Refineries in the special economic zones (SEZs) and export-oriented units (EOUs) will soon be allowed to sell their petroleum products in the domestic tariff area without having to pay additional taxes and duties.
The proposal moved by the petroleum ministry will essentially benefit Reliance Industries Ltd (RIL), which has an existing 33-million-tonne-per-annum export-oriented refinery at Jamnagar in Gujarat and is close to commissioning its second 29 mtpa refinery in the Jamnagar SEZ.
The ministry has asked the commerce ministry, which decides on tax matters affecting SEZs and EOUs, to do away with the existing taxation and legal constraints for sale of petrol and diesel to the oil marketing companies?Indian Oil, HPCL and BPCL. If the move is approved, EOU/SEZ-based refining companies would earn another avenue to sell their products instead of having to rely only on exports.
As of date, other than RIL no private refiner has a unit in EOU or SEZ. Essar Oil?s refinery in SEZ will get commissioned in 2010. Its existing 10.5 mtpa refinery in Vadinar is not in any such zone.
The petroleum ministry has cited commercial feasibility as the reason for suggesting the tax breaks. Sale of petrol and diesel from an SEZ-based unit to the rest of India attracts several taxes. These are an additional duty of excise on petrol and diesel?of Rs 2 per litre each?levied under Section 111 & 116 of the Finance Act, a special additional duty of excise of Rs 6 per litre of petrol and the education cess.
A ministry note says, ?Upliftment of petrol and diesel by OMCs from EOU/SEZ refineries for domestic sale needs to be exempted from additional duties and taxes so as to ensure that the transaction between the parties is commercially feasible. Exemption notification 24/2003 under the Excise Act exempts goods from an EOU cleared to DTA from certain additional excise levies. This has been done to ensure that excise duties levied by special enactments are not collected twice, once as of additional duty of customs and again as a duty of excise under special enactments. The 2003 exemption notification does not list out additional duties of excise relating to petrol and diesel?.
At present, the public sector oil marketing companies import diesel at the import parity price, or from stand-alone domestic refineries at the refinery transfer price or the trade parity price (which is a combination pricing of 80% import parity and 20% export parity prices). In contrast, the EOU/SEZ refining companies sell products at export parity prices.
To put things in perspective, a refiner would prefer the import parity price, which is the highest. The refinery transfer price is lower and the export parity price is the lowest of the three. Therefore, if RIL, which is currently getting export parity price for petrol and diesel, is allowed to sell products from its EOU/SEZ refinery to the oil marketing companies, it will get the benefits of trade parity pricing. In addition to this, if the additional taxes and duties are done away with, as is proposed by the petroleum ministry?RIL will also get the deemed export benefit on petrol and diesel sales for domestic needs.
