All India Induction Furnaces Association
203/209, M.G.House,Community Centre,Wazirpur Indl. Area, Delhi – 110052 (INDIA)
E-mail: email@example.com Website: www.aiifa.org Tel.: 011-27376194/5019 Fax: 2737 2961
December 20, 2011
Shri Pranab Kumar Mukherjee
Hon’ble Minister of Finance
Government of India
NEW DELHI – 11 001.
Sub: Memorandum from Induction Furnace Units
for Budget 2012-13
The All India Induction Furnaces Association (AIIFA) is one of the premier industry
Associations’ of the country in the secondary steel sectors. AIIFA represents the
interest of Electric Induction Melting Furnace industry operating in various parts of
the country. Its members are engaged in the production of Mild Steels, Low Alloy
Steels, Stainless Steels, Grinding Media and Special Cast Iron castings through
Electric Induction Melting Furnaces.
In India though advent of steel making through Electric Induction Melting Furnace
route is relatively new but in this short span of time this industry has made a notable
niche in the domestic steel industry. Its role in promoting steel production and steel
consumption in the country is well recognized by the Govt. and its products is widely
accepted by consumers.
In the country there are around 1100 operating Induction Melting Furnace units who
are contributing in producing over 33% of total domestic crude steel production.
Input raw materials of Induction Furnace units are iron and steel scrap and sponge
iron. Thus, it is not only making substantial contribution in crude steel production, it
also conserving precious mineral resources of iron ore and coking coal.
The present scenario
As per rule 13 of The CENVAT Credit Rules 2004 the Central Government has power
to notify goods for deemed CENVAT Credit. Earlier till 1987, deemed Credit facility
was available on Iron and Steel products.
The Steel Melting Scrap is the main input material for Induction Melting Furnace
Industry. The possible source of procurement of steel malting scrap are:
from Traders/Kabaries who collect scrap from different sources, and
Scrap generated from non excisable/exempted industries
The Iron Steel Scrap generated from non-excisable units such as SSI engineering and
other SSI units making steel based products, and units located in tax free zone use
steel which is duty paid. But there is no proof of payment of Central Excise on such
scrap and hence no credit is available to furnace units who want to use this scrap and
therefore the Cenvat chain breaks.
The indigenous steel melting scrap procured by Kabaries from Small manufacturing
units is available without excise documents. As such, no excise document can be
submitted to the excise authority. Therefore, the induction melting furnace units are
not able to get CENVAT credit on this type of scarp. It should be appreciated that no
steel scrap can be available in the market without the basic material having been
subjected to the excise duty. Therefore, such scrap should be qualified to get
DEEMEED CENVAT Credit, which was available to this industry till 1987.
Deemed Duty Credit on Steel Scrap for availing CENVAT Credit
In view of the high potential of Secondary steel sector for the overall growth of the
domestic steel industry and economic development of the country, the Induction
Melting Furnace units, this request should be considered sympathetically by
Government of India.
The details of deemed credit can be worked out in consultation with the industry to
avoid its misuse. Hence, by allowing Deemed Duty Credit on steel scrap, the revenue
collection by the Government of India will enhance remarkably.
CUMPOUNDED LEVY ON THE BASIS OF POWER CONSUMPTION
Retrospective assessment of Excise Duty
Customs and Central Excise Commissionarates in many states have issued show
cause notices to a number of Induction Furnace units charging evasion of Excise
Duty by suppressing actual production. Recently our member units located in Jalna
in Maharashtra have received Show Cause Notices on this context. The assessment of
claim made by the department is based on a report of IIT Kanpur on “Productivity of
Induction Furnaces”. Since the technical report of IIT-Kanpur is purely academic
and theoretical without considering the host of operational variables on which power
consumption for production of per tonne of steel has direct relation, the thumb rule
adopted by the department is need to be discussed with industry. Moreover, IIT
Kanpur is not owning the responsibility of the above report.
Some of the points on which power consumption per tonne of steel varies are
a) If scrap is lighter power consumption per ton of steel is higher
b) In case light scrap is used and sponge iron is also used (over 40%), the power
consumption per ton can be as high as 1800 units per tone of steel produced.
c) The quality of power will also affect production and result in higher power
d) The furnace refractory lining will also affect power consumption.
Citing the above mentioned variables, no retrospective assessment of duty on the
basis of power consumption is justifiable as it is difficult to comprehend the variables
existing in the units at different time.
Following principle may be adopted by the Central Excise Department
for assessment of Excise duty on the basis of Power Consumption.
