CVD levy a messy affair

FM proposes to increase the customs duty on vanaspati to 80 per cent "" the rate applicable to crude palm oil "" to protect the domestic vanaspati sector.

Traders and processors of the Rs 40,000-45,000 crore edible oil industry in Mumbai downed their shutters for the day as they are unsure if FM's proposal of 4 per cent countervailing duty (CVD) is applicable to the sector or not. They said if CVD is levied, prices have to be hiked accordingly.

FM proposed to increase the customs duty on vanaspati to 80 per cent "" the rate applicable to crude palm oil "" "to protect the domestic vanaspati sector". Currently, the industry is liable for 80 per cent customs duty on crude palm oil, 90 per cent on refined palmolein and 4 per cent VAT.

The confusion is that VAT and CVD should not be levied together. "The excise duty of 4 per cent on edible oil was scrapped last year, but only a few areas were covered under that. This Budget has exempted the industry fully. However, if applied, CVD will be a major problem," said Sanjay Shah, president, Bombay Commodity Exchange.

There will be no major surge on edible oil prices if CVD is not levied. However, oil stocks are rising. Oil futures on the commodity exchanges are also picking up. Therefore, oil players have taken this Budget positively, said a Mumbai-based trader.

India imports around 45 per cent (around five million tonne) of its edible oil requirement. Thus, the international commodity production and pricing scenario has a significant role to play in the edible oil and oilseed crushing business in the country. Moreover, as substantial volumes of oil seed extractions are exported, and the prices are dependent on international markets.

The domestic seed prices are also influenced by international extraction prices.

The government abolished excise duty on the manufacture of refined edible oils (Rs 1,000 a tonne) and vanaspati (Rs 1,250 a tonne) across the country, which helped create a level-playing field for all refiners and vanaspati makers, regardless of locations.

Big players, including some MNCs who have made huge investments in the vegetable oil market to set up large processing facilities dependent almost entirely on imports, benefited from the move.