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Withdrawal of warehousing provisions for petroleum products ( implications and implementation )

Withdrawal of warehousing provisions for petroleum products ( implications and implementation ). CURRENT PROVISIONS FOR PAYMENT OF EXCISE DUTY. Eventhough duty liability is on manufacture, the same can be discharged at the time and place of removal viz. refineries / bonded warehouses

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Withdrawal of warehousing provisions for petroleum products ( implications and implementation )

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  1. Withdrawal of warehousing provisions for petroleum products ( implications and implementation )

  2. CURRENT PROVISIONS FOR PAYMENT OF EXCISE DUTY • Eventhough duty liability is on manufacture, the same can be discharged at the time and place of removal viz. refineries / bonded warehouses • Upto 30.6.2000 , duty was payable on the Assessable value viz. wholesale price for sale by delivery at the time and place of removal .

  3. CURRENT PROVISIONS FOR PAYMENT OF EXCISE DUTY (contd.) • Eff. 1.7.2000 , duty was payable on Transaction Value (TV) when goods were removed for sale , subject to the conditions below : • Sale is by delivery at the time and place of removal • Sale is to a buyer who is not related person • price is the sole consideration for sale

  4. CURRENT PROVISIONS FOR PAYMENT OF EXCISE DUTY (contd.) • If any one of these conditions is not fulfilled , value shall be as per the Valuation Rules . Two companies shall be treated as related if they are interconnected undertakings or directly or indirectly interested in the business of each other.

  5. CURRENT PROVISIONS FOR PAYMENT OF EXCISE DUTY (contd.) • TV was made inapplicable for APM products by CBEC Circular . Since APM was dismantled w.e.f. 1.4.2002 , industry has switched over to TV (IPP + NRF+ Terminalling Charges ) for inter-oil company transactions except for SKO(PDS) and LPG (Dom.)

  6. CURRENT PROVISIONS FOR PAYMENT OF EXCISE DUTY (contd.) • The change was not accepted by the Department , on the ground that OMCs/ Associated Refineries are related persons due to mutuality of interest by the multilateral agreement and as per the Valuation Rule , duty is payable on NTV (i..e.) the price for sale of greatest aggregate quantity by the related buyer .

  7. NOTIFICATION 17/2004-CE(N.T.) DT. 4.9.2004 read with CBEC CIRCURLAR 796/29/2004-CX DT. 4.9.2004 • Refineries/Warehouses cannot make bonded clearances eff. midnight of 5/6.9.04 • Inventory of bonded goods lying in the warehouse on midnight of 5/6/9/.04 shall be ascertained and advised to Central Excise and discharge the duty liability immediately. • Refinery shall ascertain the bonded stocks in transit as of midnight of 5/6/9.04 and pay duty thereon immediately.

  8. NOTIFICATION 17/2004-CE(N.T.) DT. 4.9.2004 read with CBEC CIRCURLAR 796/29/2004-CX DT. 4.9.2004 ( contd.) • For removals for sale at the refinery gate , duty is payable on TV but for removal for sale through Depot , duty is payable on NTV of the depot. • Due to the difference in price based on the end use , LPG can be removed from the refinery either on provisional assessment or on payment of duty on a higher price and refund claimed on the differential price .

  9. NOTIFICATION 17/2004-CE(N.T.) DT. 4.9.2004 read with CBEC CIRCURLAR 796/29/2004-CX DT. 4.9.2004 ( contd.) • Clearances under exemption notifications are permissible only for direct clearance from Refinery. • Department should not create hold up and direct provisional assessment for refinery / warehouse in case of difficulties.

  10. IMPLICATIONS - DISADVANTAGES • Finance cost : Rs.25 Crores on the one time payment and recurring impact of Rs. 50 Crores p.a. • Bonded infrastructures set up to cater to the needs of Fertilizer , Power, Export , Aviation , Defence and Marine Sectors are rendered unviable since exempt clearance from there is not possible. These customers may switch over to the nearest Refinery source .

  11. IMPLICATIONS – DISADVANTAGES (contd.) • Since TV is applicable only for sale at the Refinery gate , the oil exchange transactions in the Mktg. Terminals will attract duty on the dealer price , if the volume of oil exchange is lower than the volume of sales to retail outlets / other direct customers. • While provisional assessment has been suggested for LPG , for SKO the circular is silent. Department may insist on payment of duty on SKO (PDS) at the prices applicable for SKO ( Industrial.).

