Excise Duty For Locally Assembled Vehicles

maliths · September 29, 2008

Looks like IWS are fighting the new tax on locally assembled vehicles. Why cant the government let these industries grow.

http://www.dailymirror.lk/DM_BLOG/Sections...spx?ARTID=27616

SC orders not to encash bank guarantees of IWS

By S.S. Selvanayagam

The Supreme Court directed the Director General of Customs not to encash the Bank guarantees furnished by conglomerate called the IWS group of companies of I.W. Senanayake in respect of Jaguar and Porshe assembly plants.

Bench comprised Justices Raja Fernando, Jagath Balapatabendi and P.A.Ratnayake. On the application of the petitioner, court directed Deputy Solicitor General Demuni de Silva to inform the DGC not encash the Bank guarantees until the rights petition is supported.

Sanjeeva Jayawardena with Rajeev Amarasuriya instructed by Sudath Perera Associates appeared for the petitioners Universal Auto Assembly (Pvt) Ltd, IWS Holdings (Pvt) Ltd, Regency Automobiles (Pvt) Ltd and Eurocars (Pvt) Ltd. The matter was listed for support on October 7 with consent of the parties.

The petitioners filed the fundamental rights violation petition challenging the delay and failure and continuing failure and inaction, on the part of the Minister of Industrial Development, to recommend the Universal Auto Assembly Ltd for exemption from the payment of excise duty for its locally assembled vehicles, under and in terms of the Order made by the President.

They are also making a specific limited challenge to a recent purported decision made by the Cabinet of Ministers, purporting to amend the applicability of the aforesaid Excise Duty Exemption, as a consequence of which the petitioners believe that most disastrously, the Jaguar X-Type and Porsche Vehicles would in effect be denied the critical Excise Duty Exemption, and even more importantly, the decision to make the said order effective retrospectively, to cars already manufactured, and also in order to place in suit the total lack of reasonableness thereof and the attendant caprice and arbitrariness.

Petitioners cited Industrial Development Minister Kumar Welgama, Ministry Secretary W. Guruge, Ministry’s Macro Policy Director Mrs. Menike Chandrasiri, Director – Macro Policy, Enterprise Development Minister Dr. Sarath Amunugama, Members of the Cabinet, Secretary to the Cabinet, Board of Investment, Director General of Customs and the Attorney General as respondents.

Universal Auto Assembly (Private) Limited, established under the Nipayum Sri Lanka – 300 Enterprises Programme, to assemble motor vehicles, is a Joint Venture between IWS Holdings (Pvt.) Limited and Chapel Inc of Singapore. It was incorporated on 28.6.2007, to set up a project to assemble motor vehicles at Hambantota.

4 Contd. on B2

SC orders

It was permitted to assemble only brand new vehicles under the project, and accordingly, the approved business of the project was to setup / conduct and operate a business to assemble brand new motor vehicles. Furthermore, Clause 7( of the letter of approval was amended to read as follows, “Your project is liable to pay customs duty and other applicable levied in respect of the importation of vehicles in semi-knocked down form, spare parts, accessories and raw material. Importation of used vehicles in any form including used spare parts, accessories components and raw material will not be permitted”.

The petitioners state that upon obtaining BOI approval for their vehicle assembly project, and consequent to their key staff members undergoing extensive overseas training by Jaguar Cars Limited, Porsche AG and Beijing Automobiles, they commenced the setting up of their proposed assembly facility at Thanamalwila Road, Lunugamvehera, in the District of Hambantota.

However, there were some unexpected delays in the setting up of this facility, and this was further aggravated by the fact that soon thereafter, there were reports of certain incidents involving Terrorists in the vicinity of Lunugamvehera and the District of Hambantota. Under these circumstances, the petitioners were compelled to seek the permission of the BOI, to temporarily commence operations at the registered address of the petitioner Company in Kelaniya. This request was approved by the BOI.

Petitioners state the approval was granted for the Semi Knocked Down (SKD) Assembly of Porsche, Jaguar and Universal Rino vehicles by the Commissioner of Motor Traffic.

The petitioners maintain that they were made to understand that there was no additional levy imposed by the Registrar of Motor Vehicles, in respect of locally assembled motor vehicles.

The petitioners state that under and in terms of the Order made under the Excise (Special Provisions) Act, the President has declared that with effect from 5/6/2006 the following excisable article shall be exempt from the payment of Excise Duty :- “Locally assembled / manufactured vehicles using new vehicle components containing not less that 30% of domestic value addition recommenced [recommended] by the Minister in-charge of the subject of Industries.”

The petitioners state that this Order of exemption of Excise Duty, for locally assembled / manufactured vehicles, was in full operation at the time they conceived the idea and indeed, determined the suitability and viability of commencing and placing substantial investments in their motor vehicle assembly facility, as well as the incorporation of the 1st petitioner Company.

The petitioners contend that had this Excise Duty exemption not been available, then they would not have proceeded to setup this motor vehicle assembly operation in Sri Lanka, as it would simply not have been commercially viable to market these vehicles n Sri Lanka, as otherwise, their price at point of sale would have been similar to that of an imported vehicle.

It was consequent thereto, that the 3rd respondent, by her letter dated 25/6/2008, called for inter-alia further cost information and supporting documents.

Thereafter, the petitioners had several discussions and meetings with the officials of the Ministry of Industrial Development, including the 1st to 3rd respondents, in order to ascertain the position of the Ministry in respect of the necessary value addition, and obtain their advice and guidance in respect of the same.

The petitioners state that they have now become aware that a document purporting to be a Joint Cabinet Memorandum dated 15/8/2008, had been submitted to the Cabinet by the Ministers of Industrial Development and Enterprise Development and Investment Promotion, with the title “Exemption from the Payment of Excise Duty for Locally Assembled Vehicles”, wherein inter-alia it has been proposed to exclude motor vehicles with higher engine capacity and fuel consumption from exemption of excise duty other than the vehicles assembled / manufactured by BOI projects exclusively for the export market.

Petitioners maintain that however, there has not been an amendment to the Order made by the President, under the Excise (Special Provisions) Act and contend that in these circumstances, the same still remains in force to date.

Petitioners complain that the decisions of the are directly inimical to their legitimate expectation of being entitled to continue to locally assemble these vehicles and thereby be entitled to an Excise Duty Exemption.