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BUDGET

Budget : Make in India boost to make processed foods affordable sought
Friday, 13 February, 2015, 08 : 00 AM [IST]
Ashwani Maindola, New Delhi
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With the presentation of this year’s Union Budget in Parliament just a few days away, the food processing industry in the country, which has been identified by the government as a priority sector under its Make in India initiative, will be looking for a serious push for many of its long-pending demands for reforms, apart from batting for making it Make in India-savvy.  
Under the initiative, the food processing industry has been identified by the government as one of the priority industries in order to reduce the high wastage of farm produce in the country. Besides, making processed food available to masses at reasonable rates remains a concern, as cumulative incidence of taxes along with increased transportation and distribution costs makes it expensive, according to some experts from industry bodies such as CII and FICCI.
Most of these experts want these two concerns - minimising wastage and keeping processed foods affordable - to be addressed in a detailed manner in the forthcoming Budget. They have put forth these suggestions to Union finance ministry through submission of memoranda and recommendations. Not only that, even AIFPA, the apex food processing industry body, is wanting the government to answer the two concerns by going in for a major Make in India boost for the sector in the Budget.

Make in India boost
D V Malhan, executive secretary, AIFPA (All India Food Processors Association) stated that there were certain points raised by MoFPI (ministry of food processing industries) during a presentation to prime minister Narendra Modi on GST, regulations for food park, supply chain and so on. “We would like to see the recommendations being manifested and become a reality,’’ he said.

He added that ever since this government had come to power, the movement at the higher level was speedy, but the key challenge would be implementation. “The intentions were good but how much time it takes to make it happen on ground, would be crucial,” he felt.

Excise duty
Meanwhile, according to CII (Confederation of Indian Industry), Central Government has given excise concessions on large number of food products and many items attract excise duty of 6%.  Even though excise duty on number of food products is 6%, option is there to pay 2% excise duty without availment of CENVAT credit.  CII wants this facility to be continued.
CII analyses that in the Budget 2014-15, additional duty of excise of 5% over and above 12% excise duty was levied on waters, including aerated waters, containing sugar, falling under tariff headings 2202 10 which has been justified on the grounds of human and fiscal health.  

The additional duty of 5% has been levied via 7th Schedule of the Finance Act 2005 which was initially introduced for pan masala and certain tobacco products. CII feels that aerated waters containing sugar do not carry the kind of direct health extrenalities and justify levying additional duty of excise.  On the contrary, these provide instant energy and hydration to the masses being a hygienic affordable drink especially in summer. Therefore additional duty of 5% needs to be withdrawn.

Currently on packaged drinking water, excise duty of 12% is levied. Packaged drinking water is a common man’s product and ensures the basic need of hygiene and hydration of consumers. This product should be put in the Nil excise duty category but this would break the CENVAT (Central Value-Added Tax) chain and therefore excise duty be brought down to 6%, according to CII.
It further recommends that though most food products attract 6% excise duty, there are few items attracting excise duty of 12%.  Such items are mainly those containing cocoa and instant coffee.  This discrimination needs to be removed by reducing excise duty on all food products having 12% rate to 6%.
Also, at present, biscuits sold at a RSP (retail sale price) not exceeding Rs 100 per kg are exempted from excise duty.  This exemption was granted in the year 2007 for the benefit of lower income strata of society.  Since 2007, the cost of inputs viz. raw materials, labour and transportation costs have increased significantly and therefore increase in RSP limit to Rs 125 per kg needs consideration.

The high rate of excise duty of 12% on packing materials used for processed food adds to the cost resulting in increase in prices. Therefore reduction of excise duty from 12% to 6% on packaging materials used in the food industry such as printed laminates (3920, 3921, 3922, 3923), pet jars (3923) and corrugated cartons (4819) needs consideration.

While most of the ready-to-serve beverages are subject to excise duty on MRP (maximum retail price) basis, iced tea falling under tariff heading 2101 20 90 is still assessed to 12% excise duty on transaction value.  This product may be included under section 4A of the Central Excise Act with suitable abatement, says CII’s recommendations.

