Ceramic tiles manufacturers around the country have welcomed the recent statement of Prime Minister Mr Narendra Modi who had said that the Government is committed to bring natural gas into Goods and Services Tax (GST) regime to make prices cheaper and uniform across the country. Natural gas forms major share (about 50-70%) of power and fuel cost for ceramic companies, hence, if natural gas is brought under GST regime, ceramic companies will be able to take credit for input taxes.
Existing legacy taxes like central excise duty, state VAT, central sales tax etc. lead to adverse impact on natural gas based industries as they are presently unable to avail any input tax credit.
Ceramic tiles manufacturers in Gujarat and elsewhere in India pay significant VAT on gas purchases and transportation. According to ceramic tiles manufacturers, the cascading tax incidence varies from 15% to 25% depending on the state of manufacturing facilities. It should be noted that power and fuel cost account for 20-22% of revenue of the tiles manufacturers and switch over to GST regime will result in substantial savings. For example, Kajaria Ceramics, the largest tiles manufacturer may gain about Rs 70 crore on full year’s revenue. Similarly, Somany may gain Rs 35 crore. Purchasers will also gain if the manufacturers pass on part of the benefits to them by way of price reduction.
It may be recalled here that Gujarat Gas Limited (GGL) had increased industrial gas price by Rs 5/scm to Rs 34 per scm with effect from 1st February 2021. 17% price hike of February was preceded by Rs 4/scm hike on 29th December 2020. In other words, natural gas price has gone up by 37% since the end of December 2020 which is a steep increase. Therefore, lower taxes consequent to switch over to GST regime will be a great relief for the tiles manufacturers.