In effect, the prevailing system of state surcharge in Gujarat meant to offset under-recoveries in CST payment by oil companies will now be supplemented by an all-India sales-tax surcharge. This simply means that the rest of the country will now share a portion of the surcharge, formerly borne by Gujarat alone.
The balance would be reimbursed to oil marketing companies through the existing surcharge scheme for all controlled products inclusive of petrol and diesel.The state surcharge scheme was mooted by the OCC to reimburse oil companies for under-recovery of CST. For instance, if Indian Oil's Koyali refinery in Gujarat supplies products to Bharat Petroleum Corporation in Madhya Pradesh, the latter pays the CST to IOC which, in turn, passes this on to the Gujarat government.
In turn, BPCL sells the products to customers in MP but only recovers the local sales-tax component. To make up for its irrecoverable CST payment to IOC, the state surcharge scheme comes into force. This is applicable to all petro-products sold within the state (Gujarat in this particular example) and is paid to the OCC which, in turn, reimburses this to the oil companies, in this case BPCL, for their CST outgo.
Given that RPL and Essar Oil have sought deferment in sales tax payment for 15 years, all products sold by their refineries to the three marketing companies - IOC, HPCL and BPCL - will result in a situation where CST will not be passed on to the Gujarat government during this period. In this situation, implementation of the state surcharge scheme would result in products in Gujarat being dearer by at least Rs 3.50/litre, a clearly impossible scenario. The ministry has, therefore, formulated a plan which will result in a reduction in Gujarat's state surcharge by dividing this among other states. This can be done by seeking alternative modes to move products inter-state which do not attract taxes on inter-company transactions.
The government of Gujarat told the petroleum ministry that its burden of state surcharge could be reduced if inter-company sales are effected in the "consuming" states instead of carrying them out in Gujarat. The big three (IOC, BPCL and HPCL) which will be involved in the exercise have been asked to ensure that products procured in a particular state, inter-state movement of which is subjected to non-recoverable taxes, are sold in the same state.
The ministry has also suggested to these PSUs that they move their controlled products (motor spirit, high speed diesel, superior kerosene oil, liquefied petroleum gas and aviation turbine fuel) to the consuming states as their own stocks and to see that inter-company sales are effected only in these regions. Reimbursement for under-recoveries on account of non-recoverable taxes on controlled products moved inter-state will be granted by OCC only if the guidelines indicated above are complied with.
Copyright © 2000 Indian Express Newspapers (Bombay) Ltd.