Highlights of CII Recommendations
1.Continue with the existing exemptions either in the form of Nil excise duty or 2% excise duty without CENVAT credit.
2.Withdraw 5% additional duty of excise on waters containing sugar falling under tariff heading        2202 10.
3.Reduce excise duty from 12% to 6% on packaged drinking water and processed food having excise duty of 12%.
4.Increase RSP limit for biscuits from Rs 100 to Rs 125 per kg for the purpose of excise exemption.
5.Reduce excise duty from 12% to 6% on packing materials (printed laminates, pet jars and corrugated cartons) used by the food processing industry.
6.Include iced tea under Section 4A of the Central Excise Act for the purpose of valuation with abatement.

GDP growth
Meanwhile, with the advanced estimates of the third quarter of the current financial year showing GDP (gross domestic product) touching 7.4% mark, industry experts opine that India's growth prospects in 2014-15 look much better when compared to the situation a year ago. The GDP growth is expected to be around 5.5/5.6% in the current fiscal year.
A representative from FICCI (Federation of Indian Chambers of Commerce and Industry) states, “This is a welcome improvement from below 5.0% GDP growth witnessed in the previous two fiscal years – 4.5% in 2012-13 and 4.7% in 2013-14.”

Inflation
Also, inflation which had been a persistent worry, finally moved to a downward path. Latest numbers indicate inflationary pressure waning, with both wholesale and retail prices reporting softening. Also, the decline in prices has been broad-based with an evident fall noted in food and fuel segment prices, according to an analysis by FICCI.

Meanwhile, FICCI wants an extension of concessional rate of excise duty on capital goods.

In its official memorandum to the finance ministry, the industry body states that Vide Notification No. 12/2104 C.E. dated July 11, 2014, concessional rate of excise duty has been provided for process / packing machinery used in the manufacture of agricultural / apiary / horticultural / dairy / poultry / aquatic / marine produce and meat. While the food processing industry welcomes the above initiative which will help reduce the capital cost, a large portion of processed food industry which deals with basic essential packaged foods for common man such as staples / biscuits etc., are deprived of the benefit of concessional rate of excise duty on process / packing machinery.

Organised packaged food processing industry procures substantial process / packaging machinery and this discrimination within the same industry may not be warranted for. It recommended that concessional rate of excise duty on process / packing machinery be extended to the entire food processing industry instead of limiting the same to certain categories within the industry.
For agriculture, FICCI says that there is  need for exemption for services related to agricultural produce.

As per extant Service Tax laws, the agro-sector has been supported by keeping a bulk of services relating to agriculture or agricultural produce in the Negative List or in the List of Exempted Services. However, there are some services like Warehouse Management Services, Security Services, and Laboratory Testing Services,  which are essential to secure storage of agri-produce and determine quality of the agri-produce but these are subjected to Service Tax. It is recommended that all services provided for agricultural produce be exempted from Service Tax.

CII has, meanwhile, urged the government to reduce excise duty on packaging materials used in food processing industry from 12% to 6%.
GST & manufacturing push

A quick survey conducted by FICCI amongst members of its National Executive Committee shows that members of India Inc. are sensing an improvement in the economic situation at the ground level and this is feeding into their business and investment plans.

The survey says that the forthcoming Union Budget 2015-16 is being seen with a lot of expectations and CEOs expect the government to lay out more measures to boost economic growth.

Further, as part of the survey, CEOs were asked to list out their priorities / focus areas for the Union Budget. Responses show that the industry was looking at a clear focus on infrastructure development, skill development, promotion of MSMEs and healthcare & education sectors in the ensuing Budget.

Direct & indirect taxation
With regard to proposals related to taxation (both direct and indirect), an overwhelming majority feels that passage of the GST Bill in the Budget Session of Parliament should be a priority. Additionally, companies are looking at rationalisation of the Minimum Alternate Tax (MAT) rate, enhancement of the basic exemption limit for taxing individuals and more tax incentives for encouraging R&D and innovation.

According to CII, for the success of Make in India, Budget 2015-16 should avoid the temptation of raising excise duties. The body is looking at manufacturing boost that would allow industry participation in deliberations on GST.

“While we understand the imperative to garner fiscal resources, CII feels that demand is still fragile. Moreover, the manufacturing sector continues to be vulnerable. Under these circumstances, it would be prudent to allow excise duties to remain at current 12 per cent,” stressed Chandrajit Banerjee, director-general, CII.

