The Hindu Business Line : Intense lobbying to review excise duty on edible oils

INTENSE lobbying is on by edible oil manufacturers to convince the Finance Minister, Mr Jaswant Singh, to review the eight per cent excise duty imposed on branded packaged edible oils.

"Quite a few manufacturers, whose brands are popular in South India, have flown to New Delhi to lobby for a review. We are not sure if they have got an appointment but they are determined to explain their point of view to the Finance Minister," trade sources told Business Line.

The lobbying follows a representation from the Central Organisation for Oil Industry and Trade (COOIT), the apex body of the edible oil sector, to Mr Singh last week. In the representation, the COOIT President, Mr D.P. Khandelia, said: "Edible oil, being an essential item of mass consumption, deserves to be treated like other goods such as rice, sugar, milled pulses that have not been brought under excise net."

The edible oil trade, which resumed transactions from Monday after coming to a standstill the whole of last week after the Budget announcement , is still in a bad shape, according to trade sources.

"The situation is very bad in places like Tamil Nadu, where there is extra burden of multi-point tax and resale tax. Business is down drastically," the sources said.

A retail trader said prices of packaged edible oils had increased by Rs 4-5 a kg after the excise duty announcement. On the other hand, drought had also impacted prices.

The trader said the price of palm oil, for example, had increased to Rs 379 per 10 kg from Rs 374 a week ago on account of the excise duty. Prices of sunflower, soyabean, groundnut and sesame oils, too, had increased.

According to the industry estimates, edible oil production during the current season (Novemer 2002-October 2003) is estimated at 161.3 lakh tonnes (lt) against 202.4 lt last season.

In view of drought as well as the imposition of excise duty, edible oil prices have increased between 15 per cent for sunflower oil and 87 per cent for rapeseed/mustard oil during the last 12 months. Groundnut oil, as on March 7, was quoted at Rs 56,500 per tonne as against Rs 39,264 during the same period last year. Similarly, rapeseed/mustard was quoted at Rs 41,000 (Rs 21,845), sunflower at Rs 42,500 (Rs 36,873) and sesame Rs 48,000 (Rs 35,132). Coconut oil, too, has seen sharp rise during the period.

"The trade is upset because paper work will increase due to the duty. Let the Government collect whatever it wants but the method can differ," said another trader.

According to Mr Khandelia, the Government, while announcing the duty, has had a misconception that the industry could avail itself of Cenvat credit. "In fact, the extent of Cenvat credit is very marginal as this applies to packaging material and consumables, which will work out to only 25-30 paise per litre. This is very insignificant compared to the duty of Rs 3-5 per litre," he said.

Trade sources said the Government could collect the duty from refiners instead of proposing to tax the packaging industry.

The move is also seen as retrograde since it would discourage packaging of edible oils, according to the sources.

"The Edible Oil Packaging Act was to come into effect from January this year. Even as the State Governments are groping in the dark on how to implement it, this excise duty has come as a shock," the sources said.

According to them, the Government order on the duty is ambiguous.

"The order says the duty will apply to branded packaged edible oils. Already, a section of the trade has started taking advantage of this ambiguity," they said.

A couple of leading manufacturers have stopped branding now and are selling their goods as "refined vegetable oil packed by X company."

"In fact, it is a 40:60 situation wherein edible oil manufacturers are selling only 40 per cent of their produce in branded form," the sources said.

The industry is of the view that the Government's approach should be pragmatic. "Already, the sector is contributing Rs 5,000 crore in the form of customs duty. If the Governent wants to raise additional resources, it can resort to levying special additional duty or a higher customs duty. This will also protect the growers," the sources say.

The country imports nearly 40 lakh tonnes of edible oil to meet the rising domestic demand and the Government imposes 65 per cent duty on crude oils, while levying nearly 92.5 per cent on refined oils. However, it imposes only 45 per cent duty on soyabean oil due to the commitments it has made to the World Trade Organisation (WTO).

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