The Hindu Business Line : Cement companies face price-based duty

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New Delhi Feb 28 Cement companies selling 50-kg bags for more than Rs 190 each will have to pay more excise duty than those selling it for less, the Finance Minister, Mr P. Chidambaram, announced in the Budget. With an aim to tame inflation and control input prices for infrastructure development, the Budget has raised the excise duty to Rs 600 per tonne, from Rs 400 per tonne, on cement sold for above Rs 190 per 50 kg bag, even as the duty on cheaper cement bags was slashed to Rs 350 per tonne.

"There has been a significant increase in the retail price of cement," Mr Chidambaram said in his Budget speech. "I propose to reward cement manufacturers who hold the price line and tax those who do not."

Industry players contend that cement manufacturers, across the board, are likely to face higher excise duty, which they are likely to pass on to end consumers. The Government could also face administrative difficulties in calculating excise duty under the new differential taxation scheme announced for the cement sector.

"In most parts of the country, cement prices are priced at over Rs 190 a bag and prices will go up by more than Rs 10 per bag after factoring in the value-added tax," Mr M.K. Singhi, Executive Director of Shree Cement. He said cement companies might pass on the increase to consumers but that might not affect demand in a big way.

Mr Nitin Gupta, Vice-President, Transaction Advisory Services, Ernst & Young, said, "The increase in allocation for Bharat Nirman Scheme and increase in National Highway Development Programme reflect continued thrust on infrastructure and should sustain high rate of cement consumption. However, cement industry, which is critical in the scheme of infrastructure development, will be greatly distressed by the increase in excise duty related to the retail price. This is likely to have a negative impact for the sector by affecting the realisations and hence the margins of cement companies. Furthermore, the administration of this scheme will be a nightmare to the industry. The differential duty regime is a crude way to coerce the industry to keep the prices down. It is possible that this may work in reverse direction as cement price is a factor of demand and supply and increased cement duty may be passed on to the consumer in certain regions facing supply deficit situation."