The Hindu Business Line : Tinkering with duty irks cement cos

Mumbai/Chennai, April 29 More than the impact on the selling price, the cement industry is irked with the frequent tinkering with excise duty structure. The industry views today’s announcement by the Finance Minister, Mr P. Chidambaram, of a 12 per cent ad valorem duty on cement costing Rs 250 or more a bag, as one that will only add to the confusion. The Government has now moved from specific to ad valorem duty, according to industry representatives.

In the last two budgets, manufacturers speaking on the condition of anonymity said, the Centre has made changes to the excise duty rates, which have only pushed up prices whereas the Government’s aim was to nudge companies to reduce prices.

In the Budget for 2007-08, the Finance Minister referred to the “significant increase in the retail price of cement” and announced changes in excise duty structure to bring down prices to a more acceptable level. He reduced the excise duty on cement from Rs 400 a tonne to Rs 350 a tonne for cement sold at not more than Rs 190 a bag in the retail market. On cement sold at a higher maximum retail price, the excise duty was Rs 600 a tonne. In this year’s budget, Mr Chidambaram brought on a par the excise duty for both bulk and packaged cement at Rs 400 a tonne or 14 per cent ad valorem, whichever was higher.

According to industry representatives, a 12 per cent ad valorem duty on cement sold at Rs 250 or more a bag translates into Rs 30 a bag, which is the same at a specific duty of Rs 600 a tonne. Wherever cement prices are above Rs 250 a bag, the representatives say they will pass this on to the buyers.

According to them, cement prices in Maharashtra are around Rs 260-270 a bag and about Rs 250 a bag of 50 kg in Tamil Nadu. In Andhra Pradesh, which is a major market, prices are now around Rs 210-215 a bag.

Frequent changes in the duty structure will only add to more confusion, said a Mumbai-based cement company. “We have to offer special discounts to dealers on the billing rate to take on small regional cement producers,” he added.

Manufacturers say that they are producing to near full capacity and the cost of power and fuel, which together make up almost 60 per cent of the variable cost of production, has gone up. Fuel cost, for instance, has gone up from $36 a tonne (c.i.f.) about two years to $130 a tonne now. This has also resulted in a higher generation cost of captive power, according to industry sources.

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