The Hindu Business Line : No case for refined oil excise duty withdrawal

WITH a new Government at the Centre and a new Budgetary exercise underway, the vegetables oils-based industry associations have started to lobby the policymakers with the intention to wrest concessions.

Of the many demands and objections raised by the industry bodies, two bear scrutiny. One is the demand to create a wider differential in customs duty between crude and refined oils; and the second, removal of excise duty of Rs 1,000 a tonne on refined oils.

Hike in refined palm oil duty: A case is sought to be made out that a hike in basic customs duty to 85 per cent on import of refined palmoil/olein (the Government had lowered the duty to 70 per cent on April 1, 2003) would ensure remunerative prices to oilseed growers. It is represented that such a move would shield oilseed growers from the recent fall in prices - both international and domestic - and the possibility of price pressure at the time of harvest.

There is nothing, on current reckoning, to suggest such an eventuality. During 2003-04, oilseed growers - mainly of soyabean and groundnut — received very remunerative prices. These farmers would continue to plant the same oilseeds, notwithstanding a downturn in prices in recent weeks. The fall in prices is seen more of a correction to an overheated market.

Last year too, the industry adduced the same argument that the interests of oilseeds farmers would be hurt because of the lowering of customs duty on refined palmolein; but nothing of that sort happened. As a matter of fact, last season turned out to be one of the best in recent memory for Indian oilseed growers in terms of both higher production and higher price.

The case for raising duty on refined palm oil is considerably weakened by the fact that for the last 15 months the refining industry has continued to import crude oils of the palm group despite lowering of duty on refined palmoil/olein.

With the lean season for the oilseeds sector setting in, it is time for the Government to support consumer interest. Since October last, consumers have paid high prices for cooking oils because of a spurt in domestic prices (despite higher production) resulting from a bull run in the global market.

It is time the consumers got a good deal. The series of festivals beginning August lasting till early November will result in demand for cooking oils rising manifold. It is unfortunate that the domestic extractors who want a higher price for the vegetable oil they produce continue to use farmers' welfare as an argument to advance their own agenda.

Indeed, there is nothing to suggest that a hike in duty on refined palm oil would impact farm-gate prices of oilseeds in any notable manner over the next three months till the crop is ready for harvest. The appropriate time to review the matter would be mid-September when the crop conditions would crystallise.

Excise duty: Ironically enough, even as a hike in customs duty on refined palm oil has been demanded ostensibly to support farmers, the industry wants excise duty on refining of oils withdrawn.

Excise duty at the rate of Rs 1,000 a tonne on manufacture of refined oils and Rs 1,250 a tonne on manufacture of vanaspati (hydrogenated vegetable oil) was imposed in the 2003-04 budget in deference to the recommendations of the Kelkar Committee which went into the entire gamut of direct and indirect taxation.

The rationale for levy of excise duty on refined oils is unassailable. Refined oils are consumed by the relatively better-off sections of the society who can afford to pay Re 1 per kg additional cost. There has been no consumer dissatisfaction resulting from levy of excise duty.

Massive refining capacities have been built up across the country.

Many are averse to paying excise duty. Cases of alleged evasion of duty had been brought to the notice of the government by certain industry associations themselves.

There is no case for withdrawal of excise duty. On the other hand, what is necessary is a strict monitoring of refining units so as to ensure there is no duty evasion. Excise duty on refined oils can potentially yield revenue of about Rs 600 crore per annum.

It is necessary to point out that production of raw oils is exempt from excise duty. A large mass of needy consumers actually go in for such oils crushed out of groundnut, mustard, sesame and coconut.

There is another suggestion, perhaps an alternative to withdrawal of excise duty on all refined oils; and it is that certain categories of oils - non-conventional oils and specified fixed vegetable oils - be exempt from levy of excise duty. Nothing could be more dangerous and potentially damaging to revenue than this suggestion.

The industry is not exactly known for its virtues of strict compliance with fiscal legislation or adherence to quality or proper declaration at the customs borders.

Exemption to certain categories will immediately open up a new avenue for unscrupulous players to evade duty by claiming unjustified exemption.

As matter of fact, the Finance Minister must take the opportunity to withdraw the excise duty exemption enjoyed by refining units newly set up in Kutch region of Gujarat.

These units did not exist at the time of earthquake in January 2001 or soon thereafter, nor was manufacture of refined oil excisable then.

Despite existence of sufficient refining capacity in the country, these units were established with the sole objective of taking advantage of excise duty exemption granted to Kutch as part of calamity relief.

It is entirely different matter that minor and non-conventional oil resources have to be exploited. For that, a specific action plan is necessary.

Exempting such oils from payment of excise duty is unlikely to lead to any meaningful exploitation of these resources unless the fundamental issues that impact collection, marketing, pricing, quality and so on are addressed.

Excise duty on refined oils was imposed by the Government after considerable amount of thought. It should not be tinkered with. Inspection and collection of revenue should be tightened so that the exchequer gets what is legitimately due.

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

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