ONGC, Cairn India demand lowering of cess on crude

Producers are demanding cutting cess to 8% of the realised price of crude oil in the domestic market

Ahead of the Budget, state-owned oil producer ONGC and private sector Cairn India have asked the government to cut cess on crude oil saying the switchover from fixed to ad valorem rates had turned things from bad to worse.

The producers want the government to cut the cess to 8 per cent of the price they realise on sale of domestically produced crude oil.

In the previous Budget, Finance Minister Arun Jaitley had converted Rs 4,500 per tonne fixed cess on crude oil to 20 per cent ad valorem.

"The 20 per cent cess rate provided benefit for a temporary period only up to moderate crude prices," their association PetroFed last month wrote to Revenue Secretary Hasmukh Adhia.

With the oil cartel OPEC deciding the cut production, global oil rates have started moving up.

"As a result the domestic producers of crude oil are again feeling the pinch with 20 per cent ad valorem cess and are in fact in a much worse off than before," PetroFed wrote.

It said there was an urgent need to reconsider the issue and provide the much-needed relief to the domestic oil producers.

"On behalf of the industry, we would once again like to submit for an expeditious correction in the levy of cess on domestic crude oil production from 20 per cent to 8 per cent of the realised price of crude oil," it said.

PetroFed said reducing the cess rate would help to expeditiously increase oil production, meeting vision of 'Make-in-India' and enhance energy security.

The Oil Industry (Development) Act, 1974 provides for the collection of cess as a duty of excise on indigenous crude oil. Cess incurred by producers is not recoverable from refineries and thus forms part of the cost of production of crude oil.

The cess was levied at Rs 60 per tonne in July 1974 and subsequently revised from time to time.

During 2005-06, when crude oil prices had increased from an average of $40 per barrel to $60 per barrel, OID Cess was increased from Rs 1,800 to Rs 2,500 per tonne from March 1, 2006.

Again, when the crude oil prices increased to over USD 100 per barrel, the rate of cess was increased by the government to Rs 4,500 per tonne (USD 10 per barrel) with effect from March 17, 2012, PetroFed wrote.

It said the government had effectively linked the cess rate to prevailing crude oil prices in the past.

Most of crude oil produced in India comes from pre-NELP and nomination blocks and is liable for payment of cess.

While New Exploration Licensing Policy (NELP) blocks like Reliance Industries' KG-D6 area are exempt from payment of cess, pre-NELP discovered blocks like Panna/Mukta and Tapti and Ravva pay a fixed rate of cess of Rs 900 per tonne.