Sl. No

Issue

Amendment required in

Justification/Alternative suggestions

A

Customs

1 a.

Reduction in customs duty on feedstock ethyl alcohol

Basic customs duty on Feedstock ethyl alcohol should be reduced to 0% as this will promote growth of downstream chemical industry products.

12/2012-Cus (Entry 96 and Entry No 178A)

Presently, India is net deficit of ethanol with estimated production around 245 crore liters against consumption of total 325 crore liters (in 2014-15). Launch of 5% Ethanol Blending Programme with the requirement of 105 crore liters of ethanol has raised the demand. This has further increased price of ethanol available to chemical industries. Due to the inadequate supplies of ethanol in the domestic market, Indian Chemical industry is forced to import ethanol. In the past five year, ethanol has been continuously imported and with the existing scenario, the chemical industry would be dependent on ethanol imports for its major requirement.

Recently, many of the policies have already been introduced in support of ethanol supplies going for blending like:

1. Fixing of ethanol delivered price at depots of Rs 48.5-49.5/lit

2. Removal of excise duty on ethanol supplies for blending in gasoline.

Taking support of all such policies, huge ethanol supplies are already being supplied to OMCs. As a consequence of this, ethanol availability has been very limited for the domestic ethanol based chemical industry. The chemical industry has ended up importing significant volumes of ethanol with huge forex outflow. This is disappointing to see that even with record high sugar production and ethanol in the country, domestic ethanol based chemical industry remain devoid of its key feedstock and is dependent on external market. It should be noted that local ethanol based chemical industry contributes to state revenues as well as in employment generation.

Also Products manufactured by Ethanol based chemical industry competes with products made from petro route where feedstock is derived from crude oil. Currently import duty on industrial ethanol is 5% whereas it is nil for crude oil and 2.5% for ethylene. Hence, there has to be a level playing field to make this industry competitive.

On application side, the downstream applications of ethanol are fuel blending, potable liquor, Pyridine, Mono Ethyl Glycol (MEG-further used for Polyester Fiber and Films, Packaging Films and Pet bottles etc). Ethyl Alcohol is also used for making Acetic Acid, Ethyl Acetate and Acetic Anhydride. Most of these products (Pyridine, Ethyl Acetate etc.) are exported out of country and are major building block for various agro chemicals and pharmaceuticals products. Removal of Duty will further boost the export of such products and will increase the forex revenue for the country.

In view of the above, we request you to reduce Import duty for Industrial Ethanol to 0% in line with duty on other competing feed stock to make ethanol based chemical industry competes with alternate petro route and in global market for its finished products.

1b.

Reduction in customs duty on feedstock methyl alcohol

Basic customs duty on Feedstock Methyl alcohol should be reduced to 0% as this will promote growth of downstream chemical industry products.

Methanol consumption in country is estimated at 1.8 - 2.0 million tones and is expected to reach 2.5 million tons by the end of the 12th five-year plan. The current production capacity in the country is 0.385 million tones/annum thereby creating a significant gap which would primarily be met through imports from Middle East and China.

On application side, the downstream products of methanol are Acetic Acid, Formaldehyde, Di Methyl Ether, Methyl Tertiary Butyl Ether, Gasoline etc. which are major basic building blocks for majority of chemicals in India. The removal in duty of methanol will surely boost the downstream industry and will reduce outgo of foreign exchange from country also the resultant lower cost of production will increase the profitability of end products exported out of country.

Thus for Methanol, it's clearly evident that demand outstrips supply.

There exists strong opportunity in investment in methanol capacity in the country, but these are limited by feedstock (naphtha and natural gas) availability. In such a scenario, the government can incentivize the development downstream industry by removing custom duty on methanol

1C.

Reduction of custom duty on acetic acid (HS code 29151200) from current 5.56% to NIL

Acetic acid is an important organic chemical and critical building block/raw material for various downstream industrial chemicals like ethyl acetate, acetic anhydride, poly vinyl acetate etc. India is net exporter of these downstream products.

Further, India is net importer of acetic acid as current domestic capacity is not sufficient to meet the demand. Current domestic demand of acetic acid is around 8.0 lakh ton p.a. while the production is only 1.5 lakh ton p.a. also out of this 1.5 lakh ton production, 50,000 ton is used for captive consumption thereby leaving only 1.0 lakh ton available for domestic market. This creates a gap of 6.5 lakh to 7.0 lakh ton p.a. which is met through imports.

There is only one producer of acetic acid and no new capacity planned in near future, thus compelling the downstream producers to depend on imports and same is expected to continue in near future.

On this regard in order to benefit the domestic manufacturer and keep them competitive in global market in downstream products, it is recommended to reduce the custom duty on acetic acid from current 5.56% to NIL.

2

Refund of customs duties to SEZ

Presently there is no procedure for refund of excess customs duty paid by an SEZ on its domestic sales. While customs department is of the view that this should be refunded by SEZ authorities (Read Ministry of Commerce) as there is no provision in the Customs Act 1962, SEZ authorities are of the view that there is no provision to refund customs duties in SEZ Act/Rules.

Section 27 of the Customs Act

Since duty is paid under the Customs code, in our view refund should also be sanctioned by customs authorities. GujaratHigh court has also taken view that customs duty refund should be sanctioned by Jurisdictional Commissioner of Customs.

Hence, until a procedure in provided in the SEZ Act/Rules, Customs should sanction such refund claims.

