2/7/05 - Oilmandi - THE Finance Ministry's decision on January 31 not toreduce the tariff values on imported edible oils, contrary to generalexpectations, seems to have been prompted mainly by revenueconsiderations.An indication of this is that the Central Board of Excise and Customs(CBEC) had, on January 13, actually approved a reduction in the tariffvalues for the entire palm oil complex.

The tariff value (the base price on which the revenue authorities computeimport duty) on crude palm oil was to come down from $454 to $407 pertonne; the same was proposed to be reduced from $489 to $414 per tonne forRBD (refined, bleached, de-odourised) palm oil; from $471 to $411 pertonne for `others palm oil'; from $479 to $418 per tonne for crudepalmolein; from $497 to $426 per tonne for RBD palmolein; and from $488 to$422 per tonne for `others-palmolein'.

In addition, the CBEC had approved, for the first time, the introductionof a tariff value of $600 per tonne on refined soyabean oil and`others-soyabean oil', even while the same on crude soyabean oil was to beretained at $565 per tonne. Besides, it recommended a lowering in thetariff value on brass scrap (all grades) from $1,576 to $1,461 per tonne.

But despite these proposals obtaining CBEC's formal clearance on January13, the Revenue Department's notification, issued on January 31, left thetariff values on all edible oils unchanged. Only in the case of brassscrap did the proposed lowering to $1,461 per tonne materialise.

It is not clear what led to the Finance Ministry to eventually go back onthe tariff value cuts. The primary consideration appears to have been therevenue implications involved.

As per an internal exercise carried out by the Ministry, based on expectedimports taking place, the reduction in tariff values of palm oil productswould have caused a revenue loss of Rs 172 crore during the currentJanuary-March quarter alone.

The significant point though is that the stated objective behind fixingtariff values for edible oils since August 2001 has been not to mobiliserevenues per se, as much as to curb under-invoicing by importers to reduceduty liability. Section 14 (2) of the Customs Act, 1962, empowers theGovernment to "fix tariff values for any class of imported goods...havingregard to the trend of value of such or like goods." Further, where suchtariff values are fixed, "the duty shall be chargeable with reference tosuch tariff value."

Officially, the tariff values are supposed to be reviewed on a monthlybasis to reflect international prices. The tariff values are to be resetwhenever there is a deviation of more than 10 per cent from the landedprice, as computed by the Mumbai-based Directorate of Valuation based onobserved global price trends.

In its weekly review carried out on January 10 — which formed the basisfor the CBEC's proposal on January 13 — the directorate had noted that thecomputed landed price of crude palm oil, at $407.03, was 10.35 per centbelow the existing tariff value, with the corresponding figures being$414.27 per tonne (minus 15.28 per cent) for RBD palm oil, $425.55 pertonne (minus 14.38 per cent) for RBD palmolein and $417.61 per tonne(minus 12.82 per cent) for crude palmolein.

Only for crude soya oil did the computed landed price, at $549.44, workout marginally lower (minus 2.75 per cent) than the tariff value of $565per tonne.

Revenue considerations apart, the easing of inflationary pressures inrecent weeks and fears of domestic oilseed prices crashing ahead of theharvest of the standing rabi crop, are also said to have been factorsinfluencing the Finance Ministry's decision not to tamper with tariffvalues.