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Feb 23, 2013, 02.00 PM IST | Source: Moneycontrol.com

Will oil & gas sector get a boost this Budget?

India’s oil & gas sector, often regarded as the country’s growth engine, has grown by leaps & bounds over the past one decade, but the quest to reach the top of global league remains a major challenge because of rising under-recoveries and lack of policy impetus.

LK Gupta, MD & CEO, Essar Oil
LK Gupta
Essar Oil

India’s oil & gas sector, often regarded as the country’s growth engine, has grown by leaps & bounds over the past one decade, but the quest to reach the top of global league remains a major challenge because of rising under-recoveries and lack of policy impetus.

The Indian oil & gas sector is a large revenue earner for the Central and State Governments. In 2011-12 it contributed Rs 2,32,769 crore to central and state governments by way of various taxes, which as a percentage of total indirect taxes is 20.6 percent. (as per PPAC Indian Public Finance Statistics 2011-12, Ministry Of Finance data) We look to the government to provide support and encouragement to the sector as it is a core sector and pays a significant role in nation building.

Read more: Hope FM removes customs duty on imported LNG: Essar Oil

At a time, when the government earns major chunk of its revenue from the oil sector, I would like the finance minister in its Union Budget presentation for 2013-14, later in February, to consider the proposals, especially, on lowering or exemption from the various tax front hurting the sector.

The recent announcement of a partial de-regulation of diesel prices market-linked price for bulk users and graded increase in retail prices till price parity is reached-- is a welcome move. However the need of the hour is complete deregulation of fuel prices and allow market forces to set the benchmarks in tandem with global oil prices.

Once price parity is reached between retail and market prices, it will not only benefit consumers by providing them choice, but also help in demand management of diesel and will help in mitigating the substitution of various products of industrial consumption like fuel oil, naphtha etc. with diesel.  It will also be good for the economy, since a ballooning subsidy bill was threatening to derail the overall fiscal discipline.

Private oil marketing companies have invested substantially in setting up their retail outlets, but due to lack of level playing fields, these assets are underutilised. The private sector operates about 2,000 outlets mostly in highways and rural India, providing direct employment to about 15,000-20,000 people. Hence a level playing field for the private sector would greatly help in invigorating the local economy.

The industry wants the government to remove national calamity contingent duty (NCCD) on crude oil levied at Rs 50 per metric tone, which was imposed on domestic and imported crude oil in the Union Budget 2003-04. The levy was imposed to provide support to the relief work in the areas affected by natural calamity, but was promised to be taken off from the next financial year. However, this levy has put an additional burden on the oil refining companies.

The oil industry has been asking for waiver on customs duty on import of materials such as pipes, valves, flanges, data communication system used by oil companies for laying of gas pipelines and petroleum products.

Reduction in excise duty on branded high speed diesel and motor spirit products have been sought in line with normal HSD/MS, resulting reduction in wide variation in the selling prices of branded and unbranded HSD/MS products. In view of huge difference in the current excise duty structure, marketing of these premium branded products, which help in energy saving and better life of vehicles, has virtually come to a standstill which is not in the interest of a nation which imports almost 80 percent of its oil requirements.

Recently, the Central board of Excise and Customs (CBEC) has issued a circular, as per which, on a stay application filed before the Commissioner (Appeals) and CESTAT, recovery is initiated 30 days after the filing of appeal, if no stay is granted or after the disposal of stay petition in accordance with the conditions of stay. In case of stay application filed before High Courts and Supreme Court, even this 30 days time limit time limit is not available and recovery is initiated immediately. This circular seems to be clearly against established principle of natural justice of audi alteram partem, which provides that no person should be condemned unheard. This circular should be withdrawn with immediate effect to save industries from unnecessary financial hardship.

In a country which imports over 80 percent of its crude oil requirements, the current policy, subjecting the services consumed by the E&P entities to service tax, drains away a substantial part of the funds committed for exploration, thus reducing the funds available for actual exploration activities. Crude oil/natural gas produced by E&P entities are not liable to excise duties, hence they cannot take CENVAT credit of service tax incurred for exploration and production of crude oil/natural gas. It is suggested that government should formulate a scheme for “refund of service tax paid by E&P entities” on the services consumed for exploration as well as production purpose or in the alternate, zero rate should be applicable to all services provided to E&P entries.

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