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Excise exemption restored for cigarette units in N-E

K.R. Srivats

Hema Ramakrishnan

NEW DELHI, Jan. 18

IN a major volte-face, the Finance Ministry has restored the excise duty exemption granted to units manufacturing cigarettes and other tobacco products in the North East.

The restoration of duty exemption comes barely a fortnight after the Government withdrew the excise waiver accorded to such units in specific areas _ Tripura and Assam _ in the North East.

Sources said that the directive to restore ``status quo ante'' was given by the top brass of the Finance Ministry. The Government had, in July last year, granted an across-the-board excise duty waiver to units setting up manufacturing facilities in the r egion. The reason given then was that the exemption would aid in the industrial development of the North-Eastern region.

This incentive formed part of the BJP-led Government's package for the North East and was announced by the Prime Minister, Mr. Atal Bihari Vajpayee, after the dissolution of the 12th Lok Sabha.

However, soon after the waiver was granted, a section of the industry protested against the move on the grounds that the exemption could be ``misused'' by some companies and will not provide a level playing field for existing units in other parts of the country.

The exemption, it was also held, would result in substantial revenue loss for the exchequer in view of the high specific rates of duty on tobacco products, particularly cigarettes. The budgeted excise revenue from all tobacco products for 1999-2000 is ar ound Rs. 4,678 crores as compared to Rs. 4,211 crores during 1998-99 (revised estimates).

Following protests from manufacturers and representations from industry associations as well as the Tobacco Institute of India, the Government notified the withdrawal of exemption on December 31, 1999.

Sources pointed out that even as representations were made through such associations, some cigarette majors _ who incidentally are also members of such associations _ had put in applications for setting up new units in the North East.

Even after the December notification, certain sections of the industry continued to mount pressure on the Government to restore the exemption. This group had argued that the Government should not tinker with an already announced package as its very purp ose is to attract investments in backward regions of the North East. Withdrawal of excise exemption would, in a sense, be sending wrong signals to potential investors, the group had contended.

In effect, the Government was under pressure from both the lobbies and finally relented to the demands of those who favoured restoration of the duty exemption. The restoration of status quo ante has been notified.