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Select food items to attract less excise duty
March, 30th 2011

Food inflation may have been a key factor behind Finance Minister Pranab Mukherjees decision to give partial tax relief on some of the 130 items that were brought under the tax ambit in the Budget. Tea, coffee, ketchup, soup, food mixes, flavoured milk, coconut water and ready-to-eat packaged food are some of the major items in the list of 35 items to get 35 per cent abatement on the excise levy of one per cent.

In the Budget tabled in Parliament last month, the government had proposed to levy one per cent central excise duty on 130 items to prepare ground for the introduction of the Goods and Services Tax. However, in his reply to the Finance Bill last week, Mukherjee offered an abatement of 35 per cent to many of these items so that disputes with regard to valuation are avoided.

Food inflation, which was expected to moderate after remaining high for several weeks, reversed gears by entering into double digits at 10.05 per cent for the week ended March 12, as fruits and some vegetables turned expensive due to the onset of summers. Headline inflation, measured by the wholesale price index, also rose marginally in February to 8.31 per cent from 8.23 per cent a month ago. This was contrary to the expectations that inflation would fall below eight per cent in the month.

Other than foods items, the relief has been given mostly in the areas of medicine and stationery. The 35 per cent abatement has been given on items health and hygiene items like medicaments (including those used in ayurvedic, unani, siddha, homeopathic or biochemic systems), vaccines, nipples for feeding bottles, surgical rubber gloves, and water filters functioning without electricity and replaceable kits.

The stationery items to get the abatement include ink, mathematical boxes, geometry boxes and colour boxes, pencil, sharpeners. On the technology side, abatement has been extended to mobile handsets including cellular phones and radio trunking terminals, wireless data modem cards, recorded audio compact discs, recorded video compact discs, recorded digital video discs and recorded audio cassettes.

Tooth powder, candles, betel nut (supari), and intravenous fluids used for sugar, electrolyte or fluid replenishment are some other items to get the abatement.

Some items like pens, pencils, crayons, drawing chalks, sports goods, lanterns, some military weapons, mathematical calculating instruments, spectacles and lenses, bicycles, sewing machines and needles, kerosene stoves, roofing and ceramic tiles, sand lime bricks, laminated jute bags, and adhesive tapes, among others, will continue to attract excise duty at one per cent.

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