Excise duty on branded fuels goes to FM court

Oil marketing companies (OMCs) have appealed to the finance ministry not to levy excise duty on branded fuels.

OMCs, after mixing multi functional additives (MFA) in normal motor spirit (petrol and diesel), market the products as branded fuels to cater to the niche market.

This implies that the oil marketing companies market the products after addition of MFA to the fully manufactured MS/HSD, which pays duty at the time of clearance from the refineries.

Since MS/HSD are currently marketed even without the addition of MFAs from the same outlets selling the branded fuels and the process of addition of a small dose of additive to the fully manufactured MS/HSD does not amount to manufacture, and duty is paid at the time of removal from the refineries, excise duty is not paid again.

According to sources, OMCs have brought to the finance ministry?s notice that the Central Board of Excise and Customs (CBEC) had recently issued a draft circular in this regard.

The circular had said mixing additives in normal motor spirit (petrol and diesel) results in the creation of a new product. Accordingly, the CBEC proposed to treat such branded fuel as ?manufactured products?.

The OMCs, while urging the ministry to withdraw the circular also wants the government to clarify the activity of blending MS/HSD with MFA for marketing as branded fuels.

?This new draft CBEC?s circular will have wider ramifications, since MS/HSD suffers full duty incidence right at the time of removal from the refineries and are excluded from the purview of Cenvat Credit/Captive consumption exemptions. OMCs are already contesting such demands in the Cestat. The proposal to treat the process as manufacture will also result in huge demand of sales tax, since in terms of the state Vat / sales tax laws, MS/HSD is not eligible for input tax credit if used in manufacture.? OMCs argued.