DEPB aid on ATF to attract global airlines

Written by Anupama Airy | New Delhi, May 12 | Updated: May 14 2008, 03:46am hrs
In order to make the prices of jet fuel (aviation turbine fuel) and bunker fuel (furnace oil and diesel for ships) competitive for international airlines and shipping lines at the Indian airports and seaports, the government is considering fixation of all-industry rate of duty drawback on the supplies of petroleum products.

Currently, the all-industry rates of duty drawback for petroleum products are only available for supply of fuel oil and diesel to SEZ units.

According to a senior petroleum ministry official, if agreed upon the move will help in attracting international airlines as well as shipping lines re-fuel at Indian airports and seaports. While the domestic oil companies like Indian Oil, BPCL and HPCL are currently supplying ATF to international airlines as well as bunker fuel to shipping lines, the price of these fuels is on the higher side on account of the element of customs duty (5%) paid on the crude oil.

As the prices of ATF at Indian airports is uncompetitive, it restricts international airlines and shipping lines to take the above supplies in Indian airports and seaports. Due to the growth in Indian economy, international flights in and out of India are increasing. We have already taken up the issue with the petroleum ministry for further recommendation to the concerned authorities, the official said.

Considering that the international prices of petroleum products are highly volatile and in order to reflect the same in the duty drawback rates, there is a need to work out the all-industry rates of drawback for supplies of petroleum products as a percentage of FOB (free-on-board) value of the export in order to take care of the volatility in input prices.

Under the Duty Drawback Scheme, the finance ministry reimburses all central duties, including customs and central excise, paid on inputs and service tax paid on input services used in the manufacture of export goods.

Domestic oil industry leaderIndian Oil Corporation (IOC) has already conducted an exercise and has worked out the All Industry Drawback rates (as a percentage of FOB value of export) based on the prices of Indian basket of crude oil and products during January-March 2008, taking an exchange rate of Rs 40 per US dollar and the standard input output norms published by the Department of Foreign Trade (DGFT). As per IOCs workings, the duty drawback rates for LPG works out to be 8%, for petrol at 6%, for diesel, superior kerosene oil (SKO) and ATF at 5% each and 7% for the furnace oil. If agreed upon, this will result in a savings of anywhere between Rs 1,500 per mt to Rs 2,500 per mt in the prices of petroleum products.

In addition to the fuel supplies to airlines and shipping lines, Indian Oil has also stated that as the oil industry is also making supply of LPG, petrol, diesel, SKO, furnace oil and ATF to adjoining countries, there is a need to make the supplies of petroleum products internationally competitive. Therefore, there is also a need to have All Industry rate for the above supplies also so that the element of customs duty paid on crude oil does not hamper our competitiveness, the official said. Although the duty drawback review is an annual exercise, which follows the Budget proposals, these rates for 2008-09 are yet to be notifies as a three member committee of the government comprising comprises Member, Economic Advisory Council to the Prime Minister, Saumitra Chaudhuri, senior finance ministry official SB Mohapatra along with the former Chief Commissioner of Customs & Central Excise TR Rustagi is reviewing the duty drawback rates under different schemes. The committee is expected to submit its report by May and will recommend duty drawback rates for 2008-09. The sources said the rates are likely to be fine tuned considering changes in average rates of excise, customs and countervailing duty in the Budget on various export items.