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Wednesday, Jan 09, 2002

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Ordinance to give Govt blank cheque on excise -- Cap on commodities to go

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THE Cabinet today authorised the Finance Ministry to fix any rate of excise duty on commodities under emergency powers, scrapping the existing provisions that limited hikes to a maximum of 100 per cent.

Accordingly, the Cabinet has decided to promulgate an Ordinance to amend the Central Excise Tariff Act, enabling the Government to fix excise duty at any rate.

The related Bill amending the Act will be introduced in Parliament during the Budget session. Once the President promulgates the Ordinance, the Finance Ministry will be free to raise the excise duty on any commodity.

With this landmark move, the Government has extended the ambit of its emergency powers to raise the excise duty rates on any commodity without any ceiling.

``The proposal to amend Section 3(1)(b) of the Central Excise Tariff Act 1985 through an Ordinance to remove the restriction on the extent to which a rate of excise duty can be increased by the Central Government in exercise of its emergency powers was cleared by the Union Cabinet,'' the Parliamentary Affairs Minister, Mr Pramod Mahajan, said here.

These powers can be used to notify an increase in the excise duty rate of any commodity outside the Budget. The hikes can be effected on all rates - irrespective of whether it is the Cenvat rate of 16 per cent or the Special Excise Duty (SED) rates.

Later, the Revenue Secretary, Dr S. Narayan, said that the Finance Ministry does not intend to raise the excise duty on any commodity "immediately'' making use of the enabling power vested by the Union Cabinet. "Any speculation that the Government will use these powers to increase excise duty on commodities for financing defence related expenditure is totally incorrect,'' he held. Until now, there were two restrictions under the emergency powers relating to increase in excise duties. One, if the rate of duty for an item was nil, the Finance Ministry was empowered to increase it to 50 per cent ad valorem expressed in any form or method.

Second, if the rate of duty prescribed was not nil, this could be increased to a maximum of twice such rate. For instance, if a commodity attracts an eight per cent excise duty rate, the Union Government is empowered (under its emergency powers) to enhance it up to 16 per cent. This restriction has been done away with, implying that the ceiling or cap has been removed. However, the first restriction applicable to goods attracting a nil rate of duty continues.

According to senior Finance Ministry officials, the Customs Tariff Act allows the Government to raise tariffs to any level that it may feel appropriate (subject of course to the bound rates). However, such a provision was not built into the Central Excise Tariff Act 1985. Hence an amendment was required to bring uniformity between the Customs and Excise Tariff Act.

Significantly, the Cabinet's decision comes on the day when India Inc made out a case for a reduction in the excise duty rates on a host of commodities. However, industry captains declined to comment on the Government's decision. The Union Cabinet also approved India's rejoining the Dhaka headquartered International Jute Study Group as a Member. The Union Cabinet also cleared two bilateral Investment Promotion and Protection Agreements - one with the Government of the Federal Republic of Yugoslavia and another with the Republic of Hungary.

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