Page 4 - Tax Regime for Improved Cookstoves and Its Implications
P. 4
TERI Policy Brief

on special permission from local tax authorities for of New and Renewable Energy (MNRE) recommends
every consignment (which is a tedious and lengthy the grant of the above exemption after considering
process) or engage big commercial players who have the case. As a result, some small manufacturers, in
expertise and experience of inter-state shipments. spite of being eligible, are reported to have faced
NGOs/self-help groups often cannot afford the difficulty in getting the benefit of exemption.
margins (8%–15%) demanded by big commercial
players. Differential VAT Rates across States
These challenges limit the interest of NGOs
and small entrepreneurs of priority states who are All these taxes and duties described in the previous
discouraged by the tedious and often expensive process section are to be filed with different entities. These
of documentation related to inter-state shipment taxes, including excise duty, entry tax and VAT, vary
(including claim of Form C for manufacturers). from state to state and they can significantly increase
the cost of an improved cookstove. In Tamil Nadu for
CASE STUDY: MADHYA PRADESH, INDIA instance, cookstoves are VAT exempt, while in some
states such as Odisha, cookstoves are charged a VAT
A case of a cookstove manufacturer in Himachal Pradesh illustrates of 13.5 per cent, in contrast to Goa where cookstoves
the challenges of small manufacturers, energy enterprises and are designated under RE devices and spare parts
distributors, and the issues involved in getting Form C. An order of 500 and levied 5 per cent VAT. Table 1 shows the VAT
cookstoves was placed with this manufacturer by a local distributor in rates applicable for cookstoves in different states.
Madhya Pradesh along with 25 per cent advance payment in January While most of the states specify a lesser VAT rate
2013 for delivery in the following month; however, a delay from the for renewable energy devices and spare parts, the
manufacturer’s end led to the postponement of delivery by three tax schedules of most states do not clarify whether
months. The order was finally delivered in April 2013. The distributor improved chulhas are a part of that category. Some
provided the manufacturer with the Way Bill (Form 49) against which energy entrepreneur partners of TERI have also
Form C is issued to the distributor by the State Government Commercial stated that sometimes VAT is levied as per the rates
Taxes Department. However, the distributor could not provide Form C for steel since improved cookstoves designed by TERI
to the manufacturer, as he was not inclined to clear his tax dues for are steel-based. There is a lack of clarity on what VAT
his entire business at the start of the financial year for a low margin rates should be levied on cookstoves and as a result
product like stoves. He had already moved out of stove business, they attract taxes as per the highest VAT tax slab
finding no incentive to be in the cookstove business, primarily owing applicable in the concerned state.
to the delayed turnaround time (three months) in recovering his Also, as difference in VAT rates applicable for ICs
initial investment. In rural areas, EEs who are very small players and differ significantly across states, it leads to variation
are not financially robust, pay the distributor only when the shipment in cookstove price. Refer Table 2 for an illustrative
arrives. Any delay in delivery of cookstoves is a risky proposition for the example.
distributor. This has now created a problem for the manufacturer who The price of improved cookstoves, especially in
stands to face a penalty of up to three times the value of consignment. the wake of such taxes becomes expensive for rural
households to adopt them, and therefore, they require
Availing the Excise Duty Exemption some form of financial assistance. As part of the
While as per Notification. No. 62/91-CE dated TERI–DFID partnership on energy access, TERI has
25.7.1991, item GE-43, in Section IX (Exemption disseminated close to 12,000 improved cookstoves
to certain goods and Industries) there is exemption in Uttar Pradesh, Odisha, Bihar, Himachal Pradesh,
to “improved chulhas (including smokeless chulhas) Meghalaya, Assam, Madhya Pradesh, Karnataka,
made of metal or pottery”, this circular (issued Andhra Pradesh, etc. In Bihar, TERI has found that, out
when the Government launched a programme on of the two models of improved cookstoves, SPTL0610
improved stoves) does not clearly indicate whether manufactured for TERI by RBS costing `2700 and
the exemption extends to stove accessories like another manufactured by NDMI costing `5199, TERI
fan and battery that are integral part of cookstoves
available today.
Further, the exemption on excise duty is available
only if an officer not below the rank of Deputy
Secretary to the Government of India in the Ministry

4 ISSUE 13 SEPTEMBER 2014
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