2017-07-14 09:18:12

Over 5,000 small copper smelters face closure on high import duty

 The accumulative import duty levy on raw material works out to 22.85% on copper and brass its a mere 12.3% levy on finished products

Dilip Kumar Jha / Mumbai Nov 01, 2012, 14:53 IST

Business Standard

Around 5000 small and medium copper smelters producing largely brass artifacts and utensils are facing the threat of closure due to a massive differential in import duty and discouraging government policies.

In an unfortunate case of illogical difference, the accumulative import duty levy on raw material works out to 22.85% (12.3% counterveiling duty + 4% of special additional duty (SAD) and host of others) on copper and brass scrap against a mere 12.3% levy on finished products.

“The government has signed Free Trade Agreement (FTA) with many neighbouring countries and has allowed import of finished products under preferential duty benefit. With this, the domestic small scale industry (SSI) and micro units with smelting capacity of upto 100 tonnes per month have been suffering due to higher cost of production through imported raw material,” said Rohit Shah, an industry veteran and past president of Bombay Metal Exchange (BME).

Import of finished products through neighbouring countries including Sri Lanka, Myanmar, Bangladesh, Vietnam and a host of others through which India has signed FTA, works out to cheaper than the import of raw materials directly to India and pay high duty.

Non ferrous metals are usually characterized as high value and high investment products providing large scale employment. But, because of raw material becoming costlier than finished product, operating domestic SSI and micro units have become unviable. Looking at the growing demand of India-make artifacts, the government should bring down import duty lower on raw materials than finished products.

A majority of processing units are borrowing working capital from banks and financial institutions at a very high interest rate due to a massive volatility in non ferrous metals prices. Since, scrap price moves in tandem with non ferrous metals, the cost of raw material keep fluctuating.
In the last three months, the average operating capacity of these units has declined from 40% to 25% on gradual fall in import of copper scrap.

Another important issue, secondary copper smelters are facing is the refund of central value added tax (CENVAT). Being little room of value addition in the products like copper which remains 100% copper even after use, is impossible. The existing norms say that smelters can claim refund of CENVAT at the time of supply of finished products out of the factory. Ideally, CENVAT is paid while on purchase of raw materials.
Meanwhile, registered dealers / traders are allowed to claim refund of the 4% SAD amount against the sale of goods with the collection of state or central sales tax. In contrast, manufacturing units are allowed to take the credit of the same payment as CENVAT which is allowed to get debited while clearing finished goods from factory, said Surendra Mardia, Director of BME.

In a critical situation, the differential duty between raw material and finished products to the tune of around Rs 800 crore is lying with the government unutilized which smelters cannot claim for refund due to lower room value addition in melting of copper scrap. While borrowing, however, they pay interest to banks.

This not only blocks our working capital but also increases our interest outgo accumulatively which the government must allow us to get a refund, Mardia added.

The price of imported scrap varies with copper content in scrap.