The All India Glass Manufacturers’ Federation

The All India Glass Manufacturers’ Federation

812, New Delhi House , 27 , Barakhamba Road , New Delhi - 110001

E-Mail Address - aigmfndi@ndf.vsnl.net.in website: www.aigmf.com

Ref. No/F/43/06 Dated: 30^th October 2006

Shri Gautam Ray,

Joint Secretary (TRU),

Ministry of Finance, Dept. of Revenue,

North Block, New Delhi- 110001

Sub: Suggestions for Union Budget for 2007-2008

Sir,

All raw materials required for manufacture of glass and glassware are available indigenously. More over most of the raw materials such as silica sand, calcite, dolomite etc. are mined from rural and backward areas. Thus growth of this industry helps in achieving the most laudable objective of providing employment to people living below the poverty line. In addition Glass is one of the most eco-friendly packaging material.

2. Our suggestions for encouraging growth and development of glass industry with a view to improve its competitive position are given in Annexure I and II for your consideration.

3. We will be glad to present our case personally. We, therefore, request that The All India Glass Manufacturers’ Federation may please be invited for discussions that may be held in the Ministry of Finance with representatives of industry in connection with Budget formulation exercise.

Thanking you,

Yours faithfully,

For AII INDIA GLASS MANUFACTURERS’ FEDERATION,

(MANOHAR LAL)

SECRETARY

ANNEXURE I

Excise Duty

(i) Glass Bottles(Chapter 7010)

1. Various packaging medium that are available today are Glass bottles, Plastic bottles, Plastic Pouches, Tin Containers and Aseptic packaging (Tetra).
2. Glass is the most suited packaging medium for the items of direct human consumption. It has several advantages over other packaging medium. It is chemically inert (does not react with the contents packed there in) and is fully recyclable (broken glass is remelted for manufacturing new bottles and thereby it does not lead to any solid waste generation).
3. However, immediate intervention by revenue is required to prevent the unhealthy practice of using old glass bottles by a wide range of industries which often lack the equipment for proper cleaning. Public health and revenue are both placed at risk thereby, as explained below.

Risk to Public

Bottles emptied of original contents are used

• to keep pickles and other food items which rot after sometime and are smeared with fungus.
• to store all kinds of chemicals specially strong acids, disinfectants used in house hold cleaning,
• all kinds of oils
• and finally to send feces and urine samples to pathological laboratories for analysis.

When accumulation of old bottles reaches a peak householders sell these to scrap dealers.

Similarly all pathological laboratories receive tens of lakhs of bottles every day containing samples of human wastes. Once contents are analysed, these bottles are sold to scrap dealers.

These bottles find their way to liquor, food and pharmaceutical manufacturers to use these for packaging of their new production. In many cases, these bottles are washed in a fundamental and totally unacceptable method and put to use. Residues of unhygienic substances stored therein contaminate food and drink packed in them.

In select cases, e.g. Soft Drink bottlers, they are set up to work on the principle of using reusable bottles. These bottlers have a retrieval system administered directly by them to recover used bottles from the soft drink vendor. These used bottles are washed in a modern high quality washing plant and then re-filled. Health hazards in such cases are kept at bay.

Regrettably, a large number of bottlers do use second hand bottles but have no such modern facilities for satisfactory washing.

Users of glass containers e.g. laboratories, which re-use glass containers, have a strict regime of washing them with strong acid/alkali compounds rinsing them with water and finally autoclaving them. No such procedure is followed by a large number of users of second hand bottles.

Evasion of Revenue

Unfortunately since the second hand bottles are bought from scrap dealers/kabaris these purchases are often not recorded at all and are used to pack and sell un-reported production, which entirely escapes the revenue net. This leads to large-scale evasion of excise duty, VAT/Sales Tax and finally Income Tax as well. The best way to save the public from potentially serious dangerous health risk and simultaneously plug a significant revenue loophole is by making it compulsory for all industries to use only new bottles, unless they have a self-administered mode of retrieval of used bottles, and also a washing plant which meets the requirements as laid down by the appropriate regulatory authority.

Large industrial units employing very high capital cost make new bottles. All clearances are recorded by revenue and fully excised and tax paid. These are sold to actual users who cannot then under record these purchases, thus making the job of under-reporting production very difficult.

