ISSUES IN CEMENT INDUSTRY UNDER GST REGIME

[Dr. Sanjiv Agarwal]

The Cement industry, being a core sector industry, producing the basic construction material essential for any construction activity, be it infrastructure, hospitals, housing, community development projects etc., plays a lead role in country's economic development and hence deserves due support from the  Governments - central and states, for its healthy growth.

Proposed GST

Goods and Services Tax (GST) proposed from 1.4.2010 seeks to  ensure simple and unambiguous tax laws, would replace taxes such as Octroi, Central Sales Tax, Turnover Tax, Tax on Consumption or Sale of Electricity, Tax on Transport of Goods and Services and elimiante cascading effects of multiple layers of taxation system presently in vogue. It should aim at facilitating  seamless credit across the entire supply chain and across all states under a common tax base.

The taxes proposed to be subsumed in GST include -

(a) At the Central level:

      Excise Duty, Additional Excise Duty, Service Tax, CVD, SAD and Surcharge.

(b) At the State level:

      VAT, Entertainment Tax, Luxury Tax, Tax on Lottery, Entry Tax other than the local Government.

The following  taxes  are not proposed to be included in GST -

(i) At the Central level:

       (a) Specific cess,

       (b)  Excise duty on tobacco products (in addition to GST).

(ii) At the State level:

       (a) Items containing alcohol,

       (b) Entertainment tax (local Bodies),

       (c) Entry Tax for local bodies,

       (d) Electricity duty.

       (e) Mining royalty or cess

Taxes paid by Cement Industry

Cement Industry today faces /pays a large number of central, state and local taxes, besides statutory duties and contributions under various statutory provisions and labour/ industrial laws. Some of the state / local taxes are-

       (a) Value added tax

       (b) Turnover tax

       (c) Octroi duty

       (d) Electricity consumption tax

       (e) Entry tax

       (f) Mining royalty/ cess

Issues in Cement Industry vis- a-vis GST

It is expected that the  transition to GST would impact the cement  industry due to certain issues  that may need due consideration by the Central Government, and Empowered Committee and suitably addressed. In case of the cement industry, the following issues need special mention-

       (a) Value Added Tax - VAT provisions of different State's VAT Acts have different definitions for Capital Goods and varied number of installments in which credit may be availed.

Now when the GST regime is proposed, and being deliberated upon, it is felt that the levy should be uniform and the rules/  regulations must be such that the inter - state trade and business can flow unhindered. Therefore, there should be uniformity in definition/treatment for GST across all the  States.

       (b) Role of States -With proposed freedom to each State to legislate, levy and administer State GST (as announced by Finance Minister in Budget), there is a fear of it resulting in different treatment of what taxes may be subsumed in State GST.  If the State Governments have still got the authority to legislate GST levy, then the very purpose of formulating GST Scheme will be defeated. It should be ensured that the State Governments should not have the authority to add any levies or surcharge beyond GST.  There may be a common State GST for all States.  Cement should be brought into the category of "Declared Goods", which will ensure the same VAT throughout the country as in case of Steel, presently  at 4%.

       (c) Royalty/ Mining Cess - The list of taxes proposed to be subsumed in GST does not mention  of Royalty/ Mining Cess. As is known, the cement industry depends heavily on limestone. It is the basic raw material and according to industry standards,  about 1.5 tonnes of limestone is needed to produce 1 tonne of cement.  Limestone is obtained by excavating from the mines leased out by the State Governments for which royalty is paid.  There has been a  recent upward revision of the Royalty on Limestone by 40% by the Ministry of Mines (up to ₹ 65 per tonne ) all over the country which adds to  the production cost of cement substantially . Royalty should be therefore, considered as a tax to be included in GST structure to receive credit .

       (d) Fuel and Power - Electricity Duty is imposed all over the country, both on grid supply and captive power generation.  The cement industry is an energy intensive industry and all its  operations, from raw materials preparations till cement grinding, require huge consumption of electric power. In India, most of the cement units have their installed captive power generation facilities due to erratic grid power supplies.  Industry experience suggest that around 80- 90 units of electric power is needed to produce one tonne of cement. High fuel prices increase the cost of cement production. It is worth mentioning  that power and fuel cost comprises more than 50 percent of the total cost of cement production. The cost being high, it is desirable that electricity duty should also be considered as a tax/ duty to be merged with GST and eligible to receive credit against GST. 

       (e) Exemptions - Exemptions have been  given in Excise Duty, Sales Tax and other duties, for promoting industries in difficult areas like north eastern states, hill areas like Uttarakhand, Himachal Pradesh, J&K or Kutch region of Gujarat State after earthquake, with certain time limit for industrialization of the States.

Under the GST regime, these incentives/exemptions should not be extended beyond the time limits fixed, as otherwise this will result in cross subsidization of these areas from not only industrially forward states but also from marginal states of industry and entrepreneurs of UP, Bihar, MP, Rajasthan etc