New Delhi, Government will put five per cent customs duty on Open Cell, a key component for television manufacturing, from October 1, 2020, as one year exemption given to it ends on September 30.

The tax exemption on the key TV component was extended to the industry last year to give it time to develop domestic manufacturing capability. But with Open Cell manufacturing capacity still to come up in a big way in India, the imposition of duty, industry fears, would increase the cost of TV sets from October.

Government sources said that adequate support has been extended to television industry through custom duty structure and even if domestic manufacturing of Open Cell takes time, adequate protection is available to them to expand sales of made in India products in the country.

As part of its exercise to encourage domestic manufacturing in TV, the government has protected the industry by way of a customs duty of 20 per cent on imports of television since December 2017. Besides, Television import has also been put on the restricted category with effect from the end of July this year.

"Newly imposed restriction puts a curb on import of TVs. This market would now be available to domestic manufacturers. This seems to be the reason for domestic manufacturers trying to resort to price increase. Reintroduction of duty on Open Cell appears only as an excuse," said the source quoted earlier.

As per government estimates, leading TV brands are importing Open Cell for a basic price of Rs 2,700 for a 32 inch and about Rs 4,000 to Rs 4,500 for a 42 inch television. The impact of five per cent duty on Open Cell would, thus, not be more than Rs 150-250 for a television.

The industry , however, feels otherwise. It had argued that they are under pressure as the price of fully built panels has gone up by 50 per cent and customs duty of five per cent on open cell would lead to a rise in the price of TV by roughly four per cent as it is the major component for TV. The prices may go up well by a minimum of Rs 600 for a 32 inch television and Rs 1,200-1,500 for a 42 inch TV and even higher for a large screen television.

"The industry's assertions are completely misleading and exaggerated. The TV industry is well aware of the basic tenets of phased manufacturing. The sop (custom duty exemption on Open Cell) was offered for a limited period of one year in anticipation that the industry would build capacity for manufacturing critical components in India. For India to be Aatmanirbhar, our manufacturers cannot remain merely assemblers of imported parts. Manufacturing in India cannot survive on support of import forever," a fin min source said.

Fin Min Sources further said that with finished goods imports restricted, such duty structure (0 per cent duty on parts) leads to windfall gains for the domestic units. However, continuous import of parts like Open Cell is not in the country's interest. Imposition of customs duty shall incentivise the domestic manufacturing of critical parts like Open cell in India. This is the real Phased Manufacturing and would be in line with the Aatmanirbhar Bharatpolicy of Government of India.

The custom duty exemption on Open Cell was given last year as part of a Phased Manufacturing Plan (PMP) of television and its components to bring the television industry out of the crutch-walking (of mere television assembling while being totally dependent on imports for all its parts).

Government is promoting TV manufacturing to part of its larger import substitution plan where domestic capabilities are set to be promoted in areas where manufacturing can start quickly. Till last year televisions worth Rs 7,000 crore were being imported and the government feels that with existing players in the country, this level of imports could be checked quickly.

Explaining the rationale of imposition of a marginal duty of five per cent on Open Cell, the top government source said that critical items shall start manufacturing in India. "No real manufacturing growth of television could happen unless Open Cell is domestically made. The present activity carried out by the industry is only of the assembly of television after importing most of the parts. This cannot go on for long as assembly of television does not entail any significant value addition. Deepening of value addition in the domestic market must happen in a phased manner."

"The television manufacturers import parts worth Rs 7,500 crore in a year. This figure would further grow as the import of fully made television gets curbed. It would be in the interest of the country that parts like Open Cell are gradually be made in India. Open Cell capacity building in India would also help making panels for mobile phones which is a huge market", added the same source.

It may be noted that the first phase of PMP would be to have assembly of a product. In this stage, parts of a product are kept at lower or nil rates so that their cost remains low and these could be imported at concessional duty rates for assembly of that product in India. However, this stage cannot stay for very long even if industry wishes it to continue forever. The second phase of manufacturing is that certain parts should be made in India. At this phase, duty is imposed on such parts. This phased manufacturing strategy has been applied to most of the electronic products. For example, the phase manufacturing plan for mobile phones was implemented in four phases.

Sources in the know of the matter and the industry said that even with this clearly laid out vision of the government, the television manufacturers have been reluctant to build up domestic capacity for parts while seeking higher protection on fully made television. The government had earlier imposed five per cent duty on Open Cell in March, 2018. But on the request of the domestic TV industry it was withdrawn last year for a limited period of one year. The domestic industry did not respond to this call of government to build domestic capacities for parts.