Top revenue officials said this is to protect the domestic industry which fears that cheaper imports would outprice their products besides resulting in additional revenue for the exchequer. The extension of the surcharge is expected to be announced by the finance minister during his reply to the debate on the Finance Bill in Parliament later this month.

The finance minister had reduced the peak import duty from 45 per cent to 40 per cent while at the same time decided to exempt them from the 10 per cent surcharge. This implied a double blow for various consumer products made indigenously.

The domestic industry has already made detailed representations to the ministry saying that trading in the imported products in this segment would be more lucrative than manufacturing.

According toan estimate, import of goods attracting 40 per cent basic duty has now become cheaper by 5-7 per cent in comparison to locally manufactured goods. For example, net price advantage in trading of imported tyres over domestically manufactured tyres would be 5 per cent. Similarly, the net price advantage in trading of office machines excluding computers would be 5.2 per cent.

Officials feel that this kind of situation would impede the growth of domestic industry and therefore needs to be rectified at the earliest. Some of the other commodities which now attract the 40% peak import duty include motor vehicles, cosmetics and toilet preparations, air-conditioning appliances and consumer durables and clocks and watches.

Another such anomaly has cropped up due to inadequate differential between raw material and finished products in the polyester fibre industry. The composite duty on PTA/MEG is 35 per cent (25 per cent+10 per cent surcharge) and that on PSF 35 per cent plus surcharge.

The differential protectionis thus only 7.5 per cent, which is meagre considering the amount of value addition required in the manufacture of PSF, feel those in the industry. Even the intermediate product, PET chips, enjoys a higher protection with import duty of 35 per cent plus 10 per cent surcharge.

The raw material PTA also enjoys a huge differential protection level of more than 25 per cent despite the value addition in manufacture being less than PSF. Industry watchers feel that fixation of a specific rate of duty at Rs 18-20 per kg of PSF for a period of 2-3 years, would not only meet the bilateral commitment of 20 per cent duty made to the USA/EU, but would also facilitate a realistic level of protection for the Indian PSF industry. This would also facilitate a fair domestic competition, they feel.

The revenue department is considering revision of the import duty on PSF/PTA to ensure at least a 15 per cent differential between raw material and finished product as demanded by the industry.

The soaps and detergents industryis also witnessing an anomalous situation. The abatements allowed to the toilet soaps, detergents and scouring preparations are less than even the sum total of sales tax and trade margins. These items have been covered under Section 4(A) of the Central Excise Act thereby attracting excise levy based on maximum retail price (MRP).

It is expected that the move to an MRP based excise duty would lead to an effective increase in excise duty, which would result in increasing prices.

The soaps and detergent industry is demanding an increase in the abatement allowed to toilet soaps, synthetic detergents and scouring preparations from 35 per cent to 44 per cent.

Officials in the revenue department though do not agree to the view that MRP-based excise duty structure would lead to increase in prices. Instead, they are considering the establishment of a mechanism for periodic review of abatements as and when there are significant changes in the cost structure.