  12. IMPLICATIONS – DISADVANTAGES (contd.) • ATF is cleared from ASFs on payment of duty for domestic flights and without duty for the domestic / non-domestic sectors of Foreign going Aircrafts and the Foreign Airlines who have signed the Chicago Convention. While such ASFs can be converted into the export warehouse under Notification 46/2001-CE(N.T.) dt. 26.6.01 read with CBEC circular 581/18/2001-CX dt. 29.6.2001 as amended and unless the export volumes are transhipped ,stored and delivered from dedicated tanks, interest @ 24% is applicable on the duty paid clearances .

  13. IMPLICATIONS – DISADVANTAGES (contd.) • In view of the quantities and destinations remaining indeterminate for the coastal and pipeline movements from Refineries , refinery has to resort to provisional assessment . The rule does not permit such assessment beyond 6 months , within which period, reconciliation of accounting should be completed .

  14. IMPLICATIONS – DISADVANTAGES (contd.) • For cenvatable products stored in the warehouses , the location should apply for a delaer licence and issue cenvatable dealer invoices for stocks received after midnight of 5th / 6th Sept. 2004 • Since duty on in transit inventory is payable immediately , in any case not later than 5.10.2004 , the open AR3As are to be rewarehoused , to avoid demand of duty thereon .

  15. IMPLICATIONS – DISADVANTAGES (contd.) • LPG / SKO assessments being resorted as provisional , the SBUs should devise a feedback system to the refineries on the quantity sold for different enduses . • Since the condonation for storage , transit and operations loss is no more available even in case of an unavoidable accident, care should be taken to avoid such losses.

  16. IMPLICATIONS - ADVANTAGES • Since NTV is applicable for the removal from the refinery for sale through the depots , the benefit of duty on TV can be availed even for the retail sales volume from the depots , where the volume of oil exchange is more than the volume of sales to retail outlets / other direct consumers. • Standalone Refineries shall start paying duty on TV for the coastal movements making the sourcing cost cheaper.

  17. IMPLICATIONS – ADVANTAGES ( contd.) • Excise exposure is limited to only refineries and blending plants , which may help redeployment / reassignment of manpower posted in bonded locations. • Since the exemptions for fertilizer , power , export, Aviation and marine and defence is applicable for direct clearances from the refinery , we should take the locational advantage to increase these volumes .

  18. ACTION POINTS

  19. ACTION POINTS Since duty on removals is to be paid only by the Mumbai and Visakh refinery for all removals to the depots, the TV / NTV based on the volume of oil exchange sales and volume of sales to retail outlets should be advised by the Pricing group in coordination with SOD . For the current movements this exercise should be completed within a week to enable refinery generate appropriate duty paying documents and make PLA debit on 5.10.2004.

  20. ACTION POINTS Refinery should apply for provisional assessment for all the products , since (i) for coastal / pipeline / tankwagon movements , the destination and receipt quantities are indeterminate (ii) for SKO and LPG , the quantities for different end uses is indeterminate (iii) for ATF the quantity for exempt and dutiable deliveries are indeterminate (iv) FO, LSHS, Naptha , Hexane can be pumped / filled only from the adjacent terminal or from dedicated storage facilities off the refineries and since the customers are entitled to the exemption, clearances to them are to be construed as clearances from the refineries.

  21. ACTION POINTS Simultaneously refinery should apply to the jurisdictional Excise Authorities to include the storage tanks of FO , LSHS, Naptha and Hexane in the adjacent terminals within the Excise Registration of the refinery , so that the customers can retain the exemption for the supplies from the adjacent terminal.

  22. ACTION POINTS Since the product transfers from refinery to marketing division were regulated only through AR3As and the tracing of the receipts were also only through the documents , an alternative document for duty payment and accounting of the transactions should be developed after mutual discussion between Refinery and HQO Finance / IT Departments.

  23. ACTION POINTS Since refinery has to pay duty on the intransit inventory, it should prepare a list of pending AR3As for all bonded movements upto midnight of 5th/6.9.04 and give it to SOD department for expediting the rewarehoused AR3As . Similar action is required by marketing terminals who can take the help of Zonal DGM – O&E to take up with OMCs to get the rewarehoused AR3As.

  24. ACTION POINTS For the bonded stocks held in the warehouse on midnight of 5th /6.9.2004 duty should be paid on the due date viz. 5.10.2004 , since the embargo is only for receipt of bonded product and the warehouse continues to exist as such. Support can be had from para 5 of CBEC circular dt. 4.9.2004 as well as clause 7.1 in part I of Chapter 10 of CBEC' EXCISE MANUAL of Supplementary Instructions . If the Department still insists upon duty payment, resort can be had to provisional assessment as suggested in para 5 of CBEC circular dt. 4.9.04.

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