"During the first four months, diesel demand has grown at 18 per cent," Indian Oil Corp Chairman Sarthak Behuria said.

This unprecedented demand growth has seen domestic output fall short of the requirement and a total of 4.14 million tons of diesel may be required to be imported in 2008-09. Of this 1.267 million tons has been imported in April-July.

Behuria said the shortfall can be met from the Jamnagar refinery of Reliance Industries but the Government has to amend present laws to avoid double taxation.

The Jamnagar refinery is an Export Oriented Unit and will have to first pay customs and then excise duty on the product, besides income tax on its profits when it sells fuel in the domestic tariff area (DTA). Customs and excise would total to over Rs 9 per litre of diesel.

It is being examined if sales made by Reliance in the DTA can be given a deemed export status and the company continues to get income tax waiver.

A similar arrangement has been worked out for LPG, where RILs sales to PSU oil companies in the DTA are considered to be deemed exports, he said adding a note for consideration of the Government will be sent for the purpose.