July 9, 2012


India to allow urea import for fertiliser use



At present, private companies could only import urea for industrial use, in preparation of chemicals, but last week, the Indian government allowed said companies to import urea for preparation of complex fertilisers used in agriculture.


For agricultural purposes, private companies used to source urea from imports made by government canalising agents, such as Indian Potash Ltd and state trading houses MMTC and STC. Two Indian companies, Coromondal International and Zuari Industries, are allowed to import urea for agricultural purposes. Now, these companies can directly import without involving canalising agents, official sources said.


However, the permission is given with a rider that the urea cannot be sold directly in the market. The imported urea is to be used only to make the NPK complex fertiliser, which these companies can then sell.


Further, say the rules, strict monitoring will be done for usage of imported urea in manufacturing of the fertiliser. A company does not get a subsidy if its uses indigenously manufactured urea in preparation of complex fertilisers.


India produces about 22 million tonnes of urea in a year and consumes a little more than 30 million tonnes. In 2010, the government had increased the retail price of urea by 10% to almost INR5,310 (US$96) per tonne. This is still the current price.


Meanwhile, the ministry of chemicals and fertilisers has sought to exempt urea from the proposed Goods and Services Tax (GST), and to remove customs duty on import of plant and machinery for fertiliser projects. A ministry report on the duty structure on fertiliser and its inputs says the government distributes urea much below the cost of import or production. Taxes and duties are levied on the maximum retail price fixed by the government, which covers only 25-40% of the cost. The inputs for urea production are, however, taxed at full cost, resulting in tax incidence on the inputs far in excess of that on the finished fertiliser.


Thus, under the proposed GST, the input tax credit will far exceed the tax payable on fertiliser, meaning the input credits will be far more than what could ever be availed on the outputs. This would block large amounts of input tax credit of fertiliser companies with the government on a recurring basis, even if there was provision of periodic cash refund. Currently, there are no provisions for refund of unadjusted credits in GST, except for refunds on exports.


Hence, goes the argument, the sector (meaning, urea) should be exempt from GST. Also, it notes, a number of crucial inputs for urea manufacturing like natural gas, electricity generation and petroleum products are out of the GST ambit. Besides, the GST model seeks to exempt the food, health and educational sectors.