Sr No.

Issue

Genesis of the Issue

Suggestion

1.

Zero Customs Duty on imported equipments, machinery and other material required for petrochemical projects at the company's Kochi Refinery

The company is implementing a major capacity expansion project at its Kochi Refinery in Kerala State from present 9.5 MMTPA to 15 MMTPA. The Propylene Derivatives Petrochemical Project (PDPP) under this expansion plan envisages production of 47 TMT of Acrylic acid, Acrylates viz. 180 TMT of Butyl Acrylate, 10 TMT of 2 Ethyl Hexyl Acrylate and Oxo Alcohols viz. 38 TMT of Normal Butanol, 47 TMT of 2 Ethyl Hexanol and 7 TMT of Iso Butanol. The identified products are predominantly being imported and hence this project promotes the 'Make in India' initiative under the Petrochemicals category of the Chemicals Sector as notified by Government of India. The estimated cost of the project is approx. Rs. 4600 crores.

However, considering the high capital investment for this pioneering petrochemical venture of the company, it would be difficult to remain competitive unless adequate support is received from Central Government by way of tax concessions and exemption from duties. As requested by the company, the Government of Kerala has sanctioned financial incentives such as deferment of Kerala Government Sales Tax (KGST)/VAT and CST for a period of 15 years and reimbursement of works contract tax for the project, considering the importance of the same.

There is presently no domestic manufacturer for Acrylic Acid and Acrylates that constitute about 70% of the sales volume and only a small producer for Oxo Alcohols. During the year 2013 the total volume of these petrochemicals imported into India was 184 TMT valued at approx. US$ 330 Million. The PDPP, envisaged to be commissioned in mid 2018, would enable production of petrochemicals henceforth not made in India and facilitate import substitution. The total volume of these petrochemicals that the company plans to manufacture is 329 TMT which is valued at approx. US$ 800 Million (based upon forecast prices). Hence, there would be considerable savings of foreign exchange.

PDPP is proposed to be located in the vicinity of Kochi Refinery in order to exploit the advantages of integration of feedstock supply, utilities, offsites and other general facilities with the refinery. Land required for the project is already available. The technology for the process units is to be sourced from reputed international licensors who have been identified. Considering the specialised nature of products, the process technology is closely guarded by the technology licensors and hence there would be requirement to import key equipment, machinery and other material.

The products are used in application areas like paints & coatings, adhesives, water treatment etc. with considerable scope for the setting up of downstream and ancillary industries. The potential demand for the products mentioned can be considerable in view of 'Housing for all by 2022' policy adopted by the Union Cabinet. Further, one of the identified products, Acrylic Acid can be utilised for a future Super Absorbent Polymer (SAP) Plant. SAP is also not presently manufactured in India is an import substitute and has important applications in health and hygiene, agriculture etc.

In view of the significance of the project as explained above, we earnestly request your good self to take up with Ministry of Finance to bring out amendment to Notification 12/ 2012 - Cus dated 17/3/2012 to include as part of general exemption no 165 under Section 25(1) of the Customs Act, 1962 for granting Zero Customs Duty on imported equipments, machinery and other material required for the Propylene Derivatives Petrochemical Project (PDPP) of the company. This would immensely enhance the viability of this important 'Make in India' initiative and save valuable foreign exchange for the nation in the form of import substitute. The estimated duty component of the exemption sought would amount to Rs.60 Cr.

2.

Levy of Safeguard Duty on import of capital goods under Project Import Regulation

Projects of national importance approved by Govt of India involving huge capital outlays are being implemented by Oil Companies. In our case we have undertaken substantial expansion of our Kochi Refinery and there are further more projects in pipeline for future implementation. We have in liaison with Ministry of Finance have obtained concessional rate of customs duty on project imports under Project Import Regulation. The import of capital goods are effected in line with the procedures laid down under the Project Import Regulations. The items imported under the Project Import Regulation falls under Chapter 98 of the Customs Tariff. Whereas these items primarily falls under different Chapter heading owing to its basic classification. Safeguard duty has been imposed vide Notification on these items falling under the primary classification and no duty is imposed on items falling under Chapter 98 of the Customs Tariff. However, field formations are of the view that although these items are imported under Chapter 98, but since the primary classification is subject to safeguard duty, such duty shall be imposable on these items. This is resulting in unnecessary litigations and substantial increase in the cost of the projects.

We request exemption to be provided under Section 8(b) of the Customs Tariff Act for materials imported under Project Import Regulation falling under Chapter 98 of the Customs Tariff.

3.

Customs duty concession for laying of product and gas pipeline

In deregulated scenario, Oil companies are building large number of cross-country pipelines for reaching the products to consumer at a reduced cost. In order to build such facility, Government is requested to waive the applicable customs duty on all materials required for building cross-country pipeline meant for Product and Gas movement.

