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Budget 2012: Cement - Cut excise incidence

March 14, 2012 18:46 IST

Despite the global financial meltdown that severely impacted several countries, India is one of the countries that could survive and posted a growth of 6.7 per cent in 2008-09.  This was possible only with the Government's supportive policy in providing 'Stimulus' in three stages to ensure consumption expenditure of various products and services.

This also helped our country further improve the growth during 2009-10 when the GDP registered a growth of 7.5 per cent.  It is gratifying to note that with pragmatic policies of the Government, GDP recorded a growth of 8.5 per cent during 2010-11 and is expected to be 8 per cent during the year 2011-12.

With the current slowdown in the world's economy and its likely continuance for some time, it has been reported that the GDP growth in the first two years of the XII Five Year Plan, would be around 8 per cent and the projected average GDP growth during XII Plan period is pegged at 9 per cent.

The Industry registered appreciable improvement in its performance during the year 2009-10 and posted a double-digit growth of 12.7 per cent.  However, withdrawal of stimulus packages resulted in slowdown in the economy and growth in cement industry has come down to 5 per cent.

Industry expectations

1.         Uniform and Specific Rate of Excise Duty on Cement

Till 28-2-2007, specific rate of Excise duty was applicable on cement and thereafter upto 28.2.2011 different rates of Excise duty based on Retail Sale Price were levied for Cement.  However in the Union Budget 2011-12 the Excise Duty Rates on Cement have been replaced with composite rates having an ad valorem and specific component.  For the purpose of ad valorem component the transaction value determined under section 4 of the Central Excise Act, 1944 is considered as value.

Duty rates on Cement are one of the highest and next only to luxury goods such as cars. Other core industries such as coal steel attract duty at around 5 per cent. Cement is one of the core infrastructure industries and has limited manufacturing capacity in view of the expected GDP growth and projected demand for cement over the medium to long term.

Further, the excise duty structure for both cement as well as cement clinker has become quite complicated in the last few years. Earlier it was at a specific rate per MT. Now, it has become ad-valorem cum specific duty and is further also related to the declared MRP of the product. For example, if MRP of cement is more than Rs.190 per bag, then excise duty is 10 per cent ad-valorem plus Rs.160 per MT. These are causing a lot of avoidable confusions.

To encourage cement industry and bring it at par with other core and infrastructure industries, the excise duty rate be rationalized from 10 per cent to 6-8 per cent.

In addition, the duty structure be simplified to be either on specific rate per MT or on ad-valorem basis and without relating to MRP etc.

2. The Industry expects increased spend on infrastructure for cement demand revival

3. Customs Duty on Coal, Pet Coke, Gypsum and Other Inputs

Cement Industry has been subject to perennial shortages of coal, the main fuel.  Approx, only 40 per cent of coal required by cement industry is supplied through linkage. This adversely impacts the Cement Industry with increased fuel cost, as the balance requirement of fuel has to be procured from open market/e-auction, import of coal and use of alternative fuel pet coke at a substantially higher rate than linked coal.

Another important input is Gypsum and good quality Gypsum is available only to a limited extent.  Thus, the Cement Industry has to depend on imported Gypsum.

Pet-coke and Gypsum attracts 2.5 per cent duty and coal attracts 5 per cent duty, if imported, while there is no duty on cement import.  This leads to an anomaly in that "Import Duty on inputs is higher than the finished product".

Therefore, Industry expects that government scrap import duty on coal, pet coke, gypsum and other fuels. The cement industry is heavily dependent on imported Coal and Pet Coke due to short supply of indigenous coal.

4. Levy of Import Duty on Cement Imports

Presently, import of cement into India is freely allowed without paying basic customs duty. However, all the major inputs for manufacturing cement such as coal, limestone, gypsum, pet coke, packing bags etc. attract customs duty.  Because of this anomaly, duty free-imports causes further hardships to the Indian cement industry.

It is requested that to provide a level playing field, basic customs duty be levied on cement imports into India. Alternatively, Import duties on goods required for manufacture of cement be abolished and freely allowed without levy of duty.

5. Treatment of Waste Heat Recovery as Renewable Energy Source

Energy cost is a very substantial part of the cost of producing cement, both in India and Globally. It is equally true for many other industries. The prices of conventional energy resources are rising higher and higher and further, greater use of these is adversely affecting the environment. Also, various Govts. are imposing renewable energy obligations on the industry.

Looking at all the above, cement industry is putting up Waste Heat Recovery plants so as to derive more energy from the same energy resource. In a way, this is akin to green energy. All of this requires further capital investments.

To help the industry in its endeavor to produce more such environment friendly energy, it is requested that such energy generation be treated as Renewable Energy Source.

6. Abolition of Import Duty on Tyre Chips

Cement industry is an energy intensive industry and requires huge amounts of energy resources. However, it does not get adequate supplies of domestic coal and hence has to resort to expensive imported coal.

