The Hindu Business Line : Differential duty may lead to misuse of oil import sops

COMPLEXITIES in the duty structure of the vegetable oils industry, and objections arising there from, seem to be never ending. Differences in customs duty, quality of imported material and in the integrity of players all make decision-making tough for revenue officials.

While the Budget proposal to permit vegetable oils of industrial grade (containing more than 20 per cent free fatty acid) at a concessional rate of 20 per cent ad valorem customs duty for the production of fatty acids and fatty alcohols in addition to use in soap manufacture has been widely welcome by user industries, apprehension that the facility could be misused by a few importers is gaining ground.

The potential for misuse of the concession arises because of the uncomfortably large differential in the rates of customs duty between crude oils of the palm group. Crude palm oil and palmolein of edible grade attract 65 per cent duty, while the same oils of industrial grade (with minimum 20 per cent FFA content) will be charged duty at the rate of 20 per cent ad valorem.

It is possible that unscrupulous processors can utilise high FFA indigenous ricebran oil for soap or other specified purpose; and import industrial grade crude palm oil at lower duty, put the oil through physical refining and market it as edible oil. Such an operation will bring windfall gains.

In addition, unlike edible oils, there is no tariff value specified for vegetable oils of industrial grade; so, invoice manipulation possibilities too exist, points out a trade intermediary.

Currently, industrial grade crude palm oil is offered at around $400 a tonne cost-and-freight India, which translates to landed cost of a little over Rs 22,000 a tonne.

In the Mumbai wholesale market, indigenous ricebran oil has been quoted steady at Rs 240 per 10 kg trading lot since the Budget announcement.

Traders said it was too early to assess the negative impact of the Budget proposal on ricebran oil, as sizeable volumes of imported industrial oils are yet to arrive.

Revenue officials have a job on hand. They must tighten the inspection procedure for monitoring of imports and utilisation of industrial oils.

Actual user condition should be strictly enforced so that revenue loss is prevented and inferior oils are not palmed off to unwary consumers.

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