Mantralaya sources told The Financial Express on Wednesday that DPC would have to pay 4 per cent sales tax. "The government, way back in 1995, has modified the sales tax rate to 4 per cent to discourage the import of naphtha from Gujarat by electrical companies operating in Maharashtra. The decision was taken with a view to encouraging electrical companies to procure naphtha at reduced rates within the state," government sources added.

Sources said that these companies had to pay nearly 15.3 per cent sales tax on naphtha that was procured from Gujarat. However, following their representation, the government slashed the sales tax rate to 4 per cent.

The state finance department's opinion, which would be presented before the state cabinet shortly in order to take a final decision, deserves special significance especially when the state energy department and the loss-making Maharashtra State Electricity Board (MSEB) have wholeheartedly supported the DPC's cause and recommended the sales tax waiver. DPC, which was asked by the Union ministry of oil and petroleum to procure naphtha within the country in view of excess availability, in its presentation to the state government and to MSEB, had made it clear that it would be left with no alternative but to pass on the additional burden on the MSEB which would be ultimately passed on to its consumers. DPC had also told the state government that it had not paid sales tax on the procurement of naphtha from Glencore in the calender year 2000.

Sources from the state energy department and MSEB have stressed on the need for such a waiver while expressing their inability to bear additional burden. They have suggested that the state should reciprocate by offering a sales tax exemption to DPC because the IOC, at the behest of the Centre, has tried to match the international landing price of naphtha during the recently signed memorandum of agreement with DPC. "If the state finance department sticks to its views, it may hurt the state as a whole," sources from the state energy department and MSEB said.

DPC will procure naphtha at Rs 11,050 per ton from IOC during the calender year 2001 as compared to the Rs 10,050 per tonne price quoted by Glencore.

The naphtha price comprises $175 per tonne free on board (FOB), 21.8 per cent of customs duty, 5.4 per cent of sales tax and $18.87 of premium.

DPC senior vice president Mukesh Tyagi reiterated that the company has already made an appeal to the state government for the sales tax waiver on naphtha in the larger interest of the consumers. "Sales tax is a pass through and MSEB, which will have to bear the additional burden, will pass it on the consumers," he added.