Duty differential hits DTY makers

New Delhi, March 23 | Updated: Mar 24 2005, 05:30am hrs
A large number of integrated drawn synthetic texturised yarn (DTY) producers including IndoRama, Modern, Nakoda, Nova Petro, Sanghi, Parasrampuria and JBF are finding their product outpriced in the market by independent DTY producers, forcing them to consider substantial under-utilisation of capacities. Budget 2005-06 had introduced a duty differential between stand-alone and composite DTY producers, by cutting excise duty on yarn produced by the former to 8% from 16%. Excise duty on DTY manufactured by composite units, however, remains unchanged at 16%.

Integrated producers have their own partially oriented yarn (POY) capacities, while stand-alone units buy POY to make DTY. So, integrated units, who constitute 26% of the total DTY production of 8.24 lakh tonnes (worth Rs 7,600 crore at current prices), cannot use the Cenvat credit on tax suffered at the input stage, while stand-alone units can avail of the credit. As a result of the additional tax incidence, compsosite producers DTY is costlier to the spun yarn industry that consumes DTY by Rs 3 per kg, industry sources said.

The duty differential between competing units is discriminatory. It is in fact a disincentive for integration of production capacities aimed at economies of scale, said a senior official from a company that has integrated POY-DTY capacities.

As for the polyester segment of the synthetic textile industry, the Budget had also made inputs like polyester staple fibre (PSF) less competititive to equivalent products like acrylic staple fibre (ASF). The customs duty on acrylonitrile (ACN), the raw material for ASF was cut in the Budget to 5%, while correspoding inputs for polyster chain like PTA and DMT attract the peak rate of 15%, allowing domestic manufacturers Reliance, Mitsubishi and Indian Oil to realise higher prices. There is currently a 10% duty differenial between ACN and ASF, while PTA and PSF attract the same rate of customs duty.

India has a total POY capacity of 9.4 lakh tonnes per annum, which mostly goes into making of DTY. Reliance, which is the largest producer of POY, has integrated POY-DTY capacity of 300 tonnes per day at the RIL-JCT plant. But since this is quite lower than its stand-alone POY capacities, the company will benefit from the differential duty regime. Companies which uses substantial quantity of inhouse POY for DTY production have however been hit by the Budget decision.