The Hindu Business Line : Oil Ministry to seek PMO's help on `irrevocable taxes'

THE Petroleum Ministry is planning to seek the intervention of the Prime Minister's Office (PMO) to help compensate the public sector oil companies with `irrevocable taxes' from the exchequer for fiscal 2003-04, according to official sources.

Indirectly, the largest beneficiary of this transaction under the scheme, which was introduced in 2002-03, is Reliance Industries Ltd.

For fiscal 2003-04, the Government had provided an amount of Rs 1,500 crore during the beginning of year for implementation of the scheme.

However, in the revised estimate at the end of the year, it withdrew the amount.

The Rs 1,500-crore scheme compensates refineries for the taxes that are levied by the State Governments and which are not allowed to be recovered from the consumer.

Under this scheme, Indian Oil Corporation (IOC) and other public sector marketing companies paid RIL around Rs 470 crore during 2002-03.

The other major beneficiary was Kochi Refineries Ltd, which received 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.

Sometime in January this year, the Finance Ministry ruled out implementation of the Rs 1,500-crore scheme for compensating refineries on taxes levied by the State Governments during the current fiscal.

It reasoned that such compensation would amount to transfer of resources from the Union Budget to the State Government.

Further, it argued that Reliance could set up retail outlets in neighbouring States and thus avoid payment of sales tax as it would then amount to inter-depot transfers that do not attract sales tax payment.

In the absence of compensation of the `irrevocable taxes', Reliance will 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.

Otherwise, it would require amendment of 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 from 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.