GST cess: Inter-ministerial panel seeks higher tax on imported coal, full waiver on RSR coal

New Delhi: An inter-ministerial committee (IMC) headed by the Ministry of Coal has asked the government to consider imposing Goods and Services Tax (GST) cess on coal on an “ad valorem” basis instead of a fixed amount of Rs 400/tonne and completely waive off GST cess on coal transported via RSR (Rail-Sea-Road) route to make this coal competitive in comparison to imported coal. Coal Minister Pralhad Joshi released a strategy paper on coal import substitution on Thursday, which has been prepared with the aim of reducing the import of coal that can be substituted to zero by FY2025-26.

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Coal import trends

Citing a study conducted by PwC, the IMC has argued in the report that there is a co-relation between import of coal and international coal prices. “As indicated in Figure 8, when the average international coal price goes up, the imports of coal shows decreasing trend and vise-versa. Hence, GST Compensation Cess may be imposed on ad-valorem basis wherein the Cess would be directly related to the price and quantity of the coal, instead of the present levy of a fixed amount of Rs 400 per tonne,” said the report.

According to the report, most of the coal consumed by the power sector is being met via domestic coal production, with imports accounting for only 10 percent of the consumption. The bulk of the non-coking coal imports is being undertaken by the non-regulated sector (NRS). “~238 MT coal is imported in FY 2023 in India, including ~56 Mt of Coking coal, ~20 MT by import coal-based power plants (required superior quality of coal), 35 MT by Domestic based power plants and 125 MT by NRS sectors. But to substitute the imports of non-coking coal by domestic coal-based power plants and by NRS Sector, grade-wise coal requirement is needed and there is a need to find out whether coal imports (by domestic coal based power plants and NRS sector) is done due to lack of domestic supply having logistic challenges or lack of desired quality or higher landed price of coal at the plant as coal has to travel from Eastern to Western/Northern part of country,” said the IMC.

IMC calls for GST cess on coal to be imposed on ad valorem basis

“One of the main reasons for higher import of coal in the country is the nature of GST compensation cess, which is presently being charged at the flat rate of Rs 400/ton irrespective of quality, price and source (domestic/imported) of coal. GST Compensation Cess is based on tonnage and not on the GCV value of coal,” it added and suggested imposing GST cess on an ad valorem basis. An ad valorem tax is a tax whose amount is based on the value of a transaction or of a commodity. Since the value of imported coal is higher than domestic coal, it will attract a higher GST cess in comparison to domestic coal, thereby making domestic coal more competitive in comparison.

During the FY22, the GST compensation cess collected on the import of coal was around Rs 8,359.15 crore against the total import value of Rs 2,287,42.44 crore. During the same period, GST compensation cess collected on domestic coal (CIL & SCCL) was around Rs 29,096.8 crore against the approximate value of Rs 1,172,51.40 crore, according to the report. “As a thumb rule, every Rs 100 per ton increase in price of coal makes power costlier by approximately Rs. 0.06 per unit of electricity. So, the GST Compensation Cess alone is increasing the price of power by around Rs 0.24 per unit,” said the committee.

IMC calls for complete waiver of GST cess on RSR coal

“The coal movement through RSR mode is expected to be around 2 percent of the total coal production in the country. The waiver of GST compensation cess on this quantity would help in reduction of imported coal as the movement of domestic coal would become cheaper and would also give boost to the make in India initiative,” said the report. According to the Coal Logistics Plan released by the Ministry of Coal last week, the government is planning to expand RSR coal handling capacity to 120 MT by FY 2030 to aid evacuation of coal majorly from Talcher coal field of Mahanadi Coalfields Limited (MCL).

“MoPSW has taken the initiative to develop Inland Waterways NW-5 on Brahmani River for cargo transportation. NW-5 is proposed to be developed by FY 2030 through SPV. An SPV has been decided to be formed with the participation of the Ministry of Coal/Coal India Limited, Ministry of Ports, Shipping and Waterways/Inland Waterways Authority of India, Ministry of Power, State Government, and willing Gencos. Transportation of coal though Inland waterways will reduce Port handing charges,” said the report.

Coal import substitution

In order to substitute coal imports, the IMC has laid-down targets for increased coal production for all coal producers. Coal India, India’s largest coal producer, has been given a target of increasing its coal production from 780 MT in 2023-24 to 850 MT in 2024-25, 1 BT in 2025-26, 1.03 BT in 2026-27, 1.05 BT in 2027-28, 1.09 BT in 2028-29 and 1.12 BT in 2029-30. Captive and commercial coal mine production is targeted to increase from 162 MT in 2023-24 to 1.14 BT in 2024-25 to 1.5 BT in 2029-30. “CIL is expected to remain a major supplier of coal in India, its share is estimated to decrease to 74 percent in fiscal 2030 (from 80 percent at present) with increase in coal production from captive/commercial coal blocks in country,” said the report.

In addition, the IMC has suggested developing coal evacuation capacity and multi-modal connectivity for faster and efficient evacuation of coal. It has also proposed raising coal washing capacity in the country from 61 MT to 140 MT by 2030 and monetisation of old coal washeries to meet the demand of steel sector and substitute imports.

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