Auto: Passenger Cars and Utility Vehicles: Presses for abolition of SED in a phased manner

Duty reduction on cars and UVs from 32% to 28% looks likely

Car manufacturing is basically assembly of components procured from ancillaries or component manufacturers. The demand for cars is dependent on number of factors such as price of cars, incidence of duties and taxes, introduction of new models, availability and cost of car financing schemes, depreciation norms, fuel cost etc.

Vehicles designed for transport of 7 to 12 persons are commonly known as multi-utility vehicles and provide basic public transport for intra / inter city movement of goods and people. Excise duty on these vehicles has seen a progressive increase from 10/15% in 1996-97 to 32% (16% CENVAT + 16% SED) at present.

Present industry status:
For the first ten months (April'02 to January'03) of the current year, the passenger vehicle segment of the Indian Automobile industry has registered 6% growth in domestic sales to 568.363 units buoyed by good growth figures in the passenger car segment and to some extent in the utility vehicle segment. While passenger segment has registered 9% growth in sales to 4,36,475 units, UV sales have gone up by 6% to 89555 units. Multi-purpose vehicles however skidded by 15% to 42333 units during the first ten months period.

Exports of passenger vehicles during April'02 to Jan'03 were higher by 37% at 57,189 units mainly driven by the export of passenger cars which registered 44% growth in sales to 55945 units.

During the period between April to Jan'03, the passenger vehicle production has gone up by 8% to 575521 units.

Excise duty structure:

Import duty structure:

Industry Expectations:

1. Special Excise Duty on passenger cars and multi-utility vehicles should be reduced from 16% to 8% in 2003-04 and to Nil in 2004-05. Hence excise duty on passenger cars and UVs to be at par with other vehicles.
2. Allow clearance of ambulance at the applicable concessional excise duty of 16% and the present system of paying full duty and claiming refund should be done away with. Also vehicles under CET heading 8702.10 and 8703.90 solely registered as ambulance by any buyer should be given the benefit of concessional excise duty of 16%.
3. Customs duty concession of 5% on CNG kits/ parts of kits should be extended to raw materials required for manufacture of CNG kits and its parts.
4. To give boost to use of pollution free electrical vehicles, Customs duty on their major

inputs should be reduced to 5%.

5. Body building activity by organised and unorganised sectors for the purpose of levy of

excise duty should be brought at par.

6. Exemption of SED on tyre, flap and tube should also be allowed for one stepney supplied with the vehicle.
7. Clarification should be issued that benefit of exemption of SED is available for tyres, flaps and tubes used in the manufacture of chassis.
8. Align excise classification of MUVs with that of customs classification.
9. Raw material like CR steel, HR steel, Alloy steel, Die Steel, -specific grades are not available in India due to low volume and quality limitations. Hence raw material should be available at lowest duty rates for the growth of automobile and auto component industry.
10. Major investment involved for localisation of panels is in Dies and Tools in the case of automobiles. Therefore, customs duty rates for stamping dies and welding jigs needs to brought down.
11. Growth of Automobile and auto component industry needs investments in capital goods. To promote localisation reduced customs duty on capital goods act as a catalyst.

Analysts' Expectations:

Duty reduction in cars and UVs from 32% to 28%.

Scrips to Watch:

Telco, M&M.

Run-up to the Budget 2003

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