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Harish Damodaran

New Delhi , Feb. 6

THE Finance Ministry's decision on January 31 not to reduce the tariff values on imported edible oils, contrary to general expectations, seems to have been prompted mainly by revenue considerations.

An indication of this is that the Central Board of Excise and Customs (CBEC) had, on January 13, actually approved a reduction in the tariff values for the entire palm oil complex.

The tariff value (the base price on which the revenue authorities compute import duty) on crude palm oil was to come down from $454 to $407 per tonne; the same was proposed to be reduced from $489 to $414 per tonne for RBD (refined, bleached, de-odourised) palm oil; from $471 to $411 per tonne for `others palm oil'; from $479 to $418 per tonne for crude palmolein; from $497 to $426 per tonne for RBD palmolein; and from $488 to $422 per tonne for `others-palmolein'.

In addition, the CBEC had approved, for the first time, the introduction of a tariff value of $600 per tonne on refined soyabean oil and `others-soyabean oil', even while the same on crude soyabean oil was to be retained at $565 per tonne. Besides, it recommended a lowering in the tariff value on brass scrap (all grades) from $1,576 to $1,461 per tonne.

But despite these proposals obtaining CBEC's formal clearance on January 13, the Revenue Department's notification, issued on January 31, left the tariff values on all edible oils unchanged. Only in the case of brass scrap did the proposed lowering to $1,461 per tonne materialise.

It is not clear what led to the Finance Ministry to eventually go back on the tariff value cuts. The primary consideration appears to have been the revenue implications involved.

As per an internal exercise carried out by the Ministry, based on expected imports taking place, the reduction in tariff values of palm oil products would have caused a revenue loss of Rs 172 crore during the current January-March quarter alone.

The significant point though is that the stated objective behind fixing tariff values for edible oils since August 2001 has been not to mobilise revenues per se, as much as to curb under-invoicing by importers to reduce duty liability. Section 14 (2) of the Customs Act, 1962, empowers the Government to "fix tariff values for any class of imported goods...having regard to the trend of value of such or like goods." Further, where such tariff values are fixed, "the duty shall be chargeable with reference to such tariff value."

Officially, the tariff values are supposed to be reviewed on a monthly basis to reflect international prices. The tariff values are to be reset whenever there is a deviation of more than 10 per cent from the landed price, as computed by the Mumbai-based Directorate of Valuation based on observed global price trends.

In its weekly review carried out on January 10 — which formed the basis for the CBEC's proposal on January 13 — the directorate had noted that the computed landed price of crude palm oil, at $407.03, was 10.35 per cent below the existing tariff value, with the corresponding figures being $414.27 per tonne (minus 15.28 per cent) for RBD palm oil, $425.55 per tonne (minus 14.38 per cent) for RBD palmolein and $417.61 per tonne (minus 12.82 per cent) for crude palmolein.

Only for crude soya oil did the computed landed price, at $549.44, work out marginally lower (minus 2.75 per cent) than the tariff value of $565 per tonne.

Revenue considerations apart, the easing of inflationary pressures in recent weeks and fears of domestic oilseed prices crashing ahead of the harvest of the standing rabi crop, are also said to have been factors influencing the Finance Ministry's decision not to tamper with tariff values.

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