No sops for N-E tobacco firms: Delhi HC to Centre

The Delhi High Court has issued notices to the Centre on a petition seeking that fiscal incentives granted to the tobacco industry in the North-East of the country be quashed.

While issuing notices to the Union of India, the central board of excise and customs, and the ministry of health and family welfare on a petition alleging hijacking of the government's tax-free policy of central excise exemptions in the North-East by big companies like Godfrey Philips India and Golden Tobacco Company, a division Bench headed by Justice M K Sharma fixed the next hearing for July 18.

According to the petition filed by consumer activist Bejon Mishra, in spite of the Finance Act 2003 and various court judgements favouring withdrawal of excise exemptions to the North-East industrial units retrospectively, the finance ministry notifications dated August 25, 2003 and January 21, 2004, had restored excise exemptions given to manufacturers of gutka, chewable tobacco products and pan masala.

Rajiv Bansal, appearing on behalf of the petitioner, said the indirect fillip given to the tobacco industry had led to a big rise in the number of tobacco users in the region, thus creating tremendous drain on medical resources.

"Because of the wrong policies, the country is losing an average Rs 300 crore receivable every year from manufacturers of tobacco-related products, on account of central excise revenues and other revenues like transport and sales tax exemption," he said.

The petitioner stated that notifications allowed a 50 per cent waiver on excise duties that were payable by units in the north-east.

This facility came with the rider that the entire duty waived would have to be invested for a period of 10 years in the plant and machinery of a manufacturing unit located in Arunachal Pradesh, Assam, Manipur, Mizoram, Meghalaya, Nagaland or Tripura.

And if the investments were withdrawn within the 10-year period, the duty would have to be made good by the companies to the government.

According to the petition, Godfrey Philips India and Golden Tobacco Company, which had set up their packaging units in the region while continuing to manufacture outside the territory, transport it to the region and out of it, had claimed excise and transport exemptions.

"This exemption has enabled tobacco companies to now sell their products at a much lower rate," it said.

According to Mishra, the modus operandi was exposed in the Comptroller and Auditor General's (CAG) report issued in March 2000 which stated that the government had given subsidies to the tune of Rs 1,500 crore to the tobacco industry in the last five years and a total of Rs 194 crore of Central excise was given as refund to cigarette manufacturers up to June 2000.

"The CAG report also showed that despite growth of the industry, the percentage share of the excise contribution of cigarettes, cigarillos and tobacco products on the Central government by way of taxes from tobacco and tobacco products has consistently fallen in the last eight years," the petition stated.

"These exemptions resulted in substantial revenue loss for the exchequer. The budgeted excise revenue from all tobacco products for 1999-2000 was around Rs 4,678 crore as compared to Rs 4,211 crore during 1998-99," it added.