Bowing to repeated demand of the state-owned refiners, the petroleum ministry has proposed nil Customs duty on capital goods imported for new refineries, refinery expansions and green fuel projects mandated under auto fuel policy.
The demand gained momentum as 92 million metric tonnes of new refining capacity is expected to be added during 2007-12 with public sector undertaking (PSU) plan expenditure being to the tune of Rs 85,000 crore. New PSU refineries are proposed in Punjab, Bina and Paradeep.
"With tariff protection at its lowest, customs duty on project imports for new refineries may structurally increase the cost of refining for the new projects. Refineries need to be cost effective, as most of the production would have to be exported. It is essential that project cost be not inflated due to taxation on project imports," the petroleum ministry has stated in its wish list for the Budget to the finance ministry.
Outlining reasons for seeking customs duty waiver, the ministry has pointed out refineries to serve overseas product requirement need to produce high specification fuels. Moreover, investments in refineries for fuel quality upgradation are mandated under auto fuel policy. These investments generate negligible economic returns for the refineries and are being made due to statutory obligations.
Apart from this, the finance ministry has been urged to give 'declared goods' status to natural gas/ liquefied natural gas (LNG) under the Central Sales Tax Act. Similar status to other primary energy sources like coal and crude oil enable them to face sales tax of not more than 4 per cent.
"In order to provide a level playing field amongst different primary energy sources, natural gas include re-gasified LNG should be declared as 'goods' of special importance in the inter-state trade or commerce," the petroleum ministry has stated in its note for Budget proposals.
Post introduction of VAT, natural gas has been classified under revenue neutral rate of 12.5 per cent. Some states have kept natural gas out of VAT and are levying sales tax at the rate of 20 per cent. Besides VAT laws do not permit availment of input credit in case natural gas is used as fuel.
Email Deepak Joshi: djoshi @hindustantimes.com