Extend tax holiday for refineries in private sectors, reduce excise duty on Naphtha from 16%, exempt excise duty for captive consumption of intermediate products within the refinery for manufacture of exempted products.
Current status
Indian refining sector is a net exporter, and aims to become the refining hub for the global market, which took a giant leap with the start up of Reliance petroleum 580,000 barrel of oil per day capacity in FY'09. Highly volatile crude oil prices in FY'09 with topping around $140 per barrel and finding bottom around $40 barrel, having differential of $100 per barrel created havoc for refining companies in FY'09 plunging refining margins on account of inventory losses. However with Government issuing more than Rs 70000 crore of oil bonds and upstream companies sharing under recoveries of more than Rs 30000 crore helped PSU OMCs to report positive bottom line.
Current duty structure
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CENTRAL EXCISE |
CUSTOMS DUTY |
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DESCRIPTION OF GOODS |
BASIC CENVAT DUTY |
SPECIAL ADDL EXCISE DUTY |
ADDL. EXCISE DUTY |
BASIC CUSTOMS DUTY |
ADDL. CUSTOMS DUTY |
ADDL. CUSTOMS DUTY |
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Crude Petroleum |
Nil |
N.A. |
N.A |
Nil |
Nil |
N.A |
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Rs. 2500/MT as Cess+ |
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Rs. 50/MT as NCCD |
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Rs. 50/ MT as NCCD |
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Motor Spirit |
Rs 5.35/ltr. |
Rs.6/ltr |
Rs.2.00/ltr. |
2.5% |
Rs 5.35/ltr + |
Re.2.00/ltr. |
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Rs.6.00/ltr SAD |
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Motor Spirit (branded) |
6%+ Rs 5/ltr |
Rs.6/ltr |
Rs.2.00/ltr. |
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Naphtha |
16% |
N.A. |
N.A. |
5% |
16% |
N.A. |
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- Fertilizers |
Nil |
N.A. |
N.A. |
Nil |
Nil |
N.A. |
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- Petrochem.* |
16% |
N.A. |
N.A. |
5% |
16% |
N.A. |
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- Power Generation |
16% |
N.A. |
N.A. |
Nil |
16% |
N.A. |
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A.T.F. |
8% |
N.A. |
N.A. |
Nil |
8% |
N.A. |
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Kerosene (PDS) |
Nil |
N.A. |
N.A. |
Nil |
Nil |
N.A. |
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(Non PDS) |
14% |
N.A. |
N.A. |
5% |
14% |
N.A. |
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HSD |
Rs.1.60/Ltr |
N.A. |
Re.2.00/ltr. |
2.5% |
Rs.1.60/ltr. |
Re.2.00/ltr. |
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L.D.O. |
14%+ |
N.A. |
N.A. |
5% |
14%+ |
N.A. |
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Rs. 2.50/ Ltr. |
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Rs. 2.50/ Ltr |
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Furnace Oil - Non-Fert. |
14% |
N.A. |
N.A. |
5% |
14% |
N.A. |
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Fertilizers |
Nil |
N.A. |
N.A. |
Nil |
Nil |
N.A. |
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Transformer Oil |
14% |
N.A. |
N.A. |
5% |
14% |
N.A. |
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Lube oil/greases |
14% |
N.A. |
N.A. |
5% |
14% |
N.A. |
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LPG(Dom) |
Nil |
N.A. |
N.A. |
Nil |
Nil |
N.A. |
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LPG(Non-Dom) |
8% |
N.A. |
N.A. |
5% |
8% |
N.A. |
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Butane / Propane |
14% |
N.A. |
N.A. |
5% |
14% |
N.A. |
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Butane / Propane(Dom) |
Nil |
N.A. |
N.A. |
Nil |
Nil |
N.A. |
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LNG |
NIL |
N.A. |
N.A. |
5% |
NIL |
N.A. |
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Natural Gas |
NIL |
N.A. |
N.A. |
5% |
Nil |
N.A. |
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Natural Gas(compressed) |
14% |
N.A. |
N.A. |
5% |
14% |
N.A. |
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Petroleum Jelly |
14% |
N.A. |
N.A. |
5% |
14% |
N.A. |
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Waxes all types |
14% |
N.A. |
N.A. |
5% |
14% |
N.A. |
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Petroleum Coke |
14% |
N.A. |
N.A. |
5% |
