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Rediff.com  » Business » Cement sector seeks duty sops

Cement sector seeks duty sops

June 29, 2009 18:25 IST

Only Cement is assessed to retail selling price based excise duty but denied abatement; also seeks imposition of import duty due to emerging surplus supply situation in India

Current status

The cement sector surprised with better growth in demand, despite sluggishness in the real estate sector. The industry has been aggressively pursuing expansion (brown field & green field) during the past few quarters.

The capacity of cement production in the country is expected to increase to 298 million metric tonnes by the end of the fiscal 2012. Besides the perceived slowdown of demand for cement, the domestic cement manufacturers face host of other issues, which would be partly addressed during the forthcoming budget.

The current demand however has remained strong backed by the rural housing demand as well as infrastructure spending in semi-urban areas. The industry, which has grown by an average of 10 per cent in the last three years, is expected to add around 45 million tonnes of fresh capacity in FY2010, taking the overall capacity to over 260 million tonnes per annum.

The cement industry is one of the highly taxed industries, with complex 3-tier excise structure. The industry expects rationalisation of these tax structures besides various other measures in order to maintain its competitiveness. 

Apart from excise duty, other taxes on the commodity comprise duties on power tariff, sales tax, royalty and cess on limestone, coal and gypsum. Lower excise duty and abatement on it would enable the industry to pass on the benefit to the final consumer. There could be a price reduction of around Rs 18-20 per 50 kg bag, in case abatement is given. Presently, the average price of cement across the country is around Rs 240-245 a bag. This means, the prices could fall 7-8 per cent to around Rs 225-230 a bag.

Cement industry's Budget expectations

Cement still remains the highest taxed essential infrastructure input in India. Various Government levies and taxes, taken together, constitute over 60 per cent or more of the ex-factory price. Imposition of import duty on cement as well as abatement on excise duty levied on the MRP with uniform rate of lower excise duty is important for continuing the growth momentum of the industry, besides providing impetus for other related industry like infrastructure.

Reduction in excise duty on cement

As against the complex excise structure currently prevailing (see table current duty structure), the cement industry wants a uniform rate of excise duty to be levied on cement. Besides, the industry also expects an abatement of 55% for cement in line with the suggestion made by NCAER.

Re-imposition of import duty on imported cement

In order to tame inflation the government had allowed duty free import of cement, which subsequently reduced the domestic price of cement. However as the domestic capacity addition started coming on stream a surplus situation is being felt in some regions of the country. Thus continuation with zero import duty on cement is extremely detrimental for the domestic cement industry. Although the government has re-imposed CVD and SVD on import of cement, the cement industry further wants the earlier import duty of 12.5 per cent to be re-introduced for imported cement.

Reduce import duty on Pet coke and coal

The industry has been heavily relying on imported coal, PET coke and gypsum due to lower indigenous availability of these important inputs. Currently PET coke, coal and Gypsum attract an import duty of 5 per cent whereas the finished cement attracts zero import duty. Thus in order to correct the anomaly the cement industry wants the import duty on important inputs like coal, PET Coke, and Gypsum to be abolished in line with established principle that import duty on inputs should not be higher than on finished products.

Reduce VAT to 4%

The industry also demands the VAT rate on cement to be brought down to 4% in line with similar important construction material like Steel. The current rate of VAT is 12.5 per cent. Further the industry expects cement to be included in the "Declared Goods" just like steel.

Royalty and VAT and Cenvat Credit on Limestone

The cement industry pays a royalty of Rs 45 per tonne of Limestone. This is much higher as compared to what the steel industry pays for iron ore, despite iron ore being a high value product. Thus the cement industry expects a reduction in royalty paid on limestone. Also the industry wants the royalty paid on Limestone to be allowed as Cenvat credit or as VAT credit. The duty/cess being levied and collected on indigenous coal also be allowed as VAT or Cenvat credit.

Current duty structure   

Item

Excise Duty

Import Duty (%)

Current

Proposed

Current

Proposed

Cement of RSP not exceeding Rs.190 per 50 Kg bag

Rs.230 per tonne

55% abatement for grey cement

NIL

12.5

Cement of RSP exceeding Rs.190 per 50 Kg bag

8% of RSP

55% abatement for grey cement

NIL

12.5

For Institutional sale

8% of RSP or Rs 230 per tonne whichever is higher

55% abatement for grey cement

NIL

12.5

INPUTS

Non-coking coal

NIL

NIL

5

0

Petroleum coke

16%

No specific recommendation

5

0

Gypsum

 

 

5

0

Free supply of Fly ash

The cement industry consumes 25 per cent of the environmentally hazardous fly ash generated by the thermal power plants in the country. This constitutes 80 per cent of the fly ash recycled annually. In view of the contribution made by the cement industry towards environmental cleanliness, the cement industry desires that fly ash be supplied to them at free of cost.

Waste heat recovery (WHR) be treated at par with renewable energy

Treating WHR technology as renewable energy like solar power and wind power will accrue several monetary incentives like tax holiday for power generation for 10 years, 80 per cent accelerated depreciation, excise duty/import tariff concession, sales tax exemption etc. 

The domestic cement industry has also asked for a 50 per cent subsidy on freight on the logistics cost for cement and clinker. The cement makers have asked for the subsidy for the distance between the manufacturing plants and ports. Since, most plants are in the hinterland and cement is a regional commodity, the freight rates go up. This, thereby, makes exports viable only from coastal units. This also gains importance on the back of excess capacities being added by the industry as industry will be able to route out the excess supply into the export markets - mainly the West Asian countries.

Analyst Expectations

As the new capacities have started stabilising there could be minor price reduction besides tilting the demand supply dynamics in favour of supply. Thus the re-imposition of import duty of 12.5 per cent on cement is expected. However long desired demands like the abatement on excise duty and reduction of excise duty is unlikely to be met. Instead, there is a possibility of increase in excise duty on cement, on revenue considerations.

As the coal and PET coke prices have significantly corrected as compared to the same period the previous year, the abolishment of import duty on these inputs is unlikely to happen. Treatment of waste heat recovery plant at par with renewable energy may happen whereas supply of fly ash at free of cost is unlikely. Overall the budget is going to be a major no-event as far as the likely implications are concerned.

Stocks to watch

Shree Cement, UltraTech Cement, JK Cement

Outlook

On overall basis the budget is likely to be neutral for the industry. The demand outlook remains strong major driven by the strong demand for cement from rural housing and infrastructure projects in semi urban areas. However as the new capacities come on steam there would a situation of excess demand and thus the industry would experience lower capacity utilization and lower pricing power. Thus in order to maintain the growth momentum, its imperative that the government implement the aforesaid measures, without which, the sector will turn less competitive.

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