Germany May Ask India For Rollback Of Duty On CKd Kits For Luxury Cars.

Germany may ask India not to impose higher import duty on completely knocked down kits of luxury cars and SUVs.

German Finance Minister Wolfgang SchAuble, who is expected to accompany Chancellor Angella Merkel on her India visit beginning Tuesday, is likely to take up the issue with his Indian counterpart, Pranab Mukherjee.

Luxury carmakers including Germany's Audi, Volkswagen and Mercedes Benz are facing higher duty after the finance ministry changed the definition of 'completely knocked down' (CKD) kits in this year's budget to bring in components like pre-assembled engines, gear boxes, transmission and chassis under import duty.

Last fiscal, luxury car sales grew 60% to 15,702 in India, the second-fastest growing car market after China. The finance ministry has sought the view of the department of heavy industries on the issue, but is not open to any change in the regime, a government official told ET.

"Deferring implementation of duty at this juncture could open a can of worms leading to legal issues on car assembled and sold from the date the duty came into effect and date of any change," the official said.

The ministry's move on CKD kits , aimed at promoting domestic production of such components, has led to import duty on some components rising to 30%, from 10% earlier. Carmakers are seeking a status quo, as duty at 30% takes the total tax incidence to 80%, inclusive of countervailing duty and local levies.

A finance ministry official said a further cut in duty was not feasible at this juncture, especially on luxury cars. "The government has already reduced the duty to 30% from 60% in the original budget proposal," the official said. Mukherjee had reduced the duty from 60% during his reply to the debate on the Finance Bill.

"We have asked the government in give a timeframe for companies to develop facilities and adhere to the new policy on the CKD. Car companies could develop the required infrastructure to localize components and confirm to the new policy in 18-24 month period," Vishni Mathur, director-general of the Society of Indian Automobile Manufacturers, said. India is a growing market for luxury carmakers. The segment swelled 70% to 15,000 units in FY11, driven by demand for sedans like the BMW 5Series, Audi A6 and Mercedes-Benz C class.

Source : economictimes.indiatimes.com