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India

Updated on: Friday, May 31, 2019, 05:39 PM IST

Budget proposes ad valorem based cess on crude oil

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New Delhi : In relief to ONGC and Cairn India, Finance Minister Arun Jaitley on Monday changed the cess on the crude oil they produce domestically to ad valorem while at the same time offered calibrated marketing freedom to firms such as RIL for yet to be produced gas discoveries.

Meeting half-way the demand of domestic oil producers to link cess on crude oil to prevailing price, Jaitley in his Budget for 2016-17 change cess on crude oil to 20 per cent of the prevailing oil price as compared to Rs 4,500 per tonnes currently. At USD 35 per barrel oil price, this essentially means Oil and Natural Gas Corp (ONGC) will have to pay Rs 3,500 per ton cess on crude oil it produces from fields given to it on nomination basis. The same will be the rate for Cairn India’s Rajasthan oil fields.

These firms had wanted cess to be levied at 8-10 per cent of the oil prices, which slumped to an 11-year low. The Oil Industry (Development) Act, 1974, provides for collection of cess as a duty of excise on indigenous crude oil. Cess incurred by producers is not recoverable from refineries and thus, forms part of cost of production of crude oil.

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The cess was levied at Rs 60 per tonne in July 1974 and subsequently revised from time to time. In 2005-06, when the crude oil prices had increased from an average of USD 40 per barrel to USD 60, the OID cess was raised from Rs 1,800 to Rs 2,500 per tonne from March 1, 2006.

Again, when the crude prices climbed to over USD 100, the rate of cess went up to Rs 4,500 (USD 12 per barrel) with effect from March 17, 2012.”The Oil Industry (Development) Act 1974 is being amended so as to reduce the rate of Oil Industries Development Cess on domestically produced crude oil, from Rs 4,500 per tonne to 20 per cent ad valorem OIDB Cess. The amendment in the Act will be effective from the date of assent to the Finance Bill, 2016,” the Finance Bill said.−PTI

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Published on: Tuesday, March 01, 2016, 12:41 AM IST
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