The Hindu Business Line : Fertiliser industry worried over delay in VAT refund

The fertiliser units want the VAT panel to either exempt hydrocarbons used in manufacturing or bring down the sales tax of such inputs to four per cent.

New Delhi , Sept. 2

APPREHENDING that huge funds running into hundreds of crores rupees would get locked with the State Governments because of the delayed VAT refunds, the fertiliser industry has approached the VAT panel for a solution. This is a problem faced by fertiliser manufacturers because of their stretched financial conditions.

To overcome this problem, the Fertiliser Association of India (FAI) has suggested to the VAT panel to either exempt the hydrocarbons used in the manufacture of fertilisers (especially urea) from the State-level VAT/sales tax or bring down the VAT/sales tax rate of such inputs to four per cent, the Director-General of FAI, Mr B.K. Saha, told Business Line.

Urea manufacturers, who use naphtha as an input, claim that they face the problem of negative value-addition as their maximum retail price (MRP) is controlled by the Government. While the VAT rate on urea is pegged at four per cent by most States, the sales tax rate on naphtha is pegged at 20 per cent.

Fertiliser industry officials contend that this rate structure leads to huge refunds. They claim that most of the States are talking about giving refunds after two years.

"We have requested the VAT panel to bring down the rates for natural gas/ naphtha used in fertiliser industry to either zero or four per cent," Mr Saha said.

According to industry estimates, nearly Rs 2,300 crore of VAT refunds may get locked with the States Governments for more than a year. Industry officials say that this would lead to major difficulty for the companies in terms of working capital requirements.

Fertiliser industry is the only industry where the retail price is determined by the Government as well as the subsidies. There is no value addition because the selling price is always less than the cost of production.

Other than urea, the inputs for most other fertilisers such as DAP, SSP, MoP, the inputs are mostly imported.

As a result, the VAT refund issue may not be as alarming for these fertilisers as it is in case of urea.

Meanwhile, the empowered committee has directed the State Governments to pay refunds through the electronics system directly to the bank accounts of the assessees.

A VAT official said that the issue of high refunds may be unique to the fertiliser industry and is unlikely to be seen in respect of other industries.

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