for the same cars and bikes as compared to their international counterparts. Some even think that the move will help international car and bikemakers with a presence and commitment to India to move their manufacturing bases to the country – something that may even help them create export hubs here.