Cement above Rs 190/bag to attract 12% duty

With cement companies refusing to cut prices, the government today unveiled a new excise regime that could result in a marginal reduction in the price of the construction raw material.

Under the new system, while the concessional duty of Rs 350 per tonne on cement sold below Rs 190 per bag would continue, the commodity sold above this threshold would attract an ad valorem duty of 12% on the retail selling price instead of the flat Rs 600 per tonne announced in Budget 2007.

After this 12% duty, the effective reduction in tax burden on cement sold above Rs 190 per bag would be up to Rs 7, Finance Minister P Chidambaram said during the debate on Finance Bill 2007-08 in the Lok Sabha today.

The FM, in his budget speech in February, had proposed that cement manufacturers pay Rs 350 per tonne as excise duty on cement (50 kg bags) sold at up to Rs 190 kg against Rs 400 earlier. On cement that had a higher MRP, the excise duty was raised to Rs 600 per tonne.

However, the move intended to contain inflation backfired, as the industry immediately hiked the prices contending that it could not absorb the additional duty.

Facing pressure of inflation exceeding 6%, the government had a series of meetings with the manufacturers in the last two months, but the companies refused to budge from their stand.

Against high demand from the booming construction and real estate sectors, the industry is operating at full capacity. To augment the supply, the government allowed duty free imports that resulted in 300 tonnes of cement coming from Pakistan.

Click here to read Budget report: Excise duty spells double trouble