Imported oils could now become dearer by Rs 1,000-1,200 a tonne

G. Chandrashekhar

Mumbai, Feb. 28

The country's vanaspati and vegetable oil industry has reason to be disappointed with the Finance Minister's Budget proposals. Mr P. Chidambaram has sought to protect the domestic vanaspati industry's interests by raising the rate of customs duty on imported vanaspati to 80 per cent (same as for crude palm oil, a popular raw material) from the existing 30 per cent.

This change, largely cosmetic, is unlikely to provide any real relief to the beleaguered vanaspati industry. However, duty-free imports of vanaspati would continue from Sri Lanka and Nepal under bilateral trade agreement. The latest proposal would put an end to import of vanaspati, hydrogenated fats, margarine and similar edible preparations from countries such as Malaysia, which in any case were not large enough to hurt domestic interest.

Sri Lanka recently started to levy some duties and taxes (28 per cent customs duty on crude palm oil plus 15 per cent value added tax plus a cess of Rs 3 a kg). All these add up to a fiscal burden of around 54 per cent. On export of vanaspati, 15 per cent VAT would be refunded. So, vanaspati from Sri Lanka would be a little more expensive, but still priced low enough to continue to hurt Indian producers.

Countervailing duty

All imported vegetable oils will, henceforth, be subject to a countervailing duty of 4 per cent. This effectively translates to additional customs duty on imports (between 5.8 per cent and 7.2 per cent) as a result of which imported oils will become dearer by approximately Rs 1,000-1,200 a tonne. Domestic prices, too, are likely to rise in line.

The measure would not only help raise additional revenue for the exchequer, but also help support prices of domestic oilseeds (rapeseed/mustard, in particular), which are threatening to crash in the wake of a large harvest due. The domestic vegetable oil market has already begun to harden.

The Union Government potentially collect additional revenue of over Rs 600 crore with the imposition of four per cent CVD, assuming import value of Rs 10,000 crore and Customs Duty of Rs 6,000 crore.

The Finance Ministry has clarified that the additional duty will not be included in the assessable value for levy of education cess on imported goods. In other words, 2 per cent education cess will be calculated without adding 4 per cent CVD. Manufacturers will be able to take credit of this additional duty for payment of excise duty on their finished products.


Utter confusion prevailed in the market over the applicability of 4 per cent CVD on imported soyabean oil. A section of the trade argued that as soyabean oil was already charged customs duty at the WTO-bound peak rate of 45 per cent, there could not be any further fiscal impost that would effectively raise the customs duty above the peak rate.

It was pointed out that soyabean oil did not bear 2 per cent education cess, and for the same reason would not bear 4 per cent CVD. This was countered with another argument that 4 per cent CVD was to neutralise local taxes such as VAT and create same level of fiscal burden on domestic and imported goods.

No cheer for refining sector

The Budget has brought acute disappointment to the refining industry (especially units mainly processing palm group of oils), which was hoping that the Finance Minister would cheer them up with a reduction in customs duty on crude palm oil. On the contrary, imports have become more expensive with the levy of 4 per cent CVD.

Many were hoping to see some non-tariff barrier on soyabean oil imports. That, too, has not materialised.

Refiners should, however, be glad that the FM spared them from the burden of widely anticipated excise duty on manufacture of refined oils.

(This article was published in the Business Line print edition dated March 1, 2006)
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