The Revenue Department is against the idea of including crude oil in the proposed free trade agreement with the six-nation Gulf Cooperation Council, fearing loss of customs revenue, but such a stance may derail the pact.
The Commerce Ministry has conveyed the Revenue Department's position to the Prime Minister's Office.
"Revenue Department is opposed to allowing crude oil imports at zero duty and wants that this item be kept out of the FTA with the GCC," a government official told PTI.
Such a stance may undo the FTA talks as crude oil alone accounts for a substantial share of India-GCC bilateral trade, sources said.
India imports crude oil worth $60 billion, of which 73 per cent comes from GCC members - Saudi Arabia, Kuwait, Bahrain, Qatar, UAE and Oman.
Inclusion of crude oil in the FTA would result in revenue loss to the government on account of customs duty exemption.
With a framework agreement with six members of GCC having been signed, inter-ministerial differences are blocking further progress on the negotiations of economic cooperation agreement with the oil-rich block, the sources said.
As per Article 24 of the WTO agreement, countries can negotiate FTA or Regional Trade Agreement if they do not distort multi-lateral trade and cover substantial trade among partners.
Apart from GCC, India is negotiating an FTA with ASEAN, Japan, China, South Korea and European Union.
Senior Commerce Ministry officials had recently briefed the PMO about the progress achieved in various FTAs. The representatives of Revenue Department were also present at the meeting.