Financial Daily from THE HINDU group of publications
Thursday, Nov 13, 2003
Industry & Economy
White kerosene proves lucrative for racketeers
Kochi , Nov. 12
RAMPANT evasion of sales tax by dealers of imported superior kerosene oil (SKO) deprives the southern States of enormous tax revenue, apart from increasing air pollution in the State because of its use as automobile fuel in place of diesel.
A study undertaken by the Southern Region of the Anti-Adulteration Cell (AAC) recently observed that "unimaginable quantities of white kerosene (SKO) are being imported for consumption by industrial consumers and by the general public."
It also reveals that the white kerosene imported through the Kochi and Mangalore ports are initially stored in the tanking facilities available and subsequently moved to various destinations in a phased manner depending on demand.
The quantity of white kerosene imported during the period from Apr 2002 to Mar 2003 is 5,18,146 tonnes in Kochi and 2,07,045 tonnes in Mangalore, totalling 7,25,191 tonnes worth about Rs 1,127 crore. The sales tax implication on this quantity of SKO works out to about Rs 221 crore approximately which, if equally divided among the three user States works out to approximately Rs 74 crore.
According to Dr G. Prasanna Kumar, Director-General, AAC, a substantial portion of SKO imported in to Kerala is moved out on stock transfer basis. In the absence of a mechanism to cross check whether the product has physically left the borders, "it is certain that a major part is off loaded within the State itself by the truck and bus operators.
Obviously, the State Government suffers a heavy loss of revenue on account of such sales tax evasion". Further, he said, the quantum of revenue, which would have otherwise been collected on the consumption of HSD is also lost. The sales tax on diesel is around 28 per cent as against 13.8 per cent on SKO.
Though the Kerosene (Restriction in Use and Fixation of Ceiling Price) Order, 1993, lays down the conditions to be observed by parallel marketers of kerosene, these conditions are observed more in their violation than compliance, he said.
A survey made by the AAC reveals that the tankers ferrying the imported SKO are discharging the product into barrels on wayside vending points along the highways, where it is filled into the fuel tanks of trucks and even buses in spite of the express prohibition under the Kerosene Control Orders against the use of it as a fuel in automobiles.
"There has been a mushrooming growth of such vending points along the major highways in Thrissur, Palakkad, Idukki and Ernakulam districts.
Joint operations by the State departments of transport, civil supplies and the AAC had unearthed some of these illegal activities, he pointed out.
The Union Ministry of Petroleum and Natural Gas in its order dated October 17, 2002 had banned the use of SKO "as fuel in spark ignition engines or compression ignition engines" and "its use as fuel or additive to fuel in motor vehicles". However, the traders had got the enforcement of this order stayed by the court.
There are about 10 importers who jointly import the SKO. The customs duty and the central excise would come to 38 per cent and thus the landed cost is same for all the importers, a major SKO importer told Business Line.
In addition, the sales tax is levied at 13.8 per cent in Kerala while in Tamil Nadu it is 25 per cent. When the load is sent to Tamil Nadu after paying CST at 4 per cent and without any bills/documents, the buyer makes a saving of 21 per cent on sales tax there, he said. Besides stock transfer at under-invoiced price and moving out two to three loads in one invoice to nearby locations in Kerala are also done to evade tax. How can one sell large volume at prices much below the imported cost? He said that the importers sell the SKO to dealers who hold licences (those who trade more than 2,000 litres).
Average sales in Kerala estimated at 40 loads per day and the sales tax at the current SKO price of Rs 16.50 per litre would come to Rs 2.4 crore a month. On an average, 110 loads leave Kerala daily and of this 80 per cent is for Tamil Nadu. Roughly 50 per cent of this is moved out after paying 4 per cent CST while the rest goes without paying any tax. The tax levied per month, according to official sources, is only Rs 3.5 crore.
According to a dealer, lorries fill 300 to 400 litres of SKO per day while the private buses 200 - 250 litres. For the bus operators, they make a saving of around Rs 1,000 per day. The difference in prices of SKO including the additive price if at all added, and diesel comes to around Rs 5 per litre.
The cetane number in diesel is 45 while that in SKO is 39 and so as to raise the number to 45, permissible additive is mixed with the kerosene. Besides, it will also give the required viscosity as in diesel.
A new lorry that used SKO with the additive as fuel could pass the pollution test. The engine suppliers are, in fact, supplying the additive also these days, it is claimed.
In the industrial sector, major consumers are textile mills and each absorbs on an average 10 loads (1,20,000 litres) per month. The textile mill used to make a saving of Rs 5 lakh on the fuel cost. "They use it because it is economical and does not inflict any damages to the engines," the importer said.
Meanwhile, Mr S.D. Jeyaprasad, Senior Environmental Engineer, Kerala State Pollution Control Board, Thiruvananthapuram, said the use of kerosene as fuel in automobile engines caused incomplete combustion, resulting in increased carbon monoxide and carbon soot in the emission and higher carbon deposit in the engines. "Additions of substances such as waste/used oil in kerosene to make it look like petrol or diesel and usage thereof in motor vehicles can be prohibited by invoking sub-section 5 of section 19 of the Air (Prevention and Control of Pollution) Act, 1981".
There has been a substantial drop in the sale of diesel in Kerala in 2002-03 despite an increase in the vehicle population because of the use of SKO as automobile fuel, Mr P.J. Antony, General Secretary, All-Kerala Federation of Petroleum Traders told Business Line. As against the estimated demand of 1,39,09,45,409 litres in 2002-03, the sales stood at 1,35,08,86,350 litres, he said.
This has negatively affected the off take of diesel from Kochi Refineries Ltd. A senior executive said that there has been a substantial drop in the sales of HSD of late.
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