The upcoming Union Budget (2016-17) provides an opportunity to put in place levers to strengthen the demand situation in the economy. This is important to impart momentum to the capital expenditure (capex) cycle and put GDP back on high growth trajectory. The following are some of the suggestions to the Ministry of Finance (MoF) from the leading industry bodies in the country.
IEEMA´s Pre-Budget Suggestions
Removal of import duty on CRGO electrical steel, withdrawal of time limit for availing of CENVAT credit, increase in abatement rate for MRP based excise duty, use of EDI system for clearance of rebate claim on exports and allowing full credit of CENVAT of excise duty / CVD paid on capital goods formed the top five budget demands of the Indian Electrical and Electronics Equipment Manufacturers´ Association (EEMA) as submitted to the Union Ministry of Finance (MoF).
Indian electrical equipment Industry involves manufacturing sector providing generation, transmission and distribution equipment primarily to power sector.
The industry´s production in 2014-15 is estimated at Rs.136,953 crore and its imports and exports are estimated at Rs.55,987 crore and `35419 crore respectively. It is 9.4 per cent of manufacturing industry in terms of value and represents 1.23 per cent of India´s GDP.
CRGO electrical steel: Cold Rolled Grain Oriented (CRGO) electrical steel is a critical raw material for manufacturing of transformers. CRGO is fully imported as it is not manufactured in India.
Currently, CRGO consumption in India is about 2.5 lakh MT/ annum. Consumption is estimated at 11.5 Lakh MT for entire 12th Plan period (2012-2017) and 13.5 Lacs MT for entire 13th Plan period (2017- 2022).
Keeping the country´s strategic needs in view, IEEMA has sought to make it domestically available and suggested nil basic customs duty on the product, till indigenous production is made available.
CENVAT Credit: As per sub rule 1 & 7 of Rule 4 of CENVAT Credit Rules, 2004, there is restriction on availing CENVAT Credit on inputs/input services within one year from the date of CENVAT document is proposed.
Commercial disputes, natural causes, strikes, loss of invoice etc., are reasons for abnormal delays in availing CENVAT in some cases. Sometimes the goods receipt documents are not finalised where there is possibility of crossing one year from document date.
In case of service tax, availing of CENVAT Credit is linked to payment to service provider and hence this provision restricts service receiver to keep the payment terms within one year only, even if service provider can allow more period. In this context, IEEMA recommends withdrawal of the above provision. Alternately, insert another provision to avail CENVAT after one year with intimation of justified reasons to the jurisdictional Assistant Commissioner, it suggested.
MRP Based Excise Duty: Abatement on electrical goods under chapter 8536 is 35 per cent at present. As the supply chain is long and some discount needs to be passed on to the buyers in view of stiff competition, the manufacturers of electrical switchgears are forced to bear the duty incidence. IEEMA Recommends abatement on electrical goods under chapter 8536 should be raised to 50 per cent. GST should address the issue of taxation incidence of MRP based products, suitably, it added.
Rebate Claim on Exports: For claiming excise rebate, the excise department asks for signed copy of Shipping Bills and ARE1 endorsed by the Customs Department. Very often, exporters face procedural delays in getting these documents; as a result, the exporter´s rebate claim is not filed immediately after sailing of vessel carrying the exported cargo.
So, IEEMA Recommended that since EDI system is implemented, the Excise Department should view the shipping bills online and clear the rebate claims without insisting on receipt of a physical signed copy of shipping bills and ARE 1. This will considerably reduce the transaction cost and shall give competitive edge to the exporters in the global markets, it said.
Excise Duty/ CVD paid on Capital Goods: As per Rule 4(2) of the CENVAT Credit Rules, 2004, maximum 50 per cent of CENVAT credit is allowed in respect of capital goods in the first year and the balance there after. As a result, a lot of time and effort is spent in terms of year of entry, amount of credit available in each year etc. This also leads to errors and consequently, long-drawn disputes/litigation with the department.
In this context, IEEMA says, ¨From Make in India perspective of ease of doing business and to reduce the cost of investment, full credit may be allowed in the first year itself, in line with the provisions on CENVAT credit in respect of inputs.¨
Excise on Agricultural Products: Products such as tractors, power driven pumps and specific goods intended to be used for the installation of cold storage, cold room or refrigerated vehicle for preservation, storage or transportation of agricultural produce are wholly or partially exempted from excise duty, vide Notification no. 12/2012-CE dtd. 17.3.12. However, motor starters (up to 7.5 kW / 10 HP or up to relay range of 14-23A); agricultural capacitors (up to 6 kVAr) and submersible flat cables (up to 6 sq. mm. cross section area), which are mainly used in the agriculture sector, attract an excise duty of 12 per cent. IEEMA suggests that the excise duty rate of the above products, be reduced to 6 per cent.
IPPAI´s Pre-Budget Suggestions
Extending the 10-year tax holiday to companies that start power generation by March 31, 2020, Minimum Alternate Tax (MAT) be reduced to 10 per cent, Reduction in Customs Duty on coking coal, restriction of Clean Energy Cess to only those power producers who do not adopt clean technologies/ modernize their plants, and Power transmission and distribution (T&D) sector be granted infrastructure industry status, are the five top pre-budget recommendations of the Independent Power Producers Association of India (IPPAI) in the light of the upcoming Union Budget 2016-17 as submitted to the Union Ministry of Finance.
- It is proposed to extend the 10-year tax holiday to companies that start power generation by March 31, 2020. Industry players have called for the extension of the sunset tax clause for power companies to include plants that provide power till March 2020 as opposed to 2017 earlier.
- It is strongly recommended that Minimum Alternate Tax (MAT) should be reduced to 10 per cent and the entire provision of MAT needs to be re-examined to incentivize investments in the power sector.
- Reduction in Customs Duty on Coking Coal - Import duty of coking coal had been increased to 2.5% in the Union Budget 2014-15. Negligible quantity of coking coal is available domestically, and thus the need is met mainly from imports. It is therefore recommended that the duty on coking coal be exempted as was the case prior to the Union Budget 2014-15.
- Clean Energy Cess - Levy of a clean energy cess on coal (INR 200/ton) û which increases the cost of thermal power leads to increase in power tariff for consumers across the spectrum in a scenario where most power consumed in the country is coal fired power. May we request that the aforesaid cess may be restricted to only those power producers who do not adopt clean technologies / modernize their plants. Power producers who have already adopted internationally recognized clean technologies, at considerable investment, should be incentivized and encouraged by way of being exempted from levy of any clean energy cess. Moreover, the cess is collected as National Clean Energy Fund (NCEF) and is disbursed for renewable energy based initiatives and power projects. Looking at the current scenario where the solar power tariffs are being at an all-time low (lowest being INR 4.63/unit), the aforesaid cess may kindly be abolished for power producers who use clean coal technologies.
- Power transmission & distribution (T&D) sector should be granted infrastructure industry status and related tax benefits available to other infrastructure sectors be given to this sector as well, thereby reducing the cost of power projects and the per-unit tariff which is ultimately borne by consumers.
- BS SRINIVASALU REDDY