The Confederation of Indian Industry on Monday said the three-rate customs duty structure proposed by the Kelkar committee on indirect taxes should reflect the non-cenvatable cost disadvantages faced by the domestic industry.

"The extent to which such customs duties are reduced over the years should be defined by the non-cenvatable cost disadvantages faced by the domestic industry," CII said in a pre-budget memorandum.

Due to the non-cenvatable payouts such as the state sales tax, cesses and multiple local levies on which there is no VAT credit, the actual level of protection is often less than the tariff rate, it said adding, these payouts are also not fully offset by the special additional duty.

As long as it continues, SAD should be applied uniformly to all goods where the indigenous manufacture is subject to sales tax and other local levies, a chamber release said.

The chamber also sought the reduction of SAD in line with the reduction in Central Sales Tax which was phased out after the introduction of VAT.

The move towards single rate of 16 per cent excise duty for most goods has led to fundamental rationalisation, transparency and long-term stability in the excise duty structure and a significant drop in classification disputes, it said.

A single Cenvat rate of 16 per cent would be feasible if the tax base was sufficiently widened, it said adding, certain items like IT products, textile fabrics, garments, made ups and GC sheet needed to be shifted to the 8 per cent category.

It said the present rate of 32 per cent excise duty including SED on some commodities on top of the proposed revenue neutral rate of 10-12.5 per cent in the VAT regime would make the total indirect tax incidence very high, affecting the growth rate of such highly taxed products.

With the likely introduction of VAT by the state governments from April 1, 2003, there was a need for removal of AED levied in lieu of the sales tax on few select commodities to enable the industry to take the input credit.

But cigarettes which fall under the category of finished goods and attract a high rate of tax should be kept out of VAT and AED should continue, it added.

The chamber also recommended switching over to the 8-digit code for customs, excise, Exim policy and data collection as it would solve the classification disputes and issue of notifications when the duty is to be reduced on products not in the 6-digit tariff line.