Taxation Balance Between Steel Furnaces Sought

The Union steel ministry is working on a formula to maintain balance in taxation between induction furnace and electric arc furnace operating in the secondary steel sector.

This follows the proposal in the last Union budget to introduce collection of excise based on production capacity for induction furnace and rerollers as their production wereunder-reported.

However, industry analysts feel that this may lead to distortions in the prices of various grades of steel produced in the secondary sector as electric arc furnace would continue to pay excise duty at a rate of 15 per cent advalorem. In view of this incongruity, the ministry is working on a formula to maintain the balance between induction furnace and electric arc furnace, Union steel secretary J K Bagchi said.

 

We are trying to frame the legislation in such a way that no unit gets disturbed while another is benefited, Bagchi said, adding that in any case the production mix of the secondary sector is such that capacity based calculation may not work. Electric arc furnace units would have been at disadvantage if induction furnace and re-rollers have to pay fixed amount as the latter will stand to gain.

Industry sources feel, induction furnace units would have an advantage of Rs 600-2,000 per tonne over the electric arc furnace units if the former is subject to compounded rate of duty as against fixed 15 per cent advalorem for arc furnaces.

Therefore, the new law could hit the electric arc furnace units adversely which is contributing about 3.5 million tonnes of crude steel annually.

Since some of the items produced in the secondary sector are sold at different prices depending on different grades, taxing on the basis of production capacity may not provide a viable solution.

Like, stainless steel is sold at a price of about Rs 25,000 per tonne, however, the price can go up to Rs 45,000 per tonne depending upon the proportion of nickel used. The important thing is that it is produced by both induction and electric arc furnaces.

In case of excise duty on the basis of production capacity, units selling steel at the rate of Rs 45,000 per tonne will pay same amount of excise as by the one selling steel at rate of Rs 25,000 per tonne.

The industry have urged the steel ministry that both the induction furnace and the electric arc furnace should be subjected to excise duty on uniform basis so that they could compete with each other in a healthy manner.