The Hindu Business Line : Edible oil refiners lobbying for excise duty withdrawal

WITH the Government announcing a series of sops and concessions ahead of the widely expected general elections by April, desperate attempts by the edible oil refining industry to get an excise duty exemption have begun.

In the last Union Budget, the Finance Minister imposed an excise duty of Rs 1,000 per tonne on the manufacture of refined oils, taking a cue from the recommendations of the Kelkar Committee report.

The decision to bring refining activity under the excise net was stoutly opposed by the industry then; but thankfully, the Government stood its ground. With general elections round the corner now — a moment of weakness for most political leaders — the industry sees another opportunity to persuade the Government.

Reports of an imminent removal of excise duty are flying thick and fast in the edible oil trade and industry. Some of the associations too have begun to flood the Finance Minister with representations. Some buttress their claim saying high edible oil prices contribute to inflation, hurt consumer interest and so on.

Some others claim that as excise duty collections so far have reportedly fallen short of the target, the fiscal impost itself should be withdrawn; and as an alternative, they advocate an increase in customs duty on imports.

Unfortunately, most of these arguments lack real merit. The Government imposed excise duty on manufacture of refined oils and vanaspati after due consideration. The excise duty burden on the consumer is insignificant; just Re 1 per kg. No consumer organisation in the country ever protested against imposition of excise duty on refined oils.

In the same vein, high retail prices are the result of high domestic and international prices of vegetable oils combined with high levels of customs duties levied on imported oils. Despite harvest of a large crop of oilseeds, domestic prices are high primarily because of external factors.

For instance, in the Mumbai wholesale market, raw groundnut oil (ready) is quoted at Rs 494 per 10 kg trading lot, a price considered high in relation to the size of groundnut crop. There is no excise duty on any of the raw oils including raw groundnut oil. Clearly, excise duty on refined oils has in no way contributed to high prices.

If excise duty collections are not up to expectation, there is something wrong with the system of collection and implementation of the fiscal legislation. There have been complaints of excise duty evasion by refining units. It is unclear what action was taken. It is necessary for the central excise department to tighten the screws so that there is no leakage of revenue legitimately due to the exchequer.

Exemption to Kutch-based refineries: Excise duty exemption granted to units set up in Kutch region of Gujarat is surely contributing to distortion of the industry and trade in edible oils. Already, there is tremendous over-capacity in the refining industry. Setting up massive refining units in Kutch is a wasteful deployment of scarce capital resources particularly when the overall capacity utilisation of the industry is not very high.

A number of large units for edible oil refining have been set up in Kutch over the last few months merely to take advantage of the excise duty exemption. It was on January 26, 2001 that earthquake struck the region. As part of rehabilitation package, in June 2001 the Government announced fiscal relief in the form of excise duty exemption to encourage industrial units in Kutch region.

But no one ventured to set up an edible oil refining unit in Kutch for almost two years despite fiscal concessions announced. It was only after imposition of excise duty on the manufacture of refined oils on February 28, 2003 that some players hit upon the brilliant idea and started to set up refining units to benefit from the 5-year tax-holiday.

Exemption from excise duty would have been perfectly justified had excise duty been leviable on refined oils on the day the excise duty exemption was announced; but that was not the case. Obviously, there is a case for reviewing the excise duty exemption being enjoyed by newly built refineries in Kutch.

Competition within the State has intensified as units located even a couple of hundred kilometres away have to pay excise duty of Rs 1,000 a tonne, making their products so much more expensive. The distortion generated by the grant of unwarranted duty exemption forces other players in the marketplace to explore ways and means of cutting corners.

Ideally, the body of refiners as a whole must evolve an industry-wide discipline to ensure that there is no loss of revenue. But it is probably too much ask for from an industry not unfamiliar with malpractices including invoice manipulation and adulteration.

More Stories on : Oilseeds & Edible Oil | Excise and Customs

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