The Central Board of Indirect Taxes and Customs (CBIC) has made a significant update to its import duty regulations by reinstating a concessional 10% import duty on chemicals used exclusively in laboratories. This modification, effective from August 1, 2024, reverses a previous duty hike introduced in the Union budget for FY25 aimed at curbing tax evasion.

The renewed 10% duty is designed to assist genuine users of laboratory chemicals. Importers seeking to benefit from this rate must provide a declaration confirming that the imported chemicals are intended solely for laboratory use. Failure to comply with this declaration will result in the forfeiture of the concessional rate. This adjustment is a response to concerns about the misuse of previously available lower duty rates.

However, the CBIC has specifically excluded undenatured ethyl alcohol from this concessional rate. This particular alcohol, which previously fell under the 10% duty, now attracts a 150% import duty. This change comes as a result of identified misuse where some importers were fraudulently declaring undenatured ethyl alcohol as lab chemicals to avoid the higher duty.

A tax official elaborated that, under the Customs Tariff Act, most chemicals are subject to varying import duties of 2.5%, 5%, 7.5%, or 10%. A dedicated classification code was previously established to facilitate trade for chemicals in small packages (up to 500 ml or 500 gm) intended for laboratory use, which were eligible for the 10% duty. To prevent abuse, the budget increase to a 150% duty for these specific chemicals was implemented.

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To address the concerns of legitimate laboratory users while curbing misuse, the CBIC's revised order reinstates the 10% rate for lab chemicals under the classification code 9802. This is applicable only for chemicals used in laboratories and research and development. Importers must adhere strictly to the conditions set forth; failure to do so will disqualify them from the concessional rate.

In summary, the CBIC's updated regulations aim to strike a balance between facilitating legitimate trade and preventing abuse of import duty provisions, ensuring that only authentic laboratory chemicals benefit from the concessional rate.

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