GST implementation
CII, meanwhile, hopes that GST would be implemented at the earliest keeping in mind that it should subsume all taxes, be applicable to all products and services, and involve a reasonable Revenue Neutral Rate (RNR). “CII believes that industry should be allowed to participate in the Task Force on RNR and other significant issues such as Integrated GST, Place of Supply Rules and draft GST legislation,” stated Banerjee.        

“The general rate of excise duty has been raised and lowered in conjunction with prevalent economic conditions and stands at 12 per cent as of now. To provide a stimulus to the manufacturing sector, excise duties on automobiles, capital goods, consumer durables, and so on were lowered in February 2014, but this rebate expired in December, 2014. However, demand continues to be weak,” stated a CII representative, adding that “reduction in rates was desirable but may not be aligned to government’s fiscal situation.”

CII has also called for reduction in excise rates on various goods including active pharmaceutical ingredients (APIs), flyash products, and packaging materials for food processing industry.

Food Processing & Agro-Based Products - Current Scenario


Item

% Abatement on RSP

Excise Duty (%)

Customs Duty (%)

2013-14

2014-15

2013-14

2014-15

Biscuits with RSP not exceeding Rs 100 per Kg      (1905 31 00, 1905 90 20)

 

NIL

12/2012-27, 32, 37

NIL

12/2012-27, 32, 37

30

30

Texturised vegetable proteins (soyabari) (2106)

Sweetmeats, namkeens, bhujia, mixture, chabena, papad, jaljeera (2106 90)

Preparations of meat, fish, crustaceans, molluscs or other aquatic invertebrates (16)

35

6

Or

2 *

1/2011

6

Or

2 *

1/2011

30

30

Preparations for infant use, put up for retail sale     (1901 10)

Pasta (1902 excluding 1902 40 10,1902 40 90)

Preparations of vegetables, fruit, nuts or other parts of plants (20)

Coffee or tea pre-mixes (2101)

Sauces, ketchup and the like and preparations thereof (2103)

Soups and broths and preparations thereof (2104)

Ice-cream and other edible ice, whether or not containing cocoa (2105 00 00)

All kinds of food mixes, including instant food mixes (2106 90)

Ready to eat packaged food, milk containing edible nuts with sugar or other ingredients (2106 90 99)

Soya milk drinks, whether or not sweetened or flavoured (2202 90 10)

Fruit pulp or fruit juice based drinks (2202 90 20)

Flavoured milk of animal origin (2202 90 30)

Sugar confectionery (excluding white chocolate and bubble gum), not containing cocoa (1704 90)

30

6

12/2012-19

6

12/2012-19

30

30

Biscuits (1905 31 00)

 

30

6

6

30

12/2012-87

30

12/2012-87

Wafer biscuits (1905 32 19, 1905 32 90)

30

6

12/2012-28

6

12/2012-28

30

12/2012-87

30

12/2012-87

Pastries and cakes (1905 90 10)

 

6

6

30

30

Sugar confectionery containing cocoa (1806 90 20)

Chocolates & chocolate products (1806 90 10)

30

12

12

30

30

Malted food for other than infant use

(1901 90)

30

12

12

30

30

Wafers having chocolate (1905 32 11)

30

12

12

30

12/2012-87

30

12/2012-87

Instant coffee (2101 11 10, 2101 11 20)

30

12

12

30

30

Mineral Water (2201, 2202)

45

12

12

30

30

Water, including aerated waters, containing sugar 

(2202 10)

40

12

12+5

30

30

Machinery

 

 

 

 

 

22 specified machinery & equipment for installation of a cold storage, cold room or refrigerated vehicle, for the preservation, storage or transport of agricultural produce list 7 of excise (84 or any other chapter)

 

NIL

12/2012-232

NIL

12/2012-232

As applicable

As applicable

Packaging machinery and their parts                       

(8422 30 00, 8422 40 00, 8422 90 90)

 

 

10

12/2012-345

6

12/2012-241B

5

12/2012-401

5

12/2012-401

Machinery and their parts for preparation of meat, poultry, fruits, nuts or vegetables

(8438 50 00, 8438 60 00, 8438 90 90)

 

10

12/2012-345

6

12/2012-245B

7.5

7.5


*without CENVAT credit

(Source: CII)


 
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