India’s MoF denies excise duty to cement firms

India’s MoF denies excise duty to cement firms
Published: 02 June 2008

The finance ministry in India has turned down a proposal from department of industrial policy and promotion (DIPP) to give 35 per cent abatement on excise duty to cement manufacturers. Had the ministry accepted the proposal and companies passed on the benefit to consumers, the prices of cement could have come down by Rs 10 per 50kg bag.

The finance ministry turned down the proposal primarily due to two factors. Firstly, it felt that the levy imposed on cement is not eligible for abatement.

Secondly, the move would only benefit companies if they do not pass on the benefit to consumers. Industry usually gets abatement when the excise duty is linked with the maximum retail price or MRP. For a product with an MRP of Rs 100 and abatement of 35 per cent, a manufacturer effectively pays an excise duty only on Rs65.

Cement industry has been lobbying for abatement since the government introduced MRP-linked excise duty last year. According to industry body Ficci, MRP-linked excise duty without abatement results in a tax on trade margins and a tax on tax.

The average all-India price of cement is Rs 240 per 50 kg bag now. Analysts say the abatement could have brought relief to the cement industry, which has been battling rising input cost and is under constant government pressure to reduce prices. Cement makers, including India’s largest maker ACC, have said rising input costs put pressure on their margins and June quarter may see a pronounced impact.

Under pressure from the government and increased supply in the market, some cement makers have reduced prices or agreed to hold the price line. The government recently relaxed the export ban on cement which was slapped to contain prices.