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Auditing Special Purpose Frameworks: Auditing Cash ClassificationsPart 1
August, 04th 2014

The Ludhiana induction furnace industry is resenting the proposal for the calculation of value added tax (VAT) on the basis of electricity consumption, saying this action would further add to their problems. No representative of the units from Ludhiana was called in a meeting where this proposal was given to the deputy chief minister.

President, Induction Furnace Association of North India, KK Garg, informed that the Mandi Gobindgarh and Ludhiana steel industry is totally different in that Mandi Gobindgarh produces mostly mild steel or constructional steel, whereas Ludhiana produces 100% industrial steel, requiring stringent quality controls, resulting in higher electricity consumption. The consumption of electricity further increases while manufacturing specific chemistry and alloy steels. He said the government has not understood this, and thus the proposal of the steel industry from Mandi Gobindgarh regarding the calculation of VAT on the basis of electricity consumption has been mooted. They could not have any say as no representative from the Ludhiana induction furnace industry was present in that meeting.

Dev Gupta, secretary of the association, said the calculation of VAT on the basis of electricity consumption was totally impractical and would prove to be a death-knell for the induction furnace industry of Ludhiana, which is already on ventilator support. He further said that most of the steel being produced by the Ludhiana steel industry was raw material and was being sold to the engineering industry that takes input tax credit (ITC) on the VAT paid by us, but in the new suggested scheme, no input tax credit will be available to the buyer industry, and hence the steel will become costlier by Rs1,500-2,000 PMT, whereas it is not in the case of Mandi Gobindgarh, where steel is sold for final consumption, and ITC is not required.

"We may also emphasize that GST is going to be introduced in the coming months as is being suggested by the central Government, so any change in VAT to a specific tax structure on presumed parameters will be a stopgap arrangement, and will take us 30 years back, whereas VAT or GST system is the tax structure of the future," he added.

Meanwhile, office-bearers of the association have appealed to the government that before bringing any change in the VAT system, their associations must be taken into confidence as being the mother industry for many ancillary small-scale units and fasteners industry in Punjab, any change will create problems for all of them. They have rather suggested that the Punjab government, if it has any concern about reduction in revenue collection because of reduction in the VAT from 4.5 to 2.5 per cent from February 1, 2014, the Ludhiana steel industry has no reservations if the VAT rate is brought back to 4.5.

There are over 50 units of induction furnace and 40 rolling mills in Ludhiana.

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