The industry is feeling a great pinch and manufacturers are shifting their factories to sales tax exempt zones. This will create a vast imbalance in the industrial activity in the whole country. As per a Ferguson report, the impact of sales tax on BSNL is close to Rs 600 crore. For the Rs 10,000 crore telecom equipment sector, BSNL and MTNL are the sole buyers. The procurement patterns of BSNL/MTNL are based on total cost to the company including sales tax. We compare Telecom and IT so frequently, but when it comes to giving sops telecom sector discriminated. Today, IT enjoys concessional sales tax both in the hardware and software. But the fact is that India will not be able to achieve the target set for the IT industry, without telecom infrastructure which is capital intensive. And the anomaly is that while other infrastrucutre sectors like power and mining have been allowed to issue `C' form, this has been denied to the telecom sector.

In the absence of C/D forms, a penal rate of 12 per cent is chargeable on most products. The domestic telecom equipment industry is having an insurmountable competitive disadvantage vis-a-vis imports since imports are liable to just 4 per cent special additional duty (SADD) in lieu of central sales tax (CST), while the indigenous telecom industry has to pay 12 per cent CST due to the non-availability of `C' form facility with its buyers in the telecom sector viz the licensed telecom operators. When the CST Act was enacted in 1956, a problem was foreseen that in the case of power and mining sector, the buying agency involved would not be able to qualify as `registered dealer' due to their product not being chargeable to sales tax.

It was realised that the power and mining sectors would have to pay punitive rates of CST, i.e., 10-12 per cent, unless a special provision was made for these sectors to have the facility of issuing `C' forms. A similar problem would have been foreseen for the telecom sector also at that time, had the telecom sector been in the hands of the private sector or even with the Government owned companies. However, in 1956 there seemed to be no possibility of any entity except the Government of India being involved in the telecom sector. And since all Government Departments are deemed as consumers and not dealers, they are authorised under the Act to issue `D' forms, which are equivalent to `C' forms, so there was, so it seemed at that point of time, no fear of the telecom sector having to pay punitive rates of CST.

Now, all supplies to the telecom sector are chargeable of CST at the rate of 12 per cent in the absence of `C' Form. The telecom sector on its own merit and due to its being the backbone of the country is as critical for infrastructure as power and mining sectors and should by all means qualify for similar facilities. An eight per cent increase in the cost of laying of telecom infrastructure due to non-availability of `C' forms facility will hit the telecom expansion plans of the country very badly.

(Mr Khanna is president, Telecom Equipment Manufacturers' Association)