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Tuesday, Sep 16, 2003

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KRL opposes FACT plea to scrap entry tax on petroleum products

G.K. Nair

It is advisable to reduce the sales tax rather than to go for abolition of entry tax, says KRL. It still extends 30-day credit facility to FACT without interest and another 30 days with interest at PLR.

Kochi , Sept. 15

THE prevailing entry tax for petroleum products if abolished by the State Government, as demanded by Fertilisers and Chemicals Travancore Ltd (FACT) for reviving the ailing Central PSU, would result in the State loosing substantial sales tax revenues, besides bringing a negative impact on the sales of Kochi Refineries Ltd (KRL), according to Mr Cherian N. Punnoose, Director (Finance), Kochi Refineries Ltd.

The KRL supplied 1,06,043 tonnes of furnace oil to the FACT in 2002-03 and the sales tax collected at 17.8 per cent was Rs 17.68 crore, he told Business Line. The fertiliser company did not buy LSHS last fiscal. The sales tax on this is levied at 23 per cent while on naphtha it is 3.45 per cent, he said.

In the absence of entry tax, FACT would be able to import furnace oil from other sources but still it would have to pay 4 per cent Central sales tax apart from the transportation cost. In that event, the landed price would be on a par with that of KRL, he pointed out.

He said that KRL was charging the Refinery gate price (RGP), which was calculated on international parity. Besides, the price is negotiated with FACT and discounts were given. If at all transportation cost is met by the outside supplier for furnace oil, still FACT will have to pay the CST at 4 per cent and the difference in tax outgo might help it to make a saving of around Rs 12 crore. Whereas, the State would lose Rs 17.68 crore while KRL would be compelled to export the product, which might probably inflict a loss to the company, he said. The RGP of KRL will be cheaper because of the refinery's proximity to the Gulf, he said.

Given this situation it was advisable to reduce the sales tax rather than to go for abolition of entry tax, which is in force in other States also, he opined.

Mr Punnoose said that the marketing group of IOC, BPCL and HPC fixed the prices for petroleum products and "they cannot arbitrarily increase the price".

It is based on the internationally operated price moving in tandem with the crude price. Last fiscal the sales turnover and the profits of KRL and other players in the industry had shown a significant increase and "it was just because of the windfall benefits of the Gulf war and not because of any other factors," he claimed.

According to him, KRL still extends 30-day credit facility to FACT without any interest and another 30 days with interest at PLR. "There should have to be some flow back of money" and for which the refinery takes post-dated cheques, he said.

However, senior FACT officials said that if entry tax were withdrawn the company would be able to import petroleum products and that would result in a total saving of Rs 51 crore, which includes sales tax of Rs 20 crore.

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