To meet its requirements, the industry has been developing alternative energy sources like tyre chips etc. However, tyre-chips is presently put under the negative list of imports whereby the same cannot be imported into India.

To increase supply of energy sources as well as for conserving the domestic energy sources it is necessary in the National Interest that tyre chips be allowed to be imported by removing it from the Negative list by reducing import duty on the same to ZERO.

7. Classifying Cement as "Declared Goods"

Cement industry is one of the basic and core infrastructure industries. However, unlike other similar industries/goods, cement is subject to higher rates of taxation.

It is requested that Cement be stipulated as "Declared Goods" under Section 14 of Central Sales Tax Act so that it is put on an equal footing with other core sector goods like coal, steel, crude oil, jute, cotton yarn etc.

8.         Goods & Service Tax (GST)

Central Government has announced its intention to introduce GST w.e.f. 1.4.2012.  In this regard, certain suggestions are given below which can be considered before introduction of new tax:

a)         Single Rate of Tax: Central Government has made proposal to State Government for dual rate under GST which would be brought to single rate over a period of 3 years.  However, it is suggested that single rate may kindly be introduced from the first year itself, so that all disputes/litigation towards classification can be avoided from first year itself.

b)         Common Law & enforcement: Basic purpose behind introduction of GST is simplicity and uniformity of the tax law throughout India. Though the Empowered committee of State Finance Ministers (EC) has agreed to introduce Dual GST with separate Act for SGST to be levied by each state, it may be ensured that there is uniformity in the law to be enacted by various states and process/procedures of different states are similar, as otherwise, the basic purpose behind introduction of GST would get defeated.

In this regard it is suggested that change in statute of any state, after introduction of GST, be made with the concurrence of all states.

c) Cenvat/Input tax Credit: Input Tax Credit of tax paid is available under present Excise/Service Tax/VAT laws and the same is presumed to be continued under GST regime. However, this area attracts most of the litigation and hence the criteria/process for availing Input tax credit be simple and unambiguous. To achieve this purpose it is suggested:

i)          Input tax credit may be made available for all the inputs and capital goods in or in relation to manufacturing and business activities.

ii)         No condition be imposed for availing Input tax credit as long as it relates to the business or industrial activity.

iii)         Exclusion (negative list) for availment of Input Tax Credit in respect of items used for or in relation to manufacture be abolished.

iv)        100 per cent Input tax credit may be allowed on Capital Goods in the year of purchase itself and conditions like capitalization/put to use not to be imposed.

d) Common dispute resolution mechanism: To reap the full benefit of GST, it is suggested that mechanism for dispute resolution may be common throughout all the states so that unnecessary litigation can be avoided.

Further, one common authority for all the states may be established for Advance Ruling.

e) Continuance of Exemptions/Incentives: It must be ensured that after the implementation of GST, various Central/State level exemption and Incentives which are currently being enjoyed under the Excise/VAT laws be continued for the remaining un-expired period.

9. Project Import

As the industries in India are on a major expansion drive, it is requested that Basic Custom Duty rate in case of Project import be brought down to 3 per cent from the current 5 per cent, so that Capital Goods for projects can be imported at concessional duty and accordingly project cost can be reduced.

Analyst expectations

1. The spend on infrastructure is likely to be increased inline with government's target to achieve higher GDP growth which will be a positive for the sector

2. The industry's demand to reduce excise duty may not be fulfilled. On the other hand, it may be hiked to increase government's revenue collection which will be a negative for the sector.

3. Import duty on pet coke, gypsum and coal is likely to be reduced to increase coal availability which will be positive for the sector.

4. Basic customs duty on cement imports into India may be imposed to provide a level playing field for manufacture of cement and import of cement which will be positive for the sector.

5. Status quo is likely to be maintained on the industry' demand of 55 per cent abatement on excise duty as against no abatement allowed currently as indirect tax collections may be impacted negatively. The outcome will be neutral for the sector.

Outlook

Cement demand growth has lagged GDP growth in past two years due to slowdown in real estate sector and lack of order inflows in infrastructure sector. Lower-than-expected demand coupled with incremental supplies has also resulted in declining capacity utilizations for the companies. However, prices have witnessed sharp and intermittent hikes and declines during FY12. Sector has also witnessed continued cost pressures in terms of higher power and fuel and freight costs. We believe that costs may continue to remain high going forward also.

The industry believes the core sector cement industry sustain a healthy growth of 11 per cent that is essential to achieve the planned GDP growth of 9 per cent during the XII Plan period. We expect Union Budget 2012-13 to be positive for cement sector in terms of higher allocations for infrastructure sector which is the key demand driver for cement growth.

Union Budget 2012-13: Complete coverage
Ravindra Agarwal