It is suggested that the customs duty on import of materials viz. pipes; valves; flanges; data communication system for laying of petroleum products and gas pipelines falling under the Customs Tariff headings 72, 73, 74, 75, 76, 78, 79 is exempt from payment of customs duty. The pipeline transportation is environment friendly with Nil pollution and is very cost effective.

4.

Withdrawal of NCCD

NCCD amounting to Rs 50 per MT of crude oil purchased may be withdrawn as it is an additional burden on the company. Further there is a multitude of other taxes and duties on crude oil like Octroi, etc.

A quote from the Finance Bill 2003, - Unfortunately, the Nation has been facing a severe drought this year. The funds raised earlier under the National Calamity Contingent Duty are not sufficient. It is, therefore, proposed to impose a 1 per cent National Calamity Contingent Duty on polyester filament yarn, motor cars, multi utility vehicles and two-wheelers. Similarly, crude, domestic or imported, will also be subjected to a duty of Rs.50 per metric tonne for this purpose. However, these new levies will be limited to one year only .

Though the Govt. said it was only for one year, they kept on extending it. Thus what was introduced for only one year to combat drought still continues. NCCD under Finance Act 2003 is levied as a surcharge over and above the basic customs duty levied under the Customs Tariff Act.

It is suggested that NCCD is withdrawn. In absence of this, NCCD along with education cess and secondary higher education cess to be allowed to be taken as CENVAT CREDIT in the excise duty payment on clearance of manufactured goods from the factory.

The value of NCCD paid for the company for FY 2015-16 was Rs. 46 Cr. The value of duty paid for all the OMC put together for the FY 2015-16 was Rs. 180 Cr.

1.

Anomaly in excise and customs Notification for exemption of duty on furnace oil

As per Notification No. 12/2012- Customs dated 17.03.2012, customs duty in case of import of Furnace Oil is exempt provided such import of Furnace Oil is for the purpose of manufacture of fertilizers. However, Notification No.12/2012- Excise dated 17.03.2012, exempts excise duty on the furnace oil provided the following two conditions are satisfied:

i.  Such furnace oil is intended for use as feedstock in the manufacture of fertilizers.

ii.The exemption shall be allowed if it has been proved to the satisfaction of an officer not below the rank of the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, having jurisdiction that such goods are cleared for the intended use specified in column (3) of the Table.

On account of this an anomaly in the notification under customs & excise, the sale of this product indigenously has been affected as the customers are able to import the product free of duty even if the product is not intended for use as feedstock in the manufacture of fertilizer. This result in higher imports and drain in foreign exchange even though the product is available locally.

Consider aligning the import duties (BCD and CVD) on import of FO and excise duty on manufacture of FO for use in fertilizers by allowing same exemption to domestic manufacture as has been allowed in case of imports, or impose levy of BCD and CVD on import of FO for use other than in the feedstock in the manufacture of fertilizer so as to bring in price parity between imported and indigenously manufactured FO.

By this, we shall be providing domestic manufacturer equal opportunity to compete with imports, keeping in line with Government's Policy of 'Make in India' Initiative.

2.

Clarification on reversal of Cenvat credit on input and input services under Rule 6(3) of the CCR, 2004 on domestic clearance under Notification No. 34/2006-CE dated 14.06.2006

Aviation Turbine Fuel (ATF) is sold by Oil Companies to various airlines for use as fuel for their domestic and international flights. Such ATF is stock transferred by our Refinery to Aviation Fuel Stations (AFS) through pipeline or tank lorry. The Foreign Trade Policy (2009-14) allows for duty free imports by service providers engaged in providing specified tradable services for which payment is received in convertible foreign exchange under Served from India Scheme (SFIS). Notification No. 34/2006 dated 14th June, 2006 specifically provides for exemption from excise duty to consumables when cleared against the SFIS scheme.

Moreover, a clarification was issued by DGFT that supply of ATF shall qualify under the category of consumables for use by the airline companies. Further, DGFT had vide letter No. F. No. 01/94/180/1130/AM08/PC3/718 dated 10.12.2013 clarified that in terms of Para 3.12.6 and para 3.12.8 of the Foreign Trade Policy (2009-14) Aviation service providers can utilize SFIS scrips for payment of excise duty for procurement of Aviation Turbine Fuel (ATF) from domestic sources.

In line with the above provisions of law, we have been supplying ATF to M/s. Jet Airways for supply to foreign run aircraft by debiting the duty against SFIS scrips. There is a doubt as to whether goods cleared against SFIS scrip shall be in the nature of exempted goods or dutiable goods for the purpose of availing Cenvat credit in terms of Rule 6(3) of the Cenvat Credit Rules, 2004. CBEC issued Circular No. 973/07/2013-CX dated 04.09.2013 clarifying that the debit of duty through DEPB scrips shall be regarded as 'payment of duty' for the purpose of Cenvat Credit Rules, 2004 and therefore the provisions of Rule 6(3) shall not be attracted. The relevant portion of the circular is reproduced as under:

"The matter has been examined. One of the conditions for availing of these exemptions is that duties leviable, but for these exemptions, shall be debited in or on the reverse of said scrip. The scrip holder is also permitted to avail of Cenvat credit of the duties debited in the scrip. In view of these provisions it has been decided that such debit of duty in these scrips shall be treated as payment of duty for the purpose of determining the applicability of rule 6 of the Cenvat Credit Rules, 2004. Therefore, it is clarified that in respect of goods cleared availing the benefit of any of notifications no. 29/2012-CE, 30/2012-CE, 31/2012-CE, 32/2012-CE and 33/2012-CE all dated 9th July, 2012, payment of amount under Rule 6(3) of the Cenvat Credit Rules, 2004 is not applicable."

However, the above circular does not make any reference to goods cleared under SFIS scrip. In absence of any clarifications, Department may raise a dispute in this regard claiming that the goods cleared against SFIS scrip are in the nature of exempted goods and consequently Cenvat credit reversal would be required to be made.

Request TRU to consider inclusion reference to the goods cleared under SFIS scrip under Notification No. 34/2006 dated 14th June, 2006 in the above mentioned clarificatory circular thereby providing goods cleared under SFIS, the character of dutiable goods and thus the provisions of Rule 6(3) of the Cenvat Credit Rules, 2004 shall not be attracted.

3.

Applicability of service tax on penalties recovered by the Oil Marketing Companies

_  From various dealers for violation of Marketing Discipline Guidelines (MDG) formulated by Oil Marketing Companies and approved by Govt. of India

_  Liquidated damages recovered from vendors for violation of terms and conditions of contract.

_  Other recoveries in the nature of penalties.

Section 66E of the Finance Act, 2012 effective 01.07.2012 provides a list of services included in the category of declared services. Clause (e) of the aforesaid Section reads as – 'agreeing to the obligation to refrain from an act or to tolerate an act or situation, or to do an act'.

In order to enforce such Act/ Rules governed by Sec 3 of Essential Commodity Act, besides various powers like search & seizure to curb / control malpractice, there is MDG in vogue which interlia penalize the erring distributor not only in terms of money but also cancellation/termination of distributorship to ensure compliance of Statutory laws of Essential Commodity / Explosive Act in the interest of general public. Various control orders have been put in place for regulating marketing of petroleum products to check the irregularities in marketing of petroleum products, Government has approved Marketing Discipline Guidelines (MDG), 2001 to ensure uniformity in providing various services and punitive actions against the erring dealers and distributors of the oil companies. MDG lay down the parameters for operation of Retail Outlets, LPG distributorships and SKO Dealerships to ensure supply of right quality and quantity of MS/HSD/SKO/LPG and also ensure provision of services the customers are entitled to. These Guidelines are part of educative measures to Dealers / Distributors, and also incorporate punitive measures if such parameters are not adhered to by the oil companies' distribution network. Stringent penalties right up to termination of Dealerships / Distributorships in the even of continued malpractices is also included in these Guidelines. Oil Marketing companies recover penal charges from the dealers/distributors for non-compliance with the marketing guidelines.

OMCs also recover liquidated damages from the vendors for non-compliance with the terms and conditions of the contract. Such recover is in line with terms of the contract which states that liquidated damages shall be recovered for delay in performance of service.

There is no clarity on the applicability of service tax on the aforesaid recoveries in view of Section 66E of the Finance Act, 2012. Education guide released along with the Finance Act, 2012 also does not cover much of the text in respect of the said entry.

Clarification may be given on applicability of service tax on MDG penalty and liquidated damages recovered from vendors. Further, clarification may also be given citing the situations to which the aforesaid entry is applicable and hence chargeable to service tax to avoid litigation.

4

Applicability of Pre Deposit provisions only from second stage appeal/CESTAT level.

The Finance Act (No.2), 2014 has substituted new Section 35F of the Central Excise Act, 1944 which is also applicable for Service Tax vide Section 83 of the Finance Act, 1994 and Section 129E of the Customs Act, 1962 to prescribe mandatory pre-deposit of 7.5% or 10% for first stage or second stage appeal, of duty demanded where duty demanded is in dispute or where duty demanded and penalty levied are in dispute and where penalty alone is in dispute, the pre-deposit shall be calculated on the penalty imposed. The said amendments have become applicable for the appeals to be filed after August 6, 2014 and all pending appeals/stay applications filed prior to August 6, 2014 shall be governed by the erstwhile provisions. Above provisions have lead to considerable amount of money being stuck in litigations which do not have any substance.

We request that the provisions of section 35F of the Central excise Act 1944 and section 129E of the Custom Act 1962 to be made applicable only from second stage appeal/CESTAT level.