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Govt rethink on powers to hike excise rates

Shaji Vikraman
Hema Ramakrishnan

"The decision to promulgate an Ordinance was undertaken for a specific purpose of raising duties on petrol and diesel. It was never our intention, even then, to tinker with duty rates on any other commodity."

NEW DELHI, March 12

THE Government's proposal to move a Bill in Parliament to amend the Central Excise Tariff Act 1985 enabling the Finance Ministry to fix any rate of excise duty using emergency powers is in for a review as the latter is not keen on pushing through the legislation.

The Ordinance extending the ambit of the emergency powers with the Finance Ministry to raise excise duty rates on commodities without any limit will lapse on April 6 this year.

According to official sources, the Finance Ministry is not keen on replacing the Ordinance, promulgated in January this year, with a Bill, as it has no intention of exercising its emergency powers in the near-term.

"The decision to promulgate an Ordinance was undertaken for a specific purpose of raising duties on petrol and diesel. It was never our intention, even then, to tinker with duty rates on any other commodity," said a senior official. He pointed out that the Ministry did not anticipate any problem if the Ordinance were allowed to lapse.

A final view will be taken by the Finance Minister, Mr Yashwant Sinha. The promulgation of the Ordinance gave the Finance Ministry the leeway to raise excise duties on petrol from 32 per cent to 90 per cent and on diesel from 16 per cent to 20 per cent. The exercise which yielded extra revenues of Rs 1,600 crore during fiscal 2001-02 was mainly aimed at lowering the Centre's fiscal deficit.

The notification specifying higher excise duty rates on these two products was rescinded in the 2002-03 Budget. The ad valorem duty on petrol now stands at 32 per cent, besides a surcharge of Rs 6 per litre imposed in the Budget. The duty on diesel has also been reduced to 16 per cent.

In case the Ordinance lapses, the Finance Ministry will have the powers only to double duty rates of any commodity having a positive excise duty rate.

Officials reckon that the ultimate objective of the rationalisation exercise on excise duty rates is to move towards the Central Value-Added Tax (Cenvat) of 16 per cent. Last year, the Government had reduced the three rates of special excise duty to a single rate of 16 per cent. According to the Finance Minister, this exercise had considerably reduced disputes and litigation and cost of compliance to the assessees.

With the manufacturing sector barely showing any signs of recovery, any move to raise excise duty rates using the emergency powers given to the Finance Ministry through an Ordinance would only turn out to be counter-productive, said officials.

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