Allow vanaspati units to import CPO against 15% duty

Updated: Feb 21 2002, 05:30am hrs
As India has so far been unable to check the inflow of cheap vanaspati from Nepal, it is high time it should give some level playing field to the domestic industry in the forthcoming Budget. The vanaspati industry uses imported crude palm oil (CPO) as a major raw material in processing the final product. It should be allowed to import CPO against a minimum duty of 15 per cent to a maximum duty of 25 per cent under actual user conditions.

The benefit of importing CPO against reduced duty should be given only to the vanaspati industry. For all other purposes, the government can keep the import duty on CPO as high as the existing 75 per cent.

With a view to liberalising the edible oil sector, the government withdrew central excise on vanaspati and margarine in 1996-97. Now all edible oils and vanaspati are out of the excise net. But in the wake of general rationalisation of rates and tariff, several notifications had been rescinded. In the process, perhaps due to oversight, excise duty was imposed on by-products obtained during manufacturing of vanaspati and refined oils. Thus, an anomaly has arisen. This has imposed an extra burden on vanaspati units.

As per the Budget 2001-02, the central excise duty on by-products, like oxygen gas, spent nickel catalyst, soap stock, acid oil and gums, has been maintained at as high as 16 per cent. The imposition of excise duty on these items is totally unwarranted. The administrative work and transaction costs involved in collection of duty on these items is disproportionate to the revenue collection. These products have been hitherto exempted from excise duty for a number of years and hence the same exemption should be reinstated.

Vanaspati units should be allowed to use any proportion of edible oils, whether indigenous or imported, as per their choice and convenience. The mandatory provision for use of 25 per cent indigenous edible oil should be removed. Indigenously produced edible oils are costlier than the imported ones and sometimes the vanaspati units have to incur heavy transportation costs in availing these domestically produced oils .

If all these demands are met, then the domestic vanaspati units can be effective in meeting the challenges faced by the cheap imports of vanaspati from Nepal.

Alternatively, the industry had asked the government to place vanaspati in the negative list for imports against zero duty under the proposed Indo-Nepal Trade Treaty or to reinstate a value addition clause for use of 55 per cent local or Indian raw material in manufacture of vanaspati in Nepal. The industry has also demanded imposition of 35 per cent safeguard duty on vanaspati imported from Nepal under Rule 5 (2) of Safeguard Duty Rules.

Imports of vanaspati from Nepal have gone up very sharply from practically zero in 1996-97 to over two lakh tonne per annum at present, resulting in a setback to the domestic industry. A number of units have closed down and others are operating at low capacity. The industry is importing CPO at a high duty of 65 per cent. On the basis of the current import price and customs duty, the Indian producer has to absorb a duty of Rs 10,000 per tonne as against zero duty on the same CPO imported by its counterparts in Nepal. Thus, the Nepalese vanaspati has a cost competitive advantage of over Rs 130 per 15 kg tin.

(The writer is the Executive Director of Indian Vanaspati Producers Association)