We would like to suggest that compounding duty scheme on the basis of power
consumption should be introduced to ensure hassle free assessment and collection of
Excise Duty. In this process a joint study should be carried out most scientifically
and systematically involving excise department, Technology experts and industry to
find norm for power consumption for production of per tonne of steel considering all
possible operational variables. Alternatively excise department may notify the norm
of power consumption for production of per tonne of steel (in consultation with the
industry ) which the industry will follow for all future assessment.
The industry will be greatly relieved from the harassments of field staff
and the government will certainly get higher revenue. This compound
Levy on the basis of consumption of power is highly pragmatic and very
much justified. We strongly urge to implement this system in the
Discontinuation of Personal assessment by the field staff
In today’s scenario of open economy such physical controls should be dispelled with.
In the event of slight mismatch in assessing the yield and quantity of scrap through
personal guess, the industry faces huge loss.
On Customs Side
As our industry is dependant on import of Heavy Melting Scrap (HMS), our
members are being harassed on the pretext that the material is re-usable/re-rollable.
It is because of no clear-cut definition of re-rollable scrap in the excise/customs tariff
which could help in differentiation of melting scrap from re-rollable scrap. So it is
our earnest request that a clear cut definition be provided for re-rollable scrap in
consultation with the industry.
The actual user should be exempted from payment of 4% Additional Custom Duties
as Central Excise Duty is 10% whereas we pay CVD + ACD + 14.5% approximately
and thus we are left with unused CENVAT Credit as we have to pay cash duty under
PLA to satisfy the local Excise Authorities revenue concerns.
This is all the more important because trader gets refund of this ACD whereas the
manufacturer’s funds are blocked in unused CENVAT credit.
If some one takes the services of man power providing agency, the service tax is
charged on the basis of total amount instead of only the commission of the man
power providing agency. This way the service tax credit increases many fold and
resultantly there is less payment of duty in the Personal Ledger Account (PLA).
BAN ON EXPORT OF IRON ORE
The induction furnace industry is facing a acute raw material crunch. Iron & steel
scrap is the major input material for Induction Furnace industries. Due to shortage
of indigenously available steel melting scrap it is required to import the scrap. But
globally there is shortage of steel melting scrap because of high demand from other
steel manufacturing country like China, Turkey etc. To make up the shortage of steel
melting scrap Induction Furnace industries uses DRI/ Sponge Iron in large
proportion for making crude steel.
Because of high price of iron ore due to exporting this commodity the availability and
price of sponge iron has been greatly affected. Exporting of iron ore is hitting
hard directly and indirectly the growth of Induction Furnace Industry and other
secondary steel manufacturers.
The production and consumption of steel of a nation is the barometer of economic
development of the country. India is achieving a rapid growth in steel making
capacity. Its capacity has increased from 20 million tonne of crude steel in 1990-91
to over 72 million tonne in 2009-10. It has earned the 3rd position in the world in
steel making, and soon it is expected that India will be 2nd in position next to China.
In the world India and China are fast developing and China is taking a judicious
policy of remain ahead of India in many areas, one of them is by way of conserving
its mineral resources. Besides China many other countries have policy of retaining
mineral resource including iron ore for sustainable development of the country.
Whereas India is mindlessly producing and exporting iron ore without considering
how to sustain its development in future. China is importing iron ore in large scale
due to which the spot price of iron ore is now reached to Rs. 7500 per tonne (FoB)
whereas pit head cost is hardly Rs. 300 per tonne. This windfall profit of miners
inspiring them to export around 50% of total iron ore production of the country.
The production of iron ore is increasing for making exports in higher quantity. This
accelerating the depletion of the iron ore reserve of the country and
benefiting other competing countries of India mainly China. Sir, we have
briefly highlighted the lamentable condition of the secondary steel sector of the
country due to high price of input materials for which export of iron ore is
responsible, resulting possibility of closure of the secondary steel sector which
provides large employment potential besides contributing to the economic growth.
To stop this catastrophe of the secondary steels sector, sir we will
strongly urge to ban the export of iron ore for the cause of National
welfare and sustainable growth of the country.
R&D AND TECHNOLOGY UP-GRADATION
It is well recognised and widely accepted that contribution of secondary steel sector
in production and consumption of steel is quite substantial. It is accelerating per
capita consumption of steel by facilitating usage of steel by common people of rural
and remote places of India. For further growth of this sector and to widen the
application base of steel from induction furnaces the government should come
forward to promote R&D and technology intervention for this sector. Presently,
government has number of schemes to support R&D for large and integrated steel
plants. Large and integrated steel plants are quite capable to support itself in this
field. Since the Secondary Steel Sector lacks recourses for carrying out R&D
activities on its own, considering its substantial potential in promoting domestic
steel industry, Government should extend all types of assistance to the Secondary
Steel sector for its R&D and technology up-gradation.