The Union Steel Ministry has written to the Central Board of Indirect Taxes and Customs (CBIC), seeking exemption of export duty on iron-ore pellets manufactured and sold by the state-owned miner, KIOCL, in overseas markets.

The absence of export duty waiver is impacting operations of the company and has also hit foreign exchange earnings.

Operations suspended

The company announced suspension of operations at its pellet plant at Mangalore “in view of unviable operation due to levy of duty on export of pellets” on June 7, days after the Centre imposed an export duty of 45 per cent on iron-ore pellets.

Formerly known as the Kudremukh Iron Ore Company, the KIOCL is a PSU under the Ministry of Steel and is an export oriented unit (EOU).

Its foreign exchange earnings in the last three years has been to the tune of ₹5,846 crore (₹1,277 crore in FY20, ₹1,759 crore in FY21 and ₹2,810 crore in FY22, respectively). Dividend payout to the Centre has been around ₹400 crore over the last five years.

The miner, KIOCL, unlike other merchant miners, needs to export pellets to retain its status as an EOU. And the imposition of this duty will make it difficult for the miner “to sustain in the international market”.

Reasons for seeking exemption 

A letter, written in July (one month after KIOCL announced suspension of operations), by the Additional Secretary of the Steel Ministry, said that export duty imposition “is detrimental to prospects” of the company.

The bureaucrat reasoned that KIOCL being a shore-based plant with captive berth and mechanised loading facilities can import “high grade iron ore from off shore sources and supply pellets to foreign countries as DR grade pellets” (where the iron content is 66 per cent typically). “This shall help preserve the iron ore resources of the country and in turn shall earn foreign exchange,” the letter accessed by BusinessLine said.

“Exempting KIOCL from payment of export duty for export of pellets manufactured from imported iron ore will enable KIOCL to continue its business of utilising its plant and earn foreign exchange...” the letter added.

Calls for exception on EOU status

Citing the company to be an EOU, the bureaucrat mentioned that an exception be made in case of the miner where pellets “shall be made from imported iron ore” and hence it be granted a relief from the export duty.

It has also been pointed out that duty-free export of pellets had resulted in “improved financial performance” of KIOCL. The profit after tax stood at ₹44 crore and turnover was at ₹1,885 crore in FY20; PAT and turnover increased to ₹301 crore and ₹2,348 crore in FY21 respectively; and further rose to ₹313 crore (PAT) and ₹3,081 crore (turnover) in FY22.