4. Second hand bottles are handled and washed in very sub-standard conditions. Absence of proper washing and unhygienic handling leaves the bottles dirty and smeared with fungus. Accordingly, the old bottles are totally unhygienic and are a serious health hazard. This unhygienic nature of old Glass bottles does not meet the approval of the medical fraternity. This is also admitted by Food, Liquor and Pharmaceutical manufacturers, but they are tempted to use old Glass bottles on account of their marginally lower landed cost. Many of such manufacturers have confided that if the component of Central Excise Duty can be reduced to 8% on new Glass bottles, the price differential between new and old bottles will decrease and the industry would be willing to pay slightly higher cost for the new Glass bottles, as they frankly admit that new Glass bottles are fully hygienic, while old bottles are not.
5. Please note that the Glass bottles’ market as on date in India is close to about Rs.3400 crores p.a., of which approx. Rs.1400 crore is from the new Glass bottles segment and Rs.2000 crore from the old bottles segment. The Central Government does not get any Excise revenue on the entire volume of Rs.2000 crores worth of business of old bottles.
6. Reduction of Central Excise Duty, from present 16% to 8% on Glass bottles shall substantially increase the off-take of new Glass bottles and as per an estimate; the market size of new Glass bottles shall become Rs.3200 crore and old Glass bottles at Rs.800 crore (total market size Rs.4000 crore). Accordingly, the Government would only stand to gain by reduction of Excise Duty as shown below:

Central Excise Duty Collection now:

Excise Duty Collection after reduction of Duty from 16% to 8% :

The above table shows the following large advantages: -

1. Without any adverse impact on Government Revenue, Rs.256 crores worth of Excise Duty reduction amount (from 16% to 8%), shall afford a large price reduction of end products to consumers in Food, Pharmaceutical and Liquor products. This shall be a boon to consumers in the lower and middle class.
2. Health and hygiene part of packaging would also be fully ensured, posing no health risks from use of old Glass bottles to consumers. Moreover, glass being the supreme packaging medium, would also get an impetus of increased usage: -

• Plastic packaging is not hygienic for edible items, as plastic has the migration tendency of chemicals into the contents packed. Moreover, plastic also leads to solid waste disposal problem.

• Tin container is costly, leading to higher price of the end products to the consumers.

1. Excise Revenue would only increase from the present levels of collection from this segment.

We hope that our arguments will fully convince you of the need for reduction in Excise Duty on Glass bottles from 16% to 8%.

(ii) Flat Glass

Flat Glass segment of the industry includes float, sheet, figured and wired glass. Major users of Flat Glass are Automobile and construction industry. Per capita consumption of glass in India is 0.75 kg as against world average of 8 kg. Transparent nature and value added properties of glass (tempered), insulated glass, heat resistant glass are leading to sizable reduction in energy consumption and maintenance cost of building without compromising on the basic strength of the structure. Reduction in excise duty from 16% to 8% will further encourage the processing industry. Consequent reduction in price will encourage use of insulated/ heat resistant glass resulting in saving in energy consumption. Usage of glass in partitions etc. will help save depleting forest resources. We therefore request that excise duty may be reduced from 16% to 8%.

(iii) Tableware and Kitchenware

In the Budget for the year 2006-2007 the Excise Duty on "Glass Tableware and Kitchenware" has been increased from 8% to 16%, i.e. a 100% increase in the excise incidence. The industry is passing through a very difficult time, because of stiff competition of cheap products from China, Indonesia, Thailand etc. and increase in cost of production, particularly due to higher cost of energy.

1. Imports from China, Indonesia, Thailand etc. are very very cheap and are priced approximately around 40% cheaper than the products from indigenous manufacturers.

2. This industry operates with high level of labour involvement, as such, any adverse effect on the industry has its impact on employment of labour.
3. Glass and Glassware are a "Common Man" item and are widely used ‘en masse’, as such, the increase in the excise duty could definitely not be transferred to the ultimate buyer.

Soda Ash

Soda Ash is a major input and a critical component of raw materials used in glass industry. It constitutes about 30% of cost of production of glass. This is the single most important item, which results in higher input cost for Indian Glass Industry and adversely affects its competitive strength in the International market. Three Soda Ash Manufacturers viz. Tata Chemicals, Gujarat Heavy Chemicals and Birla VXL determine the sale price of indigenous soda ash with a view to keep the price level in line with the landed cost of soda ash which includes freight element of about U.S $40.00 and not with reference to their cost of production.

Soda ash is a critical component for Glass industry. Soda ash prices have been at their peak for quite sometime for now and are expected to remain so. Only a few domestic players and high per tonne freight impact compounded by high rate of import duty (@ 12.5%) makes the situation worse. Hence to make the industry competitive globally, import duty on soda ash be reduced to 5%.

Borax

Borax is an integral raw material for manufacturing glass tableware. Globally glass industry accounts for major consumption of Borax. India does not have any Boron deposits and entire requirement of the mineral as well as refined products, such as Borax is imported by the industry. High level of Customs duty on borate and its allied compounds results in higher input cost thereby increasing the cost of production of the glass products manufactured in India. Customs duty on import of Borax is 10%. The duty incidence in most of the Asian countries ranges between 1% to 5%. In view of the exposure of the Indian glass industry to the global competition and need for producing quality products at competitive prices, we request that the import duty on Borax be reduced to 5%.