Countervailing duty on coal may be rolled back

The finance ministry is considering a rollback of the countervailing duty (CVD) on coal imports done for the power infrastructure projects.

Officials said the consideration was for relaxing the five per cent CVD if the import was specifically meant for thermal power generation or coal-based power plants and related infrastructure projects. At present, there is five per cent custom duty on non-coking coal besides one per cent excise duty, which was announced on 130 items in the last Budget.

In the Budget 2011-12, the government had imposed CVD of five per cent on coal imports if the importer avails himself of the Cenvat credit facility. This was done when the government proposed a levy of one per cent excise duty on 130 items without Cenvat credit. If Cenvat credit is taken, then these goods will attract a tariff rate of five per cent. This applies to all categories of coal imports — lignite, peat, coke, tar, etc.

Officials further explained that a complete or partial rollback of CVD would amount to a relaxation in the custom duty while importing coal.

They explained that CVD was imposed to provide a level playing field for the domestic manufacturers and was charged at a rate equal to the excise duty rate.

Cenvat credit means the credit availed by a manufacturer of goods in the form of a deduction of input tax paid on the purchase of raw materials, fixed assets, packing material, etc from the total tax payable to the government. CVD is also called anti-subsidy duty.

The consideration also follows several presentations made to the ministry by industry bodies stating that nearly two thirds of the power generation in the country was coal-based and CVD-based tariff would increase the power tariff by 13 paise a unit. Besides, industry bodies are of the view that the price of coal in the global markets has already shot up by around 35 per cent.

As per the Annual Plan Document 2011-12, the likely demand for coal in the country is 696.03 MT and the projected domestic coal production is 554.00 MT. However, 5 MT of coal stocks are proposed to be liquidated by Coal India Ltd (CIL), bringing down the gap to 137 MT. The gap will have to be met through imports.

Apart from a series of measures initiated by CIL, the government has allotted 208 coal blocks to private/public companies to increase the domestic supply of coal to various consumers, including power units. The ministry of coal is also working on the rationalisation of coal linkages to ensure the timely availability of coal and minimise the cost of its transportation for various projects.