Oil industry up in arms against duty on crude

Private and public sector oil firms have opposed levy of 5 per cent customs duty on crude saying this would make import of products like jet fuel cheaper than manufacturing them in the country.

Finance Minister Pranab Mukherjee has in his Budget for 2010-11 brought 5 per cent import duty on crude oil back to garner Rs 10,000 crore in revenues. He had also increased excise duty on petrol and diesel by Re 1 per litre to mop up an additional Rs 7,000 crore.

Consequent to levy of 5 per cent customs duty on the raw material (crude oil), the import duty on some of the finished products (not all) have been increased by the same amount to retain the difference in duty on raw materials and finished goods.

However, products like kerosene, domestic LPG, naphtha for fertilizer and aviation turbine fuel (ATF), which consume roughly 26 per cent of the crude oil when refined, continue to have zero customs duty, the Petroleum Federation of India (PetroFed), an apex body of oil and gas companies, said.

"Thus the customs duty on raw material is higher than the customs duty on finished goods in these cases," PetroFed, which represents both public and private firms, said in a post-Budget memorandum to the government.

The phenomenon of import duty on products being lower than raw material is called negative tariff protection. The negative impact of this on refineries is estimated to be Rs 7,000 crore, it said.

"The said negative tariff protection in the case of refineries results in a situation where many refineries would not be able to recover the entire customs duty paid on crude oil in the selling prices of their finished products," PetroFed said.

"The protection available to refining companies is estimated to go down from Rs 7,600 crore in 2009-10 to Rs 400 crore in 2010-11," it said.

The negative duty protection is in addition to the Rs 190-crore per day loss state-owned Indian Oil, Bharat Petroleum and Hindustan Petroleum incur on selling petrol, diesel, domestic LPG and kerosene below cost.

"The additional Rs 7,000 crore in the hands of refineries would add to the heavy burden of under recoveries (revenue loss) already being suffered by the oil industry," it said.

PetroFed demanded that import duty on crude oil be brought back to nil.

It also demanded abolition of Rs 50 per ton of National Calamity Contingent Duty (NCCD) on crude oil imported by refineries. Levy of NCCD was introduced in 2003-04 to meet the situation arising out of severe drought that year.

"Though NCCD was initially meant to be levied only for one year, the said levy continues till date," it said adding that the government collects Rs 500 crore per annum from this levy.

"Since the said NCCD is paid as a duty of customs, Cenvat credit of the said amount is also not available to the refineries. Therefore, the entire amount of NCCD paid on imported crude becomes a cost to the refineries," it said.

"As the oil industry is a high value and low margin industry, any tax/duty which ends up as a stranded cost impacts the industry adversely."