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Kelkar panel moots excise on processed foods sector — Trade takes up cudgels against recommendations

Harish Damodaran
Hema Ramakrishnan

NEW DELHI, Oct. 31

THE 2003-04 Union Budget may see an end to the excise exemption currently given to a host of dairy products, edible oils (including vanaspati), spices, coffee, infant foods, processed foods and vegetables and meat preparations.

The Task Force on Indirect Taxes, headed by Dr Vijay Kelkar, has recommended that all food products now enjoying duty exemption be levied a four per cent excise (without Modvat credit set-off) or eight per cent (with credit) from the coming fiscal itself. Further, the duty may be raised to a uniform eight per cent level (without any set-off) with effect from 2004-05.

The Task Force's report — which is expected to form a major input in the 2003-04 Budget's formulation — could well kickstart the exercise of bringing in the processed food industry under the central excise net.

The Task Force has mooted an end to the excise exemption given now to most dairy products (including butter, cheese, milk powder, dairy whitener, flavoured milk and condensed milk), edible oils (including vanaspati and margarine), spices, coffee, sauces, ketchups, seasonings, soups, etc.

``There is no basis for levying excise on any processed food product, given the Government's own stated policy to promote value addition in agriculture, enabling farmers to obtain a better price for their primary produce. We will certainly take up the matter with the Finance Ministry'', the Managing Director of Gujarat Cooperative Milk Marketing Federation (GCMMF or Amul), Mr B.M. Vyas, told Business Line.

Mr Vyas said the food processing industry was already suffering due to the imposition of turnover and entry tax by several State Governments. ``Such taxes militate against the development of an organised food industry and will only end up encouraging production in the organised sector at the expense of hygiene and consumer health'', he added.

The move to bring food products under the excise net will also affect multinationals such as Nestle, Hindustan Lever and Pepsi, considering the recommendation to do away with the excise exemption on infant food preparations, namkeens, bhujias, mixtures, fruit juice-based drinks and sweetmeats (mithais), besides sauces, ketchups, seasonings, jams, jellies and other preparations of fruits, vegetables and nuts. A similar treatment has been sought for meat and fish preparations.

The Task Force's report will also leave a bitter taste for the beleaguered sugar industry. It has suggested that the existing specific rate of excise of Rs 71 per quintal on sugar (sold in the open market) be replaced by a flat ad valorem rate of eight per cent from 2003-04. At current average ex-factory realisations of around Rs 1,200 per quintal, an eight per cent duty would effectively raise the excise burden on mills by roughly Rs 25 per quintal.

Adding to the industry's woes is the fact that the Task Force has mooted retaining the specific duty of Rs 500 per tonne on molasses. ``Currently, mollasses prices range from Rs 700 to Rs 1,600 per tonne, which means the Rs 500 per tonne specific duty translates into an ad valorem rate of as high as 40-80 per cent. There is no justification in moving over to an ad valorem duty for sugar, while not doing so for molasses. We would want it precisely the other way,'' Mr S.L. Jain, Director-General, Indian Sugar Mills Association (ISMA) said.

In the case of tea (manufactured), too, the report has recommended replacement of the Re 1 per kg specific duty with an eight per cent ad valorem levy. It has, however, suggested the duty exemption given on green tea be continued.

It is only the branded atta industry and breadmakers who stand unaffected by the Task Force's report. The report has said the excise exemption ``can be retained'' for products of the milling industry (including flours) and bread. The same has been recommended for dried (but not prepared) vegetables, including potatoes, onions, mushrooms, peas and beans.

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