3

Request for dispensing off requirement of original Redemption/ EODC and DGFT attested "export statement" for Bond/BG cancellation by Customs

Customs Act

On receipt of Redemption/ EODC against Advance License/ DFIA/ EPCG License from the Regional office of DGFT, exporters have to apply for cancellation of Bond/ BG with the concerned office of Customs.

Though original Redemption/EODC marked to Customs directly by DGFT, even though customs officer asks us to submit all documents on the basis of which redemption/EODC is issued to us and then they verify again the documents.

We wish to emphasize this is an absolutely duplicity of work as Bond/BG should be cancelled on the basis of Redemption/EODC received by Customs directly from DGFT.

There should be no requirement from exporter to submit the same document again and requirement of DGFT attested export statement should also be dispensed off.

This will not only simplify the procedure of Bond/ BG cancellation but also reduce transaction cost.

B.

Excise

1.

Interest on delayed sanctioning of rebate/Rule 5 claims

Presently interest is not automatically paid to the assessees where there is a delay beyond 3 months under Section 11BB. Ends of justice is met only if the interest is sanctioned automatically wherever there is a delay in sanctioning the refunds beyond 90 days from the date of passing the refund order whether by way of cash refunds or adjustments.

Section 11BB

Section 11BB to be amended to provide that interest should be automatically computed in the refund sanctioning order and wherever the order does not sanction refund, reasons to be specified.

2

Appropriation under Section 11

Presently department officers sanction refund orders and adjust the same unilaterally against demands which are not confirmed through Adjudication orders. This is incorrect and such adjustment can be made only if the demands are confirmed and after the expiry of the period for filing appeal/stay application.

Section 11 of the Central Excise Act

Even though this issue has been clearly clarified by CBEC in Chapter 18 of the Manual, it is felt that the Section 11 should be amended to clearly state that only confirmed demands can be appropriated against the sanctioned refunds.

3

Unutilized balance of education cess and Secondary and Higher education cess

In the budget for the 2015-16, Education cess and SHE cess has been abolished with effect from 1 3 2015. Since service tax cess has been abolished with effect from 1 6 2015.

There is no clarification or circular on how to utilize the unused balance of cenvat Credit of such cesses.

Similarly there is no clarity on utilization of the unutilized Education cess and SHE cess on account of input services as on 31 5 2015.

Cenvat credit rules

CBEC should amend the rules for providing for utilization or refund of the outstanding unutilized balance in the cess account immediately.

4

Cenvat credit on Molasses

Presently rectified spirit (95% Ethyl alcohol) is being treated as non excisable and thereby denying Cenvat credit on molasses. Chemical industry manufactures a lot of final dutiable products using Rectified spirit falls under Central excise chapter 22072000 and is an intermediate product arising in the factory. Cenvat credit cannot be denied on inputs even if intermediate products are exempt from excise duty.

Cenvat credit rules

Central Excise tariff entry 22072000 is as under

"Ethyl Alcohol and other Spirits, denatured, of any strength"

The above entry includes rectified spirit as well. Vide office memorandum F No 17/01/2012-Cx.I a stand has been taken that Rectified spirit is non excisable which is incorrect. This should be withdrawn and suitable clarification issued to hold that cenvat credit is admissible on molasses which is used in manufacture of rectified spirit (Industrial alcohol) which in turn is used for manufacture of excisable finished products (chemicals).

C

Central Sales Tax

Sale from SEZ units to DTA units should be treated imports and to exempt from levy of CST

SEZ ACT 2005 and Rules 2006

While under the SEZ Act, such sales are treated as an import transaction for the purpose of levy of Customs duties, when it comes to the sales, such transactions are not treated as sale in the course of import. If such sales are treated as "Sale in the course of of import under Section 5(2) of the Central Sales tax Act, 1956", they are exempt from levy of CST. In that event, Special additional duty (SAD) of 4% is leviable on such transactions. Presently when such goods are cleared into domestic tariff area, there is an exemption from SAD but CST is payable. As your goodself is aware, CST is a cost to the buyers and no credit is available. However, SAD is cenvatable and hence the buyers who are manufacturers or dealers in excise, get the credit back.

The SEZ Act allows units in the zones to sell as much as they want to in DTA provided their overall foreign exchange earnings is more than the foreign exchange spent by them.

However, payment of CST on domestic inter-state sales makes the products costly and thereby uncompetitive in the markets.

Hence, in order to encourage more domestic sales and also to ensure that the cost of the finished products is reduced, it is requested that such sales from SEZ units to DTA units should be treated as sale in the course of import and exempt from levy of CST. An exemption at this point in time will help SEZ units in keeping the CST element out of their pricing consideration. Since supplies to SEZ from DTA areas is treated as Exports and or exempt from CST against Form I, sales from SEZ to DTA should be treated as sale in the course of import only.

D

Service tax

1

Service tax on regulatory/statutory fees paid to foreign Governments/Govt agency/departments

In the budget presented for the year 2015-16, the definition of the term "Government" has been defined to departments of central Government or State Government or Department of such Government, Union territory and its departments.

Chemical/Pharma companies may be required to pay statutory fees to the Foreign Governments/agencies for registration of their products etc. A change in the definition has resulted in such payments being taxable in the hands of the Indian companies on reverse charge basis. This will result in huge service tax outflow, blocking of working capital.

Definition of "Government" under Section 65B(26A) Notification No 25/2012-ST

Exemption from service tax should be provided on such payments made to any Foreign Government and agencies as they are statutory in nature.