Date:21/04/2006 URL: http://www.thehindubusinessline.com/2006/04/21/stories/2006042103020300.htm

Back Biscuit makers moot new duty structure to tackle price woes

K.R. Srivats

Seek lower VAT on low-price, high-nutrition category

What they want
Nil excise duty for biscuits with price levels lower than Rs 60 per kg.
8 per cent rate on biscuits above the price level of Rs 60 per kg.

New Delhi , April 20

Faced with spiralling input costs and low profit margins in the low-price and high-nutrition (LPHN) biscuits category, the Rs 4,500-crore domestic biscuit manufacturing industry has mooted a new excise duty structure to help tide over its pricing woes in this category. The LPHN category accounts for about 74 per cent of the biscuits consumed in the country.

The organised players in the industry have also stepped up their lobbying with the various State Finance Ministers to reduce the value added tax (VAT) rate on the LPHN category of biscuits from 12.5 per cent to 4 per cent.

"We have suggested to the Union Finance Minister that the excise duty on biscuits be categorised into two — one category for biscuits with a price of less than Rs 60 per kg and the other for biscuits above this price mark," Mr Amol S. Chauhan, Director, Parle Products Pvt Ltd and Vice-President, Biscuits Manufacturers' Association, told Business Line.

For biscuits with price levels lower than Rs 60 per kg, the organised players are making a case for an excise duty "nearer to that of bread" (now bread attracts `nil' rate of excise duty).

On biscuits above the price level of Rs 60 per kg, the domestic industry is not averse to an 8 per cent excise duty rate. At present, all biscuits attract an ad valorem excise duty of 8 per cent.

Mr Chauhan said that the organised players contribute Rs 150 crore to the exchequer towards excise duty (net amount paid after Cenvat credit). If the Centre agrees to the new excise duty structure, he said that the organised players in the industry would get a duty relief of about Rs 60 crore. He also said that a reduction in VAT rate of LPHN biscuits to 4 per cent would give a relief of about Rs 100 crore. The total annual VAT/sales tax paid by the organised players stood at about Rs 300 crore. The uniform floor rate for biscuits agreed to by all States under the aegis of the VAT panel stood at 12.5 per cent.

Price-sensitive

Biscuit manufacturers have been looking for tax relief on excise duty and VAT front on account of their inability to pass on the rising input costs to the price-sensitive consumers of LPHN biscuits. The LPHN category is sold in pack sizes of 50, 75, or 100 g with a maximum retail price (MRP) of Rs 2, Rs 3, Rs 4, Rs 5 and Rs 6 per pack of biscuits.

Constraints on industry

The Weights and Measures Act and the availability of coins have posed constraints on the domestic biscuits manufacturing industry as regards pack size and pricing. This legislation restricts the pack size to 50, 75 and 100 g.

Short supply of coins of 25 and 50 paise in various States also is a detrimental factor in undertaking a marginal correction in MRP of Rs 2, Rs 3, Rs 4 and Rs 6 biscuit packs. Moreover, the industry is apprehensive that any price increase would lead to flight of consumers to the unorganised sector.