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Report | February 2012

Extend service tax exemption to power projects

IEEMA appeals to government that exemptions that have been granted to other infrastructure projects be extended to generation and T&D.

India Electrical and Electronics Manufacturers’ Association (IEEMA) has appealed to the government to extend service tax exemption to all projects, including generation, transmission and distribution projects in line with other infrastructure projects like roads, airports, ports, railways, transport terminals, bridges, tunnels and dams.

Ramesh Chandak, President, IEEMA, has said that the domestic electrical equipment manufacturing industry suffers a substantial cost disadvantage of 14 per cent vis-à-vis imports while supplying to power projects due to many local taxes such as value added tax (VAT), entry tax/octroi, higher financing cost, nil or low customs duty project imports, lack of quality infrastructure, dependence on foreign sources for critical raw material and components, etc. He added that as per recommendations of the Arun Maira Committee, the government should provide a level-playing field to domestic manufacturers by making customs duty 10 per cent, countervailing duty (CVD) nil and special additional duty (SAD) 4 per cent on all categories of projects. Simultaneously deemed export benefits in the form of excise duty exemption/refund be provided to the domestic suppliers.

Similarly, all imports are exempted from levy of central sales tax (CST)/VAT, while all domestic supplies attract 2 per cent CST and 5 to 14.5 per cent VAT. Although state governments were advised to exempt supplies to mega power projects from sales tax and other local levies and not to consider such levies for evaluation of bids many sates are not accepting this de-loading principle and evaluate bids taking these levies into account nor any exemption is provided by any of the states from such levies. It has been recommended that either there should be mandatory exemption of CST/VAT for mega/ultra mega power projects or these levies should be excluded for the purpose of bid evaluation.

Cold-rolled grain-oriented (CRGO) electrical steel is a critical raw material for manufacturing of transformers, which is fully imported as it is not manufactured in India. Currently India consumes about 2.5 lakh million tonne (MT) per annum of CRGO electrical steel and with the growth in demand of transformation capacity the consumption is estimated to be 11.5 lakh MT and 13.5 lakh MT respectively during the 12th and 13th Plan period. Although SAD has been removed on CRGO, its imports should be allowed at NIL duty, till indigenous production is made available.

Chandak also mentioned that domestic suppliers are suffering a huge financial burden due to demand of interest on differential excise duty in such cases where there is a determination of cost of raw materials on the basis of a price variation formula. In these supplies, an agreed contractual price is charged and appropriate excise duty is paid on the day of clearance. There is a delay in publishing of applicable indices, for reasons beyond the control of the suppliers.

As soon as the indices are known, a supplementary invoice is raised by suppliers and differential excise duty is promptly deposited. However, the excise authorities treat this as delayed payment. The organisation suggested that an amendment in Sub-Rule 4 of Rule 7 of Central Excise Rules 2002 is required to replace the wordings ‘the month for which the duty is determined’ by ‘the month in which the duty is determined’ in order to remove applicability of interest in these cases.

There is a denial of excise duty exemption on steel and cement supplies to mega/ultra mega power projects as the corresponding exemption notification of customs duty has been made applicable only to tariff heading 9801, which does not cover steel and cement. IEEMA has suggested that as the notification no. 6/2006 provides excise duty exemption for “any chapter” the corresponding customs notification no. 21/2002 Customs should also read as “any chapter”.

The domestic electrical industry is facing some instances of inverted duties or anomalies in some products like insulators, where the customs duty rate on the raw materials are either higher or equal to that of finished products. Lowering of the duty on the raw materials and intermediaries in order to remove these duty anomalies was also recommended. It has also advocated that the facility of exempting submission of ‘C’ forms to certain class of dealers from specified sales may be restored back to the respective state governments as was the case before the amendment in 2002.

There is an exemption of CST for supplies of manufactured goods to SEZs against Form ‘I’. However, sub-contractors/vendors do not get this benefit while directly supplying to SEZs. This facility, however, is available to them against physical exports. The organisation recommended an amendment to include provision to issue Form ‘I’ to both contractors and sub-contractors, so that sub-contractors too can benefit from this exemption.
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