14% |
N.A. |
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Petroleum Bitumen |
14% |
N.A. |
N.A. |
5% |
14% |
N.A. |
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LSHS/ HPS & other Res. |
14% |
N.A. |
N.A. |
5% |
14% |
N.A. |
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- Fertilisers |
NIL |
N.A. |
N.A. |
5% |
NIL |
N.A. |
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Bitumen & Asphalt |
14% |
N.A. |
N.A. |
5% |
14% |
N.A. |
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* For the manufacture of specified polymers Additional Duty of Customs @4% would be levied on all imported products except petrol, diesel, SKO(PDS), LPG(Dom), coal, coke and petroleum gases and fuels of Ch.27 |
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In addition to above, Education Cess @2% on aggregate duties will be charged w.e.f. 9.7.2004 and additional 1% will be charged w.e.f. 1.3.2007. |
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* For generation of power the customs duty on the imported Naphtha was reduced from 5% to Nil wef 07.12.08. However this exemption was valid upto 31.03.2009. Wef 24.02.2009 the exemption for Naphtha for power generation is valid beyond 31.03.2009. |
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Industry expectation
Bring excise duty on Naphtha on par with general CENVAT rule. Excise duty on Naphtha continues to be 16% in spite of general CENVAT rate reduced from 16% to 14% (10% for Non petroleum products) as no amendment as been made to notification.
Exemption of excise duty for captive consumption of intermediate products within the refinery for manufacture of exempted products.
Refineries are unable to avail CENVAT credit for the input duty of Rs. 200 crore due to the manufacture and clearance of Naphtha supplied to Fertilizer Units, LPG (Domestic) and SKO for public distribution, on which goods the government has, for socio economic reasons, maintained the rate of duty as 'nil'.
Hence a major part of almost 40% of the above input credit of Rs. 200 crore is to be 'reversed' since they represent the prorata input credit used in the manufacture of exempt products. To remedy the above anomaly, Naphtha supplied to Fertilizer Units, LPG (Domestic) and SKO for public distribution should be included in rule 6(6) of Cenvat Credit Rules, 2004, so that the exemptions given by the Government for socio economic reasons do not deny the benefit of full CENVAT.
Appropriate clarifications to be issued by the Board with regard to calculation of additional duty u/s 3(1) of the CTA (normally referred as CVD). Customs authorities include the additional duty of customs in the value of the imported goods for the purpose of calculating CVD. However as per Sec 3 (2) (ii) (a), value for calculating CVD shall not include additional duty.
NCCD (National Calamity Contingent Duty) and cess thereon may be abolished and if necessary, the loss of revenue to the exchequer could be adjusted in the tariff rate of any other product since after the withdrawal of customs duty on import of crude payment of a nominal sum as NCCD for crude oil imports involves customs procedural formalities.
Extend depreciation benefits available to pollution control equipment to capital investments made by refineries for producing fuels with stringent emission norms.
The Industry wants extension of tax holiday u/s 80IB (9) to refineries in the private sector also. Currently the benefit extends to 8 Refineries in the public sector which begin refining after 31st March 2009 but on or before 31st March 2012.
Analysts/market expectations
The government had in earlier notifications had reduced customs duty on crude to NIL from 5%, customs duty on petrol and diesel to 2.5% from 7.5% and excise duty on branded petrol and branded diesel by Re1 per litre. So there is no specific demand with respect to duty. However government may tweak with some duties to generate additional resources.
Stock to watch
RIL,Indian oil, BPCL, HPCL
Outlook
Petrol prices were reduced by Rs 10 per litre and diesel prices by Rs 4 per litre when the prices of crude oil fell from $140 per barrel to $40 per barrel. However there is no upward revision when prices have jumped to $70 per barrel. With Gross refining margins weak refineries are again in bad shape. There is expectation of partial deregulation of the oil markets but seeing the sensitivity attached to petrol, diesel, kerosene and LPG prices and jump in oil prices it looks almost unlikely.