Financial Daily from THE HINDU group of publications
Thursday, Nov 20, 2003
Financial Daily from THE HINDU group of publications Thursday, Nov 20, 2003 |
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Petroleum Industry & Economy - Taxation CST bill: Finance Ministry move to hit Reliance Balaji C. Mouli
New Delhi , Nov 19 THE Finance Ministry has ruled out implementation of the existing Rs 1,500-crore scheme for compensating refineries on taxes levied by the State Governments but are not recovered from the consumer during the current fiscal. This, despite the fact that the Union Budget for fiscal 2003-04 has provided this amount under the head "Irrevocable taxes". Under the scheme, which was operational in 2002-03, Indian Oil Corporation and other public sector marketing companies had paid Reliance Industries Ltd around Rs 470 crore. The other major beneficiary was Kochi Refineries Ltd, which got around Rs 200 crore. Reliance was paid this sum towards the Central Sales Tax (CST) levied by the Gujarat Government on the petro-products sold by its Jamnagar refinery to the public sector oil marketing companies outside the State and not recovered from the consumer. While the Budget has provided a compensation sum of around Rs 1,500 crore for the fiscal 2003-04, the Finance Ministry has, however, recently communicated to the Petroleum Ministry that it would not implement the scheme this year. It has reasoned that such a compensation would amount to transfer of resources from the Union Budget to the State Government. The Petroleum Ministry is now planning to write back to the Finance Ministry on the issue and seek a review. In case the Petroleum Ministry's plea fails to convince the Finance Ministry, Reliance may have to absorb the Rs 470-crore CST bill within the `import parity' price paid to it by the marketers, thus taking a hit on the refinery margins. Import parity price comprises the landed cost of the product and the customs duty. Else, it would require to amending its agreement with the State Government, which allows for an option to waive the CST. In the existing arrangement, the CST is `deferred' for 15 years, which enables Reliance to charge the levy to its buyers and retain the CST amount billed for that period. In case the CST is waived, Reliance will not be able to raise the CST bill and enjoy the benefit of interest free money for 15 years.
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