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Differences on the validity of customs duty on smartphone touch panels has kicked up a row between the Ministry of Electronics and Information Technology (MeitY) and the Department of Revenue.

In a letter written to the revenue department in March this year, MeitY officials reportedly highlighted the ambiguity. The matter at the centre of the controversy is a February 2020 notification by the revenue department that states that the touch panel/cover glass assembly for use in manufacturing of mobile phones would attract a levy of 10%.

In contrast, MeitY termed the definition related to touch panel assembly ‘ambiguous’. The letter further noted that the parts needed to make display assembly were exempt from import duty under the phased manufacturing programme, The Economic Times reported. 

MeitY further highlighted that it was ‘wrong’ to levy customs duty on parts imported for display assembly, except for the outer screen. 

The letter also mentioned interpretation challenges, noting that they were leading to ‘ambiguity and unnecessary litigation that was detrimental’ to the growth of the mobile manufacturing segment.

The issue is expected to give ammunition to Chinese smartphone majors Oppo and Vivo, who have been in the middle of a controversy related to duty evasion.

The report, quoting government officials, said that the purported differences are relevant to the duty evasion notices sent by the Directorate of Revenue Intelligence (DRI) to the two foreign smartphone players.

In addition, industry players are also apprehensive of the move saying it could potentially disrupt India’s aspirations of becoming an electronics manufacturing hub.

After MeitY’s letter, the Indian Cellular and Electronics Association (ICEA) also shot off multiple letters to various ministries, terming the duty demands ‘preposterous’. It said that it could hurt ‘India’s image’.

Earlier this month, the DRI issued a notice to smartphone maker Oppo after allegedly detecting customs duty evasion of around INR 4,389 Cr for wrongful misdeclaration of imported items. 

In July, the Enforcement Directorate (ED) also revealed that its probe into another Chinese cellphone maker Vivo found that the company remitted around INR 62,476 Cr of its turnover to China between 2017 and 2021 to avoid paying taxes in India. 

Prior to that in May, the ED sleuths seized assets of more than INR 5,551 Cr belonging to Xiaomi for alleged violations of foreign exchange regulations.

According to a report, India’s smartphone market generated a revenue of $38 Bn in 2021, reporting a 27% year-on-year (YoY) growth. Xiaomi led the market in the fourth quarter of 2021 with a 24% shipment share, followed by Realme, Samsung and others.