Secondary metals producers seek import duty exemption on metallic scrap

Say over 50% of metal output comes from recycling, import of scrap attracts 2.5-5% duty while finished products come free

Secondary metal producers, who contribute to over half of metal availability in India, have urged the government to review inverse tax structure with import duty of 2.5-5% on scrap and none on finished products.

India has signed free trade agreements (FTAs) with a number of ASEAN countries that have benefited at the cost of India. While Indian processors import metallic scrap at duty of up to 5%,, processors in FTA countries pay no duty for the same. Since the sources of scrap supply remain the same i.e. western countries and Africa, the cost of raw material procurement works out costlier in India than FTA countries.

Since, their energy costs are also lower, the overall cost of secondary metal production in FTA countries is lower than in India. Consequently, metal processing units in FTA countries dump finished products into India resulting into lower capacity utilization of local units here.

“Under the Prime Minister’s Make in India programme, local manufacturing units need to be protected which the government has started with primary metal producers by levying ‘Minimum Import Price’ (MIP) for steel. Now, secondary metal sector is equally important and hence, needs to be protected with level playing field. Therefore, the government needs to review this inverse duty structure with high import tax on raw material and low on finished products,” said Sanjay Mehta, President Metal Recycling Association of India (MRAI) and Director MTC Group, one of India’s largest metal recyclers.

Apart from basic import duty, scrap importers also pay 4 per cent of special additional duty. Central value added tax (Cenvat) credit norms are often not met due to inability to achieve required value addition of 15-20 per cent. While value addition norm in India is missed by a thin margin, the same is met upto 35 per cent on free on board (FOB) value in FTA countries including Malaysia and Thailand.

“This has resulted into higher cost of semis and finished products made in India when raw material imported from FTA countries. Most importantly, all metal processing countries including in Asia have exempted scrap import from import duty. Ironically India still continues with the age old practice of levying import duty on raw material despite having imports of finished products duty free. This has made survival of metal processing units difficult,” said Rohit Shah, Director, Heena Metal, a city based scrap importer and metal recycler.

A recent Frost & Sullivan report estimated India’s foundry production at 9.5 million tonnes as compared to 41 million tonnes in China. India will become a net importer of castings if import duty on scrap is not removed, the report alarmed.

Total demand of metallic scrap in India stood at 20.40 million tonnes on 2014 with an estimated CAGR (compounded annual growth rate) of 11.4 per cent which would take overall demand at 39 million tonnes by 2020.

Recycling saves energy and also natural resources as this process requires used metal as raw material. Hence, recycling industry should be granted as industry status as the sector has attracted investment worth Rs 10,000 crore.

“The government should allow import duties and countervailing duties (CVD) to be collected against accumulated in manufacturers’ profit and loss account as unutilised. Also, secondary metals’ manufacturers should be allowed to claim SAD in line with traders,” said Mehta.

Meanwhile, the government has decided to come out with a national scrap policy soon.

India vs China for metal production (in millions of tonnes)
Particulars	Primary		Secondary using scrap as raw material
	China	India	China	India
Steel	779.00	81.00	85.70	17.20
Aluminium	11.50	1.90	5.20	0.95
Copper	24.90	0.75	1.87	0.25
Zinc/lead	7.90	0.88	2.50	0.45

(Source : Frost & Sullivan, Data for FY 2013-14)