• Investment World
• eWorld
• Catalyst
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

M.R. Subramani

CHENNAI, Jan. 1

TYRE manufacturers in the country have urged the Commerce Ministry to exempt rubber imported under the advance licence and Duty Entitlement Passbook (DEPB) schemes by them for export production from cess levied by the Rubber Board

"The Commerce Ministry on December 7 had exempted rubber imported by units in export-oriented units, export processing zones and special economic zones from the cess. ``Since there is no difference in import of rubber by these units and consignments imported by tyre companies for export production, we have sought extension of the same facility,'' tyre industry officials, who did not wish to be identified, told Business Line.

The Rubber Board collects a cess of Rs 1.50 per kg on rubber produced in the country. However, in the case of imports, it collects a countervailing duty. The board, after collecting the levy, deducts two per cent of the total collection and remits the balance in the Consolidated Fund of India. In turn, the funds required by the Rubber Board are made available in the Union Budget.

The cess is collected through a provision made in section 12 of the Rubber Act, 1947. It stipulates that ``a duty of excise not exceeding Rs 2 on all rubber produced in India" can be collected.

The levy at the beginning was 1.1 paise per kg and it has progressively increased since then. The last time the cess was raised was in September 1998 when it was hiked to Rs 1.50 from Re 1.

Tyre industry officials said that for a long time, the cess was levied only on the domestic rubber exempting imported ones. In September 1997, however, the Ministry decided to impose countervailing duty on imported rubber.

"Despite repeated requests from the tyre industry that imported rubber should not be subject to the levy of the cess, the Finance Ministry has not agreed to the proposal," the officials say. "Though the concept of not charging any duty on imported raw material used for export production has been adhered to by the Government, strangely the cess was levied on natural rubber imported under advance licence also."

A tyre manufacturer has moved the Central Excise and Gold Appellate Tribunal (CEGAT) and a final decision is being awaited.

Moreover, though the cess is a duty of excise, tyre makers are not able to avail themselves of Modvat (modified value-added tax) credit as it is not allowed as per a notification of the Finance Ministry. Pointing out a Supreme Court ruling in December 1997, tyre industry officials say the apex court had held that the cess is a duty of excise and will be part of the goods purchased. It will, therefore, form part of the purchase turnover.

The officials also point out that given the current production, the actual cess collection exceeds the Government grant to the Rubber Board. For example, during 2000-01 fiscal the cess collection totalled Rs 82 crore whereas the Government grant was Rs 57.45 crore. "The excess collection has been going on for years and it could easily be over Rs 100 crore," they say.

However, the Rubber Board contends that the collection is to meet the Government share towards a Rs 445-crore World Bank project. If not fully, at least a part of the contribution has to come from the cess, they say.

But tyre makers contend that taking into credit the grace period, the repayment of the loan could begin in 2004. "In the context of the avowed intention of the Government to prune the Rubber Board expenditure, there is a case to reduce the rate of cess. In any case, there will be no justification to raise the cess from the present level," the officials add.

Send this article to Friends by E-Mail

Stories in this Section
A rose by any other name is piracy

Copyright © 2002, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line