Rebate hit for auto parts units

NEW DELHI: In a move that could well spoil the Indian automobile party.

In a surprise announcement, the finance ministry on Monday notified components and assemblies for automobiles for levy of MRP-based excise duty, with an abatement of 33.5%.

In simple terms, what this means is that the auto component manufacturers, who were till now paying excise of 16% on factory price for their goods, will now be charged the same excise on maximum retail price - which is always higher than the factory price.

This will push up the manufacturing cost for the auto component makers, and, eventually mean dearer components for automobile users. And the olive branch the government has offered - abatement of 33.5%- appears to have added to the component makers’ woes.

Says V Mathur, executive director at the Auto Components Manufacturers Association: “We had requested the government to make 50% abatement available to us before levying MRP-based excise on automobile components. But government’s announcement has come as a disagreeable surprise to us.”

Mathur said unlike FMCG products such as shampoo and toothbrushes, auto components are almost always sold at a much lower price than MRP due to heavy discounting.

“This sector works on heavy discount principle and we will lose out further because of this practice. The worst-hit will be small-scale manufacturers and specifically those components which undergo maximum wear and tear - filters, gaskets and all engine parts. There is no other option but to increase MRPs if the government does not reconsider the abatement rate.”

On their part, officials of the department of revenue point out that the decision to introduce MRP-based excise would help plug excise leakages rampant in the auto component sector.