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The Glass industry consists of four main segments-Container glasses, Specialty glass, Flat glass and Fiberglass. Container glass, which is the largest segment in the glass sector, comprises of glass packaging for consumer goods and pharmaceuticals. Next largest segment is the specialty glass, which is mainly used, in technical applications such as electronics and engineering. Flat glass segment comprises of float glass and rolled glass, which are mostly used in architectural and automotive applications.
The price of Soda ash is a major cost in the raw material segment. Higher cost of input particularly Soda ash, which constitutes about 30% of cost of production of glass products, is one of the major factors contributing to the higher cost of glass and glassware. Major manufactures of Soda ash in India are Tata Chemicals, Gujarat Heavy Chemicals, DCW and NIRMA. They continue to rule the Indian market by fixing the prices of soda ash.
Budget Proposals
- Excise duty and service tax hiked from 10% to 12%.
Industry Expectations
The All India Glass Manufactures Federation has put forth the following expectations for the Union Budget 2012-13.
- Customs duty on imports of Soda ash be abolished.
- Exempt glassware produced by mouth blown process from central excise duty.
- In a tax system where the tax is levied on goods and services, CENVAT credit ought to be broad based covering all items used by the assessee for the purpose of business with a specific negative list.
- CENVAT Credit on any goods like cement, angles, channels, MS plates etc used for laying foundations or making structures for support of capital goods must be allowed.
- Allow full CENVAT credit on capital goods. Even though 100% CENVAT is allowed in respect of inputs at the time of receipt, only 50% CENVAT credit is allowed in case of capital goods in the year of receipt and the manufacturer has to wait till the next financial year for availing the balance 50% CENVAT credit.
- Retrospective amendments rectifying past drafting errors or adverse judicial decisions be avoided.
- Require clarity to the effect that services procured from outside India for use in the projects or activities carried on outside and for which payment is made by Indian company from India is not deemed to be taxable service in India in terms of reverse change mechanism.
Budget Impact
The increase in excise duty will have minimal impact on supplies to other user industries, as it is cenvatable. Where the industry supplies to the replacement sector without providing the break up of the product and the excise duty, impact will be felt. So, the players have to hike prices in respect of the supplies to replacement market.
Companies to watch
Hindustan National Glass, HSIL, Piramal Glass, Asahi India Glass.
Outlook
The hike in excise duties will impact the margins in the replacement market. Alternatively players have to hike the prices to factor in the hike in excise duty, in respect of supplies to replacement market. However, the hike in excise duties and service tax will have no significant impact in respect of supplies to OEMs. However, players with greater share of revenues from exports will marginally benefit, as we expect upward revision in duty draw back rates some time in June 2012, factoring in the higher incidence of excise duties and service taxes.
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