GoM fails to solve issue of LNG Customs cut

The issue of Customs waiver on liquefied natural gas (LNG) and declared goods status to natural gas was not resolved at the meeting of the Group of Ministers here today.

The finance ministry sought an additional Rs 100 crore dividend from power public sector units in lieu of exempting LNG imports from Customs duty.

The ministry also raised other issues, while the Planning Commission said a Customs duty waiver would distort energy pricing in the country.

"No decision was taken at the meeting and some further exercise needs to be undertaken to reach a decision," a power ministry official told Business Standard. Power Minister Sushilkumar Shinde heads the GoM.

The meeting was attended by Finance Minister P Chidambaram, Petroleum and Natural Gas Minister Murli Deora, Deputy Chairman, Planning Commission, Montek Singh Ahluwalia, Member Secretary, Planning Commission, Rajiv Ratna Shah and the secretaries of power ministry, finance ministry and the petroleum ministry.

The Cabinet had earlier referred the proposal to the GoM. The finance ministry believes that even if a Customs duty waiver is given, LNG will still be uncompetitive vis-à-vis coal as far as fuel cost of generation is concerned.

The finance ministry is also of the view that there is no proper monitoring mechanism to ensure that the customs duty waiver translates into end-use tariff reduction.

The department of revenue feels that a waiver will lead to a loss in revenue of Rs 1,000 crore per year. On the declared goods status, the finance ministry believes that such a step is not feasible because VAT and sales tax is an important