With a view to limit revenue loss on sale of petrol and diesel, Finance Minister P Chidambaram on Friday proposed to levy specific excise duty on un-branded auto fuels, but this will not translate into a price cut as the rates fixed are at par with current levies.

The move to convert 'ad valorem plus specific rate' on petrol and diesel sold without a brand name to pure 'specific rate' would, however, help retailers limit their revenue losses in future as the cascading effect of duties in the event of price rise has been checked.

Chidambaram presenting the last full-year budget before the general elections, said un-branded petrol that currently attracts 6 per cent ad valorem excise rate plus Rs 13 per litre fixed duty, would be charged Rs 14.35 per litre specific excise duty.

Similarly, un-branded diesel that attracts 6 per cent ad valorem rate plus Rs 3.25 fixed duty would be charged a specific excise levy of Rs 4.60 per litre.

However, branded fuels like Indian Oil's [Get Quote] Extra Premium, Bharat Petroleum's Speed and Hindustan Petroleum's Power will continue to attract the present ad valorem cum specific rates.

Chidambaram reduced customs duty on project imports from 7.5 per cent to 5 per cent, a move that would help cut project cost at new refineries, pipelines and oil/gas fields developments.

He withdrew 5 per cent customs duty exemption on import of naphtha by manufacturers of polymers, resulting in increase in cost of production of Haldia Petrochemicals. Reliance Industries [Get Quote] too would be impacted marginally as it was also importing small quantities of naphtha.

Petroleum Secretary M S Srinivasan said the conversion of ad-valorem to specific rates would be neutral, while customs duty reduction on project imports was good for new projects.

Both public and private sector firms have lined up new refinery projects and are investing heavily in oil/gas field developments. IOC Chairman Sarthak Behuria said the move on excise duty would not help retailers cut losses as rates have been fixed at current levels.

With the rise in international oil prices this week, the under-realisation on sale of petrol and diesel has gone back to the level before February 14, when the government hiked fuel rates.

Petrol is being sold at a loss of Rs 7.35 a litre and diesel at Rs 9.60 per litre. Prior to the Rs 2 a litre hike in petrol and Re one per litre increase in diesel prices, the loss of petrol was Rs 8.70 per litre and Rs 9.63 a litre on diesel.

Kerosene is being sold at Rs 19.36 per litre and domestic cooking gas at Rs 334.70 per 14.5-kg cylinder. The total revenue loss on the four products put together is estimated at Rs 71,808 crore in the current fiscal.

Chidambaram said thanks to a complex regime of export benefits and duty exemptions, naphtha is exported from refineries and is imported by manufactuters of polymers, leading to price distortions and revenue loss.

"I propose to correct the situation by withdrawing the duty exemption on naphtha for use in the manufacture of polymers and subject it to the normal rate of 5 per cent. However, naphtha imported for the production of fertiliser will continue to be exempt from import duty," he said.

During April-December, 4.792 million tons of naphtha was imported, while 7.612 million tons were exported.

In 2006-07 fiscal, 5.47 million tons of naphtha was imported by fertiliser and polymer manufacturers and 8.337 million tons was exported by refiners. The customs duty of five per cent on naphtha for polymers would impact IOC marginally on special grade imports.

Chidambaram chose to ignore most of the demands of the oil sector, which had been demanding a cut in excise duty on fuel and reduction in customs duty on crude oil to contain the impact of surge in international oil prices.

The exploration companies had sought exemption from service tax, while there was demand for inclusion of natural gas in the declared goods category so as to cut sales tax on the environment-friendly fuel.

Customs duty exemption on liquefied natural gas and infrastructure status to gas pipeline were other long-pending demands that the Finance Minister ignored.

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