Budget Expectations: Mr. Y.M. Deosthalee, CFO, L&T Limited - Views on News from Equitymaster

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  • Feb 25, 2003 - Budget Expectations: Mr. Y.M. Deosthalee, CFO, L&T Limited

Budget Expectations: Mr. Y.M. Deosthalee, CFO, L&T Limited

Feb 25, 2003

  • Cenvat Credit on Explosives used in Captive Mines
    Explosives used by Cement Industry in the captive mines for blasting limestone (raw material for cement) were held to be eligible inputs for the purpose of claiming Cenvat credit by the Supreme Court in its judgement in case of Jaypee Rewa Cement. Accordingly, presently Cenvat credit is being claimed by cement manufacturers on such explosives.

    The recent Circular dated 8/5/2002 from CBEC has clarified that if the inputs are used outside the factory, Cenvat credit on the same will not be available. With this circular the field formations have started objecting to claiming of credit on explosives and have started issuing show cause notices for the recovery of the same. It will be appreciated that the definition of inputs under Cenvat Credit Rules, 2002 is nothing but a consolidation of earlier definitions. It may be pointed out that under the erstwhile Rule 57 (b)(iv), the condition of “use within the factory” was applicable only to electricity or steam generated in the factory. If the present Cenvat Credit Rules, 2002 are claimed to be a further liberalisation of the earlier Cenvat Credit Rules, then it is inconsistent that scope of the inputs eligible for Cenvat is being restricted by the circular dated 8-5-2002 by giving an interpretation that inputs should necessarily be used only within the factory. Further the said circular also is contrary to the law laid down by the Supreme Court in case of Jaypee Rewa Cement.

    The government should re-consider Circular dated 8/5/2002 and issue proper clarification allowing Modvat credit on explosives used in captive limestone mines is required to be issued.

  • Cenvat Credit on Capital Goods used in Mines:
    In cement and other similar types of industries where mining is the first stage of manufacturing process, Cenvat is being denied on capital goods used in such mines. For example, Cenvat on conveyors, crushers etc. installed in the mines is being denied on the grounds that the mines are not inside the factory premises. Similarly, credit on earth moving machinery like excavators, dumpers, which is extensively used in the mining operations, is not available since these machines are used in the mines. These equipment & machinery require heavy capital investment and without these machinery it is impossible to undertake manufacturing activities. It is therefore illogical to deny Cenvat credit on these goods.

    The government may like to suitably amend Rule 2(b) of Cenvat Credit Rules, 2002 so as to extend Capital Goods Cenvat credit on all the equipments used in the mines.

  • Reduction in Import Duty on non-coking coal to 15% or less.
    For greater productivity of cement plants and better quality of cement, imported non-coking coal with low ash content is necessary. The effective rate of import duty on non-coking coal, comprising of basic duty, additional surcharge and special duty, has risen sharply from 21.5%, effective April 1999 to 30%, effective April 2001.

    While the surcharge of coal has been abolished in 2001, the high rate of basic duty of 25% levied in year 2000 still continues. At the same time, the imported non-coking coal prices have increased while the rupee has depreciated against major international currencies. Owing to this combined impact, the high excise duty for coal has a very adverse impact on cost of production of cement.

    The government should reduce import duty on non coking coal on par with duty on coking coal will go a long way in enhancing competitiveness of the cement industry.

  • Boost to Cement and Clinker Exports.
    Cement, which has been identified as an extreme focus industry by the Government, provides great opportunities for export and thereby earning the country valuable foreign exchange. It has been estimated that India can export upto 8-10 million tonnes of cement and clinker every year to the international market, thereby earning the country foreign exchange worth US $250 million.

    The government should promote cement and clinker exports by offering export concessions to the Industry. Such concessions for cement and clinker being exported may take the form of compensation for certain taxes / levies being paid by the manufacturers in the form Royalties on Coal, Limestone and gypsum; Tax on Power Tariff and Sales Tax on consumables and spares used in cement production (aggregating to about Rs.140 per tonne).

  • Impact of Heavy burden of taxes / levies on Cement
    Cement is one of the highly taxed commodities in India and the average burden is a little more than 30% of the average selling price of cement. A gradual reduction in levies / taxation atleast to 50% of the current levels would greatly help reduce costs of road construction, private housing etc. and also increase the demand for cement substantially.

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