'Our heart is in the right place'

Chidambaram for doing away with excise duty exemptions.

Finance Minister P Chidambaram today restored excise duty exemptions on candles, bricks and scented supari (betelnuts) sachets having maximum retail prices of up to 50 paise.

He exempted stents used in coronary ailments from 5 per cent Customs duty and 4 per cent countervailing duty, and also exempted manually operated rubber roller and copra drier machines from excise.

"It shows our heart is in the right place," said Chidambaram while making these announcements during a debate on the Finance Bill that was passed by the Lok Sabha today. Food supplements supplied free to weaker sections of society will continue to be exempted.

Before making these announcements, in deference to the sentiments of members of Parliament, the finance minister made it clear that he was in favour of doing away with exemptions.

"There are some people behind every exemption. So every time you touch it, there is a hue and cry. For instance, why should an anonymous donation be exempted! I can understand it in case of religious institutions...because of religious sentiments...but why in educational and charitable institutions...Each of these exemptions must be removed over a period of time. There is no justification for this," asserted Chidambaram.

He refused to restore excise duty exemption for umbrellas saying it was done on the recommendation of the ministry of small-scale industries as domestic umbrellas are facing tough competition from imported ones. He also declined to exempt cutting and polishing of marbles asserting "marbles are not a poor man's item".

The finance minister refused to extend the 8 per cent excise cut on man-made fibres to raw materials like PTA and DMT for manufacturing polyester yarns, saying they had huge tax implications.

He sought to rectify certain inverted duty structures by reducing Customs duty on polyester chips and carbon black feedstock from 12.5 to 10 per cent.

He clarified that the newly imposed excise duty on packaged software applied to software sold "off the shelf" and not to customised software. He also clarified that no excise duty on coir and coir products had been levied.

Chidambaram said it was a "misconception" that all soaps had been brought under taxation. SSI exemption is already available to soap manufacturers with turnovers of up to Rs 1 crore.

Laundry and carbolic soaps manufactured in rural areas by small-scale registered cooperative societies, khadi and village industries, and by self-help groups, continue to get exemption.

He justified the decision to remove tax exemptions for infrastructure companies under Section 23 (g) of the Income Tax Act, which provided for no taxes on capital gains, dividends and interest cost. As most infrastructure companies are already exempt, it would apply only on interest costs and the tax incidence would only be 0.2 to 0.3 per cent.

As for the withdrawal of exemptions for cooperatives under Section 80 (p) of the Act, Chidambaram said only 2,288 urban cooperatives, state cooperatives, central cooperatives and state cooperative agriculture rural development banks would now be liable for taxation. A properly audited income and expenditure statement would bring discipline in them and restore their health.