"We are optimistic that an excise duty cut will be effected this time," Cement Manufacturers' Association president AL Kapoor told The Financial Express.

Cement has been among the highest taxed commodity with the average levies adding to Rs 800 per tonne, which is almost 30 per cent of the average selling price. The commodity attracts an excise duty of Rs 350 per tonne and the industry has been making representations for a rationalisation of the duty structure.

Although excise duty reliefs will help Indian cement makers improvetheir balance sheets in a depressed market scenario, analysts are sceptical on whether the move will spark off increased buying. "Cement as such is not price elastic, and reduction of duty will not directly raise demand," said a cement analyst.

An excise duty cut of Rs 50 per bag will translate into a modest price reduction of Rs 2.50 per bag at the retail level, provided cement companies choose to pass on the relief. However, analysts point out, that given the fluctuating nature of cement prices, customers may be given a raw deal by dealers and stockists.

Cement companies, however, will stand gain to a very large extent as an excise duty cut will mean higher profit before taxes. For industry leaders ACC and Larsen & Toubro, even an excise cut of Rs 25 per tonne will translate into a direct gain of Rs 20-25 crore at the PBT level.

While advocating continuation of the specific rate of excise duty, CMA has said that the structure has done away with excise litigations and brought about greater consistencyand simplicity in tax administration.

Besides, cement makers have also made a strong pitch for removal of the 5 per cent restriction on Modvat credit on clinker movement from mother units to its own plants or grinding units, given the changing marketing dynamics where companies are gradually moving towards split-locational units.

Under a split location structure, grinding units are located close to the consumption centres, and the 95 per cent restriction on Modvat claim in effect increase the excise duty on cement in the second stage process by 5 per cent. As a result, cement producers with integrated cement units stand to gain vis-a-vis split locational makers of cement. "This Modvat credit anomaly should to be sorted out by removing the 5 per cent restriction on Modvat credit on clinker movement from mother unit to its own plant or grinding unit," says Kapoor.

The Cement Manufacturers' Association, the apex body of cement producers, has also sought reduction in excise duty for bulk cement, whichcurrently attracts a levy of Rs 350 per tonne.

Modvat credit on packaging material for cement was extended in 1995-96 and as a countervailing measure the excise duty was increased from Rs 330 to Rs 350 per tonne thereby off-setting the concession granted on the packaging material. But problems cropped up as bulk cement transported to terminals and packed there was denied Modvat credit on the packaging material. The industry has now sought the finance ministry's nod to revert to the original duty structure.

The industry is unanimous that rationalisation of the duty structure will go a long way in boosting demand growth. "A gradual reduction in levies/taxation at least to less than half in the Ninth Plan period will help reduce costs of road construction, private housing etc. and also increase the demand for cement," CMA has said.