Aluminium makers want duty hike on scrap, abolition of coal cess

Worried over the surge in input costs and the unabated growth in imports of aluminium scrap, the domestic aluminium makers have pitched for a hike in import duty on scrap and abolition of the GST (Goods & Services Tax) compensation cess on coal.

The GST compensation cess is currently charged at Rs 400 per tonne on coal. The aluminium producers feel this duty should be eliminated to support the power-intensive aluminium manufacturing industry. Power accounts for 40-45 per cent of the aluminium making cost.

In the Budget for 2016-17, the increase in duty for aluminium metal by 2.5 per cent (from 5 per cent to 7.5 per cent) was completely negated by the doubling of clean environment cess (now GST compensation cess) on coal from Rs 200 to Rs 400 per tonne, said an industry source.

The other alarming factor for the aluminium industry is the continuing rise in imports of aluminium, especially aluminium scrap. Imports now have a share of 53 per cent in the country’s total aluminium consumption. Within the aluminium import basket, scrap accounts for 53 per cent of all imports in volume terms. The country has a nameplate capacity of 4.1 million tonnes in aluminium and this can meet 125 per cent of the country’s aluminium demand of 3.3 million tonnes.

In the April-September period of FY18, overall aluminium imports rose eight per cent while scrap imports were up 16 per cent. Cumulatively since FY11, total aluminium imports zoomed by 100 per cent. Scrap imports, too, surged by 98 per cent in the same period.

Aluminium producers are also upset with the inverted duty structure. The basic custom duty on aluminium scrap is 2.5 per cent whereas on aluminium metal, the duty is thrice as much at 7.5 per cent. Till 2015-16, the duty differential between primary aluminium and scrap was 2.5 per cent and the scrap import growth was in the negative territory (-0.2 per cent). In 2016-17, the duty differential widened to five per cent and aluminium scrap imports moved up by seven per cent. In value terms, the differential works out at $119 per tonne. Compared with this, the regional premium on aluminium metal is $105 a tonne.

The aluminium makers, through the Aluminium Association of India (AAI), pointed out that only aluminium has duty differential between primary metal and scrap. Other non-ferrous metals like zinc, nickel, lead and tin have the same duty for both metal and scrap. AAI has demanded an increase in import duty in the Budget for 2018-19 to be at par with primary metal with the rate proposed at 10 per cent.

It has also called for slashing basic custom duty on critical raw materials for the aluminium industry value chain. For alumina, the duty should be cut from five per cent to nil, reduction from five per cent to 2.5 per cent for coal tar pitch, 7.5 per cent to 2.5 per cent for caustic soda lye, 7.5 per cent to 2.5 per cent for aluminium fluoride and 7.5 per cent to 2.5 per cent for anodes. Moreover, the export duty on bauxite needs to be enhanced from 15 per cent to 20 per cent to encourage domestic value addition, AAI suggested.