The Hindu Business Line : Oil refiners, retailers want Govt to sort out excise duty issue

Duty imbroglio
The oil retailing companies want excise duty levied on both LPG and kerosene on the administered price.
The oil refining companies have been receiving notices from the excise authorities to pay the differential duty with equivalent penalty and interest.

New Delhi , April 7

Oil refiners and marketing companies are now looking up to the Finance Ministry to resolve a past-period excise duty valuation issue on petroleum products, particularly kerosene and LPG.

The excise duty calculation issue relates to the post-APM regime and up to February 2005, when the sale of such products by the refiners to retail companies was charged to excise duty on the basis of import parity price (IPP).

The Finance Ministry had held that the duty should be calculated on transfer price for this period.

The transfer price is the one at which petroleum products are sold to oil marketing companies by refiners and is based on the IPP.

The transfer price does not include the discount component offered by the refiners to oil marketing companies.

For diesel, petrol, LPG, and kerosene, it is higher than the price at which the end-consumer buys them because the Government has restricted the increase in end-prices.

Calculating duty

Both the refiners and Petroleum Ministry are of the view that the excise duty should be calculated on the market price of the subsidised products and not on the transfer price.

With the Finance Ministry insisting that the transfer price would be the basis on which excise duty would be levied, the refiners — ONGC and Reliance Industries Ltd (RIL) - had conveyed to the oil marketing companies that they would have to bear the additional duty liability that would arise for the period on account of the Finance Ministry's decision.

The oil retailing companies, which are reeling under the impact of high international crude oil prices, are of the view that excise duty should be levied on both LPG and kerosene on the administered price - at which oil marketing companies are required to sell to consumer - as both are still administered by the Government.

In the 2005 Budget, the excise duty on both kerosene and LPG were slashed to nil from the prevailing 12 per cent for kerosene and eight per cent for LPG.

Currently, refiners sell both these products to oil marketing companies on import parity prices.

Notices to retailers

The oil refining companies have been receiving notices from the excise authorities to pay the differential duty with equivalent penalty and interest.

Sources said that RIL had been asked to pay a differential duty of Rs 494.30 crore with equivalent penalty and interest for the period between July 2000 and February 2005 for selling kerosene and LPG to oil marketing companies.

According to industry sources, of this amount, IOC's share would come to Rs 260.12 crore if RIL were made liable. Incidentally, the Excise Department had also sent such a notice to ONGC demanding Rs 84 crore.

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