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Harish Damodaran

New Delhi , March 20

A PROPOSAL has been mooted to exempt mills from payment of 7.5 per cent customs duty on raw sugar imports under the advance licence (AL) scheme.

The proposal, currently doing the rounds of the market, comes even as a senior official at the Ministry of Consumer Affairs, Food and Public Distribution told Business Line: "We have so far not received any representation on these lines."

There is apparently a divergence of opinion even within the industry on the issue.

While one section, particularly those that have imported huge quantities of raw sugar, wants to be freed from future export obligations, the other believes that there is no need to push through the proposal at this stage.

According to the latter, since there is a 36-month window from the date of undertaking imports for discharging the export obligation, "we do not have to press the panic button right now".

The one point on which there is complete unanimity is that any concession with regard to export obligation should be made available on a retrospective basis, given the sheer magnitude of imports already undertaken.

During the 2003-04 season (October-September), duty-free raw sugar imports against AL totalled 5.53 lakh tonnes, while in the current season, an additional 13.21 lakh tonnes have already arrived so far.

At an average landed price of $250 per tonne, the cumulative value of physical imports since the previous season comes to about $475 million.

The aggregate duty saved amount on these - the difference between the normal Customs duty of 60 per cent and the nil duty payable against AL imports - would be in the region of Rs 1,250 crore.

"The bulk of imports have already taken place. We don't expect arrivals to exceed 6-7 lakh tonnes in the remaining months of the season. And with the likely recovery in sugar output, the country's raw sugar import requirement would be just about 10 lakh tonnes in 2005-06," industry sources said.

Under the AL scheme, mills have to export one tonne of white sugar for every 1.05 tonnes of raw sugar they import, within 36 months of the licence being issued.

Considering that the average realisation on export of white sugar would not be more than Rs 11 per kg now, against Rs 16-17 per kg being obtained on domestic sales, mills are faced with the prospect of providing for contingent liability on potential losses to be incurred on future exports.

The proposed 7.5 per cent Customs duty payable in order to be freed from future export obligations against AL would work out to around Rs 82.5 per quintal on an average raw sugar import price of Rs 11 per kg.

This is almost equivalent to the existing Rs 85 per quintal duty that mills pay on domestically manufactured sugar, inclusive of basic excise of Rs 34, additional excise of Rs 37, and sugar development cess of Rs 14 per quintal.

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