Sparks fly over LAB safeguard duty

The Directorate General of Safeguards, Customs and Central Excise has found merit in the claims made by the domestic manufacturers of linear alkyl benzene (LAB) that increased imports of the product are hurting them.

The directorate-general has also decided to investigate the matter to figure out whether there is a case for accepting the LAB manufacturers’ demand for a safeguard duty of 20 per cent for the first year, 15 per cent in the second and 10 per cent in the third year.

The top three LAB manufacturers are Reliance Industries, Tamilnadu Petroproducts and Nirma. The issue has, however, become controversial with detergent manufacturers saying that any safeguard duty on LAB, which constitutes around 40-50 per cent of their cost, is totally unjustified.

India produces around 470,00 tonnes of LAB, of which roughly 100,000 tonnes is exported. Net consumption is 400,000 tonnes and the balance is imported.

The proposal is against the policy of free trade and detrimental to all stakeholders except the LAB manufacturers, detergent manufacturers say. Firstly, a safeguard duty will increase the prices of detergents, forcing them to pass on the additional burden to around 200 million consumers.

Second, the present import duty on LAB is very much in line with the declared policy of the government. LAB being a basic raw material should be subject to only 5 per cent duty, but the product is already subjected to a 7.5 per cent duty. On the finished consumer detergent products there is a peak import duty of 10%.

Manufacturers say it would be quite strange to have a structure whereby the custom duty on a basic raw material is higher than the duty applicable on the finished products. This would lead to imports of finished goods, thereby impacting the viability of the detergent industry comprising more than 1000 manufacturers.

Nirma, which has a captive consumption of LAB for detergents, will have undue advantage to the extent of 20 per cent of the LAB cost , they say.

Thirdly, India is a net LAB exporting country. The total imported quantity in the last three years is only 5 per cent of the total domestic production. If EOU/advance licence imports are excluded, the imports for domestic consumption will be a mere 2 to 3 per cent of the domestic LAB production.

Besides, LAB exports are around 21 per cent of the total domestic production and imports are only one-fourth of exports.