Excise Changes Likely To Hurt Hll

Hindustan Lever Ltd is likely to be badly hit by the 35/97 amendment to the 88/88 central excise notification, bringing all product brands manufactured in the rural areas, except those belonging to specified rural boards, under the central excise net.

HLL, which has been sourcing one on its popular detergent brands -- Wheel -- from a rural co-operative society at cheap rates due to the duty exemption available, might have to squeeze its markup in the maximum retail price as a result of the amendment. According to officials in the central excise department, the co-operative society, named Krishna Co-operative & Industrial Production Society, had been selling the `Wheel detergent to HLL at much cheaper rates since it was exempted from excise duty levies.

 

However, Krishna Co-operative will no longer qualify for excise exemption since, under the new amendment, only those rural co-operative societies manufacturing products belonging to Khadi and Village Industries Commission or other specified rural industrial boards are to be exempted According to excise department officials, HLL might be adversely affected by the duty imposition on Krishna co-operative since its cost of sourcing from the co-operative will increase substantially. Hence, ruling out any immediate price hike in the said product, the increased excise burden will have to be absorbed by the multinational through a squeeze in its markup, the officials feel.

The co-operative, which has been manufacturing nearly Rs 17 crore worth of the particular detergent brand for HLL annually, might have to cough up Rs 2-3 crore as excise duty payments, point out revenue department officials. The Budget for 1996-97 had reduced the rate of excise duty on synthetic detergents from 25% to 18% of the manufacturing cost.

Under notification No 35/97, the government restricts the benefit of exemption to only those brands which fall in one of the four categories: a) A brand name or trade name of the manufacturer producing the specified excisable good; b) A brand name or trade name of the Khadi and Village Industries Commission; c) A brand name or trade name of the State Khadi and Village Industries Boards, and d) A brand name or trade name of the NSIC or the State Industries Development Corporations.