Post Budget Memorandum On The Union Budget For The Year 2010-11
Posted On : 19th April 2010

PREAMBLE :

The Council thanks and compliments the Honourable Finance Minister for the Budget Proposals which are pragmatic, positive, growth and development oriented and aimed at inclusive growth.

We would also like to express our appreciation for the balancing act reflected in the Union Budget in terms of partially rolling back the stimulus package and at the same time paying adequate attention to the development of social sector and more specifically so of the rural sector.

We are also very happy with the proposals which would fuel consumption and provide incentives for renewable energy, infrastructure and research and development.

The deadline set for introduction of GST and Direct Tax Code has eliminated the uncertainty that had prevailed about the time frame for its implementation. We also welcome the reduction in surcharge on Corporate Tax.

However, the Indian chemical industry is somewhat disappointed by the increase in MAT rate from 15 percent to 18 percent and by the increase in CENVAT rates from 8% to 10%.

While all the efforts mentioned above are laudable, there are a few concerns of the Indian chemical industry that still prevail and remain unaddressed which we are requesting you to kindly take cognizance of and to make corrections so that the industry is freed of avoidable hardship.


SECTION-I: GENERAL CONCERNS OF THE INDIAN CHEMICAL INDUSTRY

  • Need for Zero Import Duty on Feedstocks: We had requested for Zero Import Duty on the following:
    • Naphtha
    • Hydrocarbons such as Ethane, Propane etc.

which are feed stocks for manufacture of a wide range of Organic Chemicals. The Import Duty on Naphtha, Ethane, Propane etc. has not been reduced. We request immediate reduction in Import Duty on all these inputs to Zero level as requested in our Pre-Budget Memorandum.

  • Import Duty on Fuels: While fuels and basic inputs need to be made available to the industry ideally at international prices, Import Duty on Fuels (including Furnace Oil, LSHS etc.) falling under Chapter 27 has been raised from 5% ad valorem to 10% ad valorem, which is higher than the Import Duty on most of the chemical products (at 7.5%) ad valorem. While, ideally, fuels need to be made available to Indian industry at international prices and should ideally be eligible for import at Zero duty, we request at least for roll back of duty to 5% ad valorem.

  • Inverted Import Duty Structure: There are various cases of Inverted Duty Structure which have crept in which need to be corrected. We have come across two types of cases of Inverted Duty Structure:
    • One related to the proposals in Union Budget
    • The other arising out of the Free Trade and Regional Trade Agreements that India has entered into

We are requesting correction of all these individual cases dealt with in detail in the next Section.

  • Special Additional Duty (SAD) on Imports: SAD is a reflection of CST. We request that SAD rate be fixed in line with the prevalent CST rate of 1%. We also request that no exemption be granted from SAD on imported goods if locally manufactured goods are subject to CST/ VAT (except import against advance license).

  • Cess on Coal: In our pre-budget memorandum, we had requested for Zero import duty on fuels including coal. While our request has not been granted, there is, in fact, an additional burden now in the form of Cess of Rs. 50/ Ton of Coal, which will lead to increase in Power Generation cost by Paise 3.5 to 4 per KWH. If this increase cannot be passed on to the domestic/ individual consumers, the load on industrial consumers will be even higher. While the idea of the government to promote Clean Energy is commendable, the additional cost to the industry would be onerous. We request Zero duty on import of coal along with reconsideration of decision to impose Cess.

  • Inverted Excise Duty/ CENVAT structure:
    1. Molasses for Denatured Ethyl Alcohol:

      Excise duty on Denatured Ethyl Alcohol is 8% ad valorem while Excise Duty on Molasses (Tariff Item 1703 10 00) is Rs. 750/ MT and this is an Inverted Duty Structure. Denatured Ethyl Alcohol is used by the chemical industry as substitute for petroleum feedstock. It is therefore requested that Excise Duty on Molasses for use in the manufacture of Denatured Ethyl Alcohol (non-potable) be reduced to 8% ad valorem or Rs. 375/PMT whichever is lower.

    2. Naphtha:

      CENVAT/ Excise Duty on chemicals is 10%, while CENVAT/ Excise Duty on Naphtha is higher at 16%. Naphtha is an input for the chemical industry. As a result, there is a distortion. It is requested that Excise Duty on Naphtha be brought down to 10%.

    3. Furnace Oil:

      Similarly, CENVAT/ Excise duty on Furnace Oil is 16% and needs to be reduced to general Excise Duty level of 10%.

      Depreciation Rate for Chemical Industry: The industry employs processes involving the use of highly corrosive materials. The structures (on which equipment is installed) are also made of steel, which is also prone to corrosion. Some of the chemicals like Brine/ Chlorides corrode even Stainless Steel. Reactions and separation processes involve tough conditions in terms of temperature and pressures from extremely high pressures and temperatures to sub zero temperatures and sub-atmospheric pressures/ extreme vacuum levels. All this takes toll on the equipment used in chemical industry. The wear and tear of plant & machinery in the chemical industry is relatively much higher as compared to other industries. The depreciation allowed for the purpose of income tax was earlier @ 25% which was brought down 15%. It is requested that same may be restored to 25%.


    SECTION-II: OUR CONCERNS ON SPECIFIC PRODUCTS/ INPUTS/ INTERMEDIATES

    • INVERTED DUTY STRUCTURE ON HYDROGEN PEROXIDE VIS--VIS ITS RAW MATERIALS:

      Under the FTA between India and countries such as Malaysia, Thailand and Singapore, Hydrogen Peroxide is importable at Customs Duty of 5% ad valorem.

      On the other hand, its raw materials attract higher duties as follows:
      Borax-Penta- HS Code 28401900- 7.5%
      Catalyst- HS Code 38151900- 7.5%
      2EAQ- HS Code 29146100- 7.5%
      2MCHA- HS Code 29153990- 7.5%
      PURON AG- HS Code 28353900- 7.5%
      SOLVESSO- HS Code 27079900- 10%
      This is clearly a case of Inverted Import Duty Structure which needs correction.

    • INVERTED DUTY STRUCTURE ON LINEAR ALKYL BENZENE (LAB) VIS--VIS ITS RAW MATERIALS:

      The Import Duty on LAB is 7.5% ad valorem, while the Import Duty on inputs such as Normal Paraffin/ Kerosene is higher at 10%.

      We request that Import Duty on Normal Paraffin/ Kerosene be brought down to 5% ad valorem.

    • INVERTED DUTY STRUCTURE ON POLYMERS & CHEMICALS VIS--VIS ITS STARTING RAW MATERIAL NAPHTHA:

      Under the India-Singapore CECA, Polyofelins Imports are eligible for concessional 3.35% Import Duty, while Import Duty on Naphtha is higher at 5%. There is an immediate need for reduction in Import Duty on Naphtha to zero level.

      INVERTED DUTY STRUCTURE ON ALKYL PHENOLS (NONYL PHENOL, DODECYL PHENOL, PARA OCTYL PHENOL) VIS--VIS THEIR RAW MATERIALS (NONENE, PROPYLENE TETRAMER AND DI-ISOBUTYLENE)):

      The Import Duty on Nonyl Phenol (Ch. 2907 1300), Dodecyl Phenol (Ch. 2907 1950) and Octyl Phenol (Ch. 2907 1300) was 7.5% before the Union Budget and has been maintained at the same level.

      An anomaly in the form of Inverted Duty Structure has arisen due to increase in Import Duty on Nonene (also called Propylene Trimer), Propylene Tetramer and Di-Isobutylene (all falling under Ch. 2710 1990) from 5% ad valorem to 10% ad valorem level despite the fact that these impure raw material mixtures from hydrocarbon streams and are not fuels. While their existence in impure form as mixtures justifies their inclusion in Chapter 27 (even as per World Customs Organization Classification), the Import Duty on these needs to be reduced to 5% ad valorem level to correct the anomaly that has arisen in the latest Union Budget.

    • INVERTED DUTY STRUCTURE ON OLEOCHEMICALS:

      A. The Import Duty on the inputs Palm Fatty Acid Distillate and Palm Kernel Fatty Acid Distillate (both falling under Chapter 3823 1900) is 14% even under ASEAN-India FTA and Import Duty on another input Crude Glycerine (1520 0000) is 12.5% ad valorem. However, the Import Duty on their derivatives Stearic Acid (Ch. 3823 1190), Refined Glycerine (Ch 2905 4500) and Soap and Soap Noodles (Ch. 3401 2000) is lower at 7.5% ad valorem and on Fatty Alcohol (Ch. 3402 3709) also it is lower at 12% (than the duty on its inputs). We request that the Import Duty on all the Inputs mentioned herein be reduced to 7.5% ad valorem level.

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