The Indian cement industry is the second largest cement producer in the world right after China. The Indian Government is highly focused on developing infrastructure, affordable housing and roads as announced by the FM Mr. Arun Jaitley in the Budget 2017. So, the cement industry is expected to get a boost in the near future. The question though is, will the implementation of
GST affect this projected growth?
The Government has announced the Goods and Services Tax (GST) rates L/P Cement @ 28% and Clinker also @ 28%. Tax rates of some sectors were as per the expectations of various stakeholders, while others surprised them. Low tax rates on coal and capital goods came in as a big surprise for the market.
1. Impact of GST on cement
The tax rates for cement was extremely complex. For example, there are various rates and specific duties of excise applicable on different types of cement depending on whether they are supplied in bulk form or in packaged form or whether for industrial or trade purposes. The effective rates including excise & VAT totals up to around
2. Rate of GST on cement and on raw material
The GST tax rate for cement is fixed at 28%. Therefore, this has resulted in a slight increase in taxes. However, the revision in tax rates brings an additional benefit, as the
GST on coal and minerals ore has been reduced to 5%.
i. Limestone is taxed at 5%
ii. Coal is capped at 5%,which is a reduction from the earlier rate of 11.69%.
iii. Electricity is outside the purview of GST.
iv. Nothing has been mentioned regarding Royalty which is paid by the cement companies to the State Government for quarrying limestone.
v. Clean Energy Cess has been levied on coal which is not available as an input credit as it has not been subsumed by
vi. GST on transportation reduced to 5% if separately charged.
Therefore, these factors will continue to be outside the purview of GST and will be included in the cost of cement production even after
GST is implemented as was done previously. Further petroleum products i.e. (i) petroleum crude;
(ii) high speed diesel; (iii) motor spirit (commonly known as petrol); (iv) natural gas; (v) aviation turbine fuel; and (vi) alcoholic liquor for human consumption are out of
3. Positive impact of GST on cement industry
With the introduction of GST, the cement manufacturers can have a sigh of relief as the supply chain management of cement will get a boost under
GST. Most companies maintain multiple warehouses across States reduced burden of CST and state entry taxes. These warehouses generally operate below their capacity which leads to operational inefficiencies. Now, like other sectors, the cement companies will also consolidate their warehouses and maintain warehouses in areas where it is beneficial, thus leading to operational economies.
4. Savings on transport
Most of the cement manufacturers are located near limestone quarries. But demand for cement is pan-India which means that the cost of transporting cement from the manufacturer to the buyer is pretty high. Now, with
GST the logistics industry is also going to be overhauled. The transit time will decline as vehicles will spend lesser time at checkpoints. This will lead to lower transportation costs and, in turn, the cement industry will save transport costs.
5. Less complex taxes
Under old law, there were multiple excise duties applicable to cement manufacturers. There are separate rates and specific duties applicable on different types of cements depending on whether they are supplied in bulk form or in packaged form, or whether they are for industrial or trade purposes etc. All these multiple rates will be done away with under
GST. Only a fixed rate of 28% will apply on cement. This will result in lesser compliances and less complexity.
i. Wherever customer is not going to get the tax credit, it is advisable to take Ex-Factory order as the incidence of tax in case of freight is only 5%.
ii. As there will be no border issue, there is no need to do stock transfer.
Cement industries maximise out direct despatches even in case of inter-State
supplies. Now the branch transfer can be converted in direct despatches from
nearest godown and dealer will get full IGST credit. Cement industries can save on account of handling and secondary transportation.
7. Input Tax Credit to cement industries
ITC being the backbone of GST and a major matter of concern for the registered persons, conditions for eligibility to ITC have been prescribed which is majority in line with pre-GST regime. These rules are also quite particular and stringent in its approach.
A registered cement industry will be eligible to claim Input Tax Credit (ITC) for furtherance of business on fulfilment of the following conditions :
1. Possession of a tax invoice or debit note or document evidencing payment.
2. Receipt of goods and/or services.
3. Goods delivered by supplier to other person on the direction of registered person against a document of transfer of title of goods.
4. Furnishing of a return.
5. Where goods are received in lots or installments ITC will be allowed to be availed when the last lot or installment is received.
6. Failure to the supplier towards supply of goods and/or services within 180 days from the date of invoice, ITC already claimed will be added to output tax liability and interest to be paid on such tax involved. On payment to supplier, ITC will be again allowed to be claimed.
7. No ITC will be allowed if depreciation has been claimed on tax component of a capital goods.
8. If invoice or debit note is received after –
• The due date of filing Return for September of next financial year; or
• Filing Annual Return, whichever is later
No ITC will be allowed.
9. Common credit of ITC used commonly for
• Effecting exempt and taxable supplies
• Business and non-business activity
Credit will be allowed according to the RULES.
8. Items on which credit is not allowed
1. Motor vehicles and conveyance except the below cases :
i. Such motor vehicles and conveyances are further supplied i.e. sold.
ii. Transport of passengers.
iii. Used for imparting training on driving, flying, navigating such vehicles or conveyances.
iv. Transportation of goods.
2. Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery.
But if the goods and/or services are taken to deliver the same category of services or as a part of a composite supply, credit will be available.
3. Sale of membership in a club, health, fitness centre.
4. Rent-a-cab, health insurance and life insurance except following :
i. Government makes it obligatory for employers to provide it to its employees.
ii. Goods and/or services are taken to deliver the same category of services or as a part of a composite supply, credit will be available.
5. Travel benefits extended to employees on vacation such as leave or home travel concession.
6. Works contract service for construction of an immovable property (except plant & machinery or for providing further supply of works contract service).
7. Goods and/or services for construction of an immovable property whether to be used for personal or business use.
8. Goods and/or services where tax has been paid under composition scheme.
9. Goods and/or services used for personal use.
10. Goods or services or both received by a non-resident taxable person except for any of the goods imported by him.
11. Goods lost, stolen, destroyed, written off or disposed off by way of gift or free samples.
All these put together may reduce the operating costs for the cement industry in the future. However, reduction in costs for the end-consumer will occur only if the cement industries pass on their savings to the consumers. Till then, it is expected that prices of cement will increase, at least temporarily, once
GST is implemented. In turn, costs for infrastructure and housing which are highly dependent on cement, will also increase.