Fuel pump dealers bleed on sudden excise duty cut on petrol, diesel

The excise duty cut on petrol and diesel has not come as a festive bonanza for all. Having stocked up on fuel ahead of Diwali expecting higher sales, petroleum dealers are now staring at significant losses because of the sudden duty cut.

Ajay Bansal, president of the All India Petroleum Dealers Association, told Business Standard that pump owners bought fuel from oil companies at a rate that included central and state levies.

“This makes us vulnerable to knee-jerk changes in excise rates. The state government-levied value added tax (VAT) can be claimed and additional payments made by dealers are reimbursed quarterly. But there is no mechanism to claim the additional excise duty component which is levied by the Centre and has been paid by the dealers,” he said.

The Centre on Wednesday announced a reduction in excise duty on petrol by Rs 5 a litre and on diesel by Rs 10 a litre. The move came into effect from Thursday, bringing down the retail price of petrol in Delhi to Rs 103.97 a litre and diesel to Rs 86.67 a litre.

“On average, every dealer across the country has faced a loss of Rs 1.5 lakh per pump because of the Centre’s decision to suddenly lower excise duty. Most dealers had bought additional petrol and diesel stock because of Diwali,” Bansal added.

Dealers earn a commission of Rs 2.58 a litre on diesel and Rs 3.85 a litre on petrol. The excise duty cut has wiped out these gains for the fuel stocks already purchased by the dealers since the sale of these products will have to be made at the reduced price. A dealer generally stocks up on petrol and diesel for the coming three days at one go.

But it’s not that dealers don’t make gains from price volatility. “Dealers have a tendency to stock up when they anticipate fuel prices to go up due to crude oil price movement. This leads to them making gains well beyond the dealer margin that is assured to them. But the recent excise cut may have caught them off guard,” said a senior executive at an oil-marketing company.

“This comes as a business risk,” the official added.

The Centre had last tinkered with excise duty in March and May 2020, when it was hiked in two instalments by Rs 13 per litre on petrol and Rs 15 per litre on diesel. These hikes were in tandem with falling international crude oil prices then.

“The dealers could not avail themselves of the benefit of the excise duty hike that the Centre had implemented because instead of raising petrol and diesel prices, the oil companies had absorbed the price revision. This led to no change in the outgo for a dealer who paid the same price for buying petroleum products as before the hikes in March and May 2020,” Bansal said.

Commenting on the price of petrol and diesel after the excise revisions and their use as a political tool, Bansal said, “Despite the recent excise cut, the petrol price is well above Rs 100 a litre in Delhi. The Centre and state governments should stop using petrol and diesel prices as political tools and moderate them across the country. Consumers are now comfortable paying Rs 70-80 a litre for petrol and Rs 60-70 a litre for diesel. Bringing auto fuels under the goods and services tax regime can be one avenue for this.”