According to reports received from several importers, no excise permits have been issued for the last two weeks and there is no hope for the revival during the next two.
Last time such an impasse occurred was in July last year when the excise duty was abruptly increased to 150% and later to 200% in November during which time there was a state of limbo with practically no business.
The reason for the impasse this time appears to be the state's desire or compulsion to become WTO compliant without giving an inch. They have been dexterous so far and perhaps are getting ready for another victory lap.
The department wants to charge the excise duty @200%, based on the declared manufacturing costs instead of the current practice of charging it on the assessable value which is the CIF value +1%. This should make the importers happy because they could declare the actual manufacturing cost of wine which is a fraction of CIF Value.
Except- there is a rider to it. The final selling price to be fixed cannot be more than the manufacturing price declared, or so the importers have been made to understand. This means that if the manufacturing price/assessed value declared is any amount X, the excise duty payable will be 2X. The sales price cannot be over 4X + the other government taxes like customs duty at 150% and VAT at 20%.
This factor X includes Octroi at over 7%, warehousing and transportation costs, retailer margins at 10-15%, finance costs, marketing costs and importer/distributor's margin. This is unreal, say most importers, leaving no scope for any margin even if you do not consider the spoilages, air-conditioning costs, and obsolescence factors which are fairly high.
The department apparently is awaiting the opinion of solicitor general. Till the policy is cleared, there can be no clearances. Unconfirmed reports suggest that some of the influential liquor companies tried to have a dialogue with the department, even to discuss the legality of the proposed action, but have been turned away.
This should make the producers in Maharashtra very pleased. Not only importers, but the producers outside Maharashtra will also suffer more pain. 'Grover Vineyards has already been paying 150% excise duty on the manufacturing price,' says Kapil Grover, partner and CEO. 'We have been also under the '4X' clause for a long time. But if it means that now we have to pay 200% excise duty, it would be highly unfair.'
That the policy is highly discriminatory and divisive and could be termed against national interest is accepted by all- in private. Kapil Grover is a Mumbaikkar in every sense and has been in the family business in Mumbai for decades. He operates his winery in Karnataka (India) and feels discriminated against. 'That is why I have now taken a small stake in Maharashtra wineries,' he says.
Sanjay Menon of Sonarys and his tribesmen will be hurt the most-especially those who have been dependent on the business of fine imported wines in Maharashtra-which for all practical purposes has flattened for fine quality imported wines- at least for the time being.
Subhash Arora |