Instead, the government is planning to restore the terminal excise duty (TED), which was made available to the domestic equipment suppliers for power and fertiliser projects in the Exim Policy 1999-2000.

It may be noted that in the new Exim Policy announced on March 31, 2000, the refund of TED was withdrawn. Though this did not have any impact on projects where the end-product was excisable (and hence modvatable), it had a great impact on the suppliers of equipment to power and fertiliser projects, where the end-product was not excisable and hence non-modvatable.

This had been adversely affecting the competitiveness of domestic manufacturers like Bharat Heavy Electricals Ltd (BHEL) and Larsen and Toubro (L&T).

As per officials, arguments had been advanced that in cases where CVD was leviable, refund of TED was resulting in duplicating of the benefits, since CVD was already modvated. It was to obviate this dilemma that CVD may be withdrawn.

Duty structure suggested by domestic manufacturers calls for a 15 per cent basic customs duty on capital goods import, zero CVD as against the existing 16 per cent, same level of surcharge at 10 per cent and a special additional duty (SAD) (SAD on customs duty) at the rate of 4 per cent. This puts the total duty at 21.16 per cent compared to the existing 22.38 per cent.

This duty structure, as per domestic capital goods industry, would not only be revenue neutral to the government but would help the indigenous industry through refund of TED.

In addition to this, officials said that the finance ministry was also considering rationalisation of duty structure for the World Bank/ADB funded projects.

The domestic capital goods industry had asked the government to stop zero duty imports on plant and machinery and sought a customs duty of 15 per cent plus 4 per cent SAD with deemed export status (as stipulated by the multilateral funding agencies).

The logic given here by the domestic industry was that zero duty imports for any project funded by international organisations such as World Bank, ADB and others deny Indian companies the 15 per cent price preference allowed as per World Bank guidelines, provided value addition in the country was above 20 per cent.

This 15 per cent price preference, as per the domestic industry, was to compensate local companies for disadvantages forced due to local levies, duties, taxes, lack of adequate infrastructure in the country.