The Hindu Business Line : Crude olein imports: Trade in a tizzy

THE news report of Customs investigation into crude olein import has unnerved the trade. Some importers have taken exception to the investigation and claim they are innocent, and that the trade is being put to avoidable hardship.

Their grievance is that crude olein imports have been taking place strictly in terms of government policy relating to EXIM trade and quality specifications.

Reacting angrily to the report of the Customs Department starting an investigation, some traders and intermediaries told this correspondent that importers had done the business according to extant laws and that it was most inappropriate for the government to start an investigation. There surely is merit in the trade's argument. The Government cannot escape culpability in the matter of crude olein imports. Crude olein started to arrive in the country on a modest scale since mid-2001.

In August 2001 when the Centre imposed tariff value on palm group of oils in order to check alleged invoice manipulation, it included crude palmolein in the list and specified a tariff value on it. In doing so, the Government legitimised a product which is not known to be manufactured abroad in significant volumes. Production statistics of Malaysia, the world's largest producer of various categories of palm oil, do not show production of crude olein. Theoretically, crude olein can be made by fractionating crude palm oil, whereby the liquid fraction olein is separated from the solid fraction, stearine.

However, fractionation of crude palm oil to produce crude olein is economically unviable, according to industry representatives and, therefore, production data of crude olein should be considered as negligible.

Customs officials have asked importers to produce such details as name of overseas manufacturer and load-port quality test reports for imports of last two years. Importers perceive this as nothing short of harassment.

They argue that so long as crude olein imports are not in violation of the import policy and the imported goods meet the quality standards laid down under the Prevention of Food Adulteration Act and Rules, no investigation is warranted.

"It is the policy-maker who should be blamed and proceeded against for allowing such imports for almost two years and legitimising them, rather than the importer who has merely followed the law in letter and spirit," a trader remarked with palpable annoyance.

If revenue officials are seeking to question the importability of crude olein, the Government will have to defend its decision to permit and legitimise such imports. New Delhi may find itself on a sticky wicket.

Together with the extant Customs investigation, it may be interesting if the Government starts an internal probe on the circumstances under which officials in the ministries concerned decided to recognise crude olein as a legitimate product. Such a probe will probably reveal serious inadequacies in government decision making.

Importantly, it must be recognised that large differentials in Customs duty on various vegetable oils (a group of similar goods which are largely substitutable) and unrealistic tariff values are seen as the root cause of problems relating to the country's edible oil import trade.

The present tax regime not only distorts the market, but also creates scope for malpractices. The tax structure needs to be rationalised and ambiguities removed. It may be in the interest of trade associations themselves to recommend a sound duty structure that will not compromise revenue interest.

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