A day after Punjab government gave relief to Mandi-Gobindgarh based iron and steel industry by slashing VAT, industry representatives on Tuesday objected to computation of VAT on the basis of energy consumption, saying this move will hit the industry hard.

However, Punjab Excise and Taxation department asserted that linking VAT calculation with electricity consumption would bring transparency in tax calculation and would also keep a check on tax evasion by unscrupulous steel makers.

“Considering energy consumed for producing iron and steel items to work out VAT is a not feasible as well as justified criteria....it will lead to closure of factories,” Mandi Gobindgarh Induction Furnace Association President Mohinder Gupta said today.

Asking the state government to rollback this “anti-industry” proposal, Gupta said if the state government implements this new proposal, then the industry will be forced to shut down units.

Punjab Excise and taxation department has proposed to link VAT computation with energy consumption used for making iron and steel items.

The department has proposed to fix energy consumption of 750 units for an induction furnace facility and 250 units for a rolling mill to produce 1 tonne each of iron and steel items, respectively.

“It (linking VAT rate with electricity consumption) will bring transparency and help in checking VAT evasion,” Punjab Excise and Taxation Commissioner Anurag Verma said today.

However, industry insisted that at least 850 to 900 units of electricity are consumed by an induction furnace for producing one MT of ingots. “It is not possible to produce 1 tonne of items with 750 units of energy. We require at least 850-00 units,” said Gupta.

Industry feared that if new system of VAT calculation was implemented, then it could involve heavy outflow of taxes into state’s kitty.

Gupta also feigned ignorance the new proposal floated by Punjab Excise and Taxation department. “It was never discussed with the industry,” he claimed.

Currently, the VAT is calculated on the basis of declaration made by the industry with regard to production.

In an effort to revive secondary steel in Mandi Gobindgarh, Punjab Cabinet yesterday brought down VAT from 4.50 per cent(plus 10 per cent surcharge) to 2 per cent (plus 10 per cent surcharge) on iron and steel items. It also decided to reduce advance tax on finished goods to 2.50 per cent. This move was expected to cost Rs 200 crore to state exchequer.

Because of high rate of VAT and costlier power, as many as 155 units till last month, have been closed in Mandi-Gobindgarh which forced the state government to draft a revival plan for the steel industry.

There are over 200 induction furnaces in Mandi-Gobindgarh which produce construction steel items.

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