Mumbai, July 2: Mangalore Refinery and Petrochemicals (MRPL), the joint venture of Hindustan Petroleum Corporation and the AV Birla group of companies, has been granted a sales tax concession of up to Rs 250 crore annually for 14 years by the Karnataka government.MRPL has a nine-million tonne refinery whose capacity is proposed to be enhanced to 12 million tonnes during the current fiscal. Plans are on to increase this further to 18 million tonnes. A product pipeline has also been planned from Mangalore to Bangalore via Hassan.
"Karnataka's gesture is a shot-in-the arm for MRPL as it has come at a time when the refinery has been incurring substantial losses. The state has done the right thing by acknowledging a long-term investment made in an important activity like refining," observers say.
The sales tax concession is on the lines of what Gujarat has extended to Reliance Petroleum (RPL) and Essar Oil which have combined refining capacities of close to 40 million tonnes. Both have been granted sales tax deferment for 15 years.
However, in the case of Gujarat, the excess refining capacity especially with the commissioning of the RPL refinery has prompted the Oil Coordination Committee (OCC) to formulate an all-India sales tax surcharge. This was the only way product prices in Gujarat would have been pegged at manageable levels.
The starting point involved reworking the mode of reimbursing central sales tax (CST) payment by oil companies which buy products from the RPL refinery in Jamnagar. This will now be made in the following manner:
One-third amount of the CST under-recoveries on account of inter-company sales of controlled products of RPL would be reimbursed to the oil marketing companies by the OCC. The claims for the same would be submitted under the new all-India sales tax surcharge.
One-third of the CST under-recoveries of RPL would be absorbed by the company by exercising the sales tax exemption option under the sales tax incentive scheme of the Gujarat government.
The balance one-thirds would be reimbursed to the oil marketing companies through the existing surcharge scheme for all controlled products inclusive of petrol and diesel.The state surcharge scheme was mooted by the OCC to reimburse oil companies for under-recovery of CST. Given that RPL and Essar Oil have sought deferment in sales tax payment for 15 years, all products sold by their refineries to the three marketing companies -- IOC, HPCL and BPCL -- will result in a situation where CST will not be passed on to the Gujarat government during this period.
In this situation, implementation of the state surcharge scheme would result in products in Gujarat being dearer by at least Rs 3.50/litre, a clearly impossible scenario. The government of Gujarat told the petroleum ministry that its burden of state surcharge could be reduced if inter-company sales are effected in the "consuming" states instead of carrying them out in Gujarat. The big three (IOC, BPCL and HPCL) which will be involved in this exercise have been asked to ensure that products procured in a particular state, inter-state movement of which is subjected to non-recoverable taxes, are sold in the same state.
Copyright © 2000 Indian Express Newspapers (Bombay) Ltd.