Duty rejig fails to impress players

CEMENT: Manufactures divided on likely impact of new measures

With the government deciding its excise calculations in this year’s Budget on the basis of retail sale price, unlike last year’s transaction value, cement makers and analysts are divided on the likely impact the new measures will have on costs. Cement had been attracting differential excise duties so far and is to now have a unified rate of a flat 12 per cent, with an additional Rs 120 for a tonne. Further, after years of the industry’s consistent pleas for allowing manufacturers an abatement, the government finally provided one of 30 per cent, though not the 55 per cent the former had requested.

“With this change, we believe that costs will go up by Rs 80-100 for a tonne,” says K C Birla, chief financial officer of the country’s largest manufacturer, UltraTech Cement. This would mean a 50-kg bag will become Rs 4-5 costlier. However, analysts say that as the abatement had been provided, there should be a neutral impact, on the whole. For example, for a bag on which the sale price is Rs 300, the value of duties would be Rs 30-31 after the duty rejig, the same as earlier, they add.

But cement makers do not agree with such calculations. According to Shailendra Chouksey, wholetime director at JK Lakshmi Cement, “The impact will substantially be higher. Even after an abatement of 30 per cent, the cost impact would be much more than Rs 5 a bag.”

Interestingly, one manufacturer even has it otherwise; A K Saraogi, chief financial officer of JK Cement, says, “Prima facie, it looks like there will be a marginal reduction in excise duties, as we have got an abatement of 30 per cent.”

The confusion seems to have surfaced from different definitions of ‘transaction value’. The previous budget explanation went, “For the purpose of an advalorem component, the value would no longer be the retail sale price but the transaction value determined under Section 4 of the Central Excise Act, 1944,”. Experts say that transaction value is the ex-factory price. According to some cement players, this value comprises ex-factory price, freight rates and state taxes. While another differs and says transaction value does not include state taxes and freight rates.

Cement companies, which have been consistently raising prices of the product, had earlier said they would not absorb any input cost impact and intended to pass these on to the end-consumers. However, with this duty restructuring, their officials were tight-lipped on whether they would further scale up prices or not. One said any cost increase has to be adjusted somewhere.

Currently, the overall annual capacity of the industry is 330 million tonnes and the ruling all-India average price of a 50-kg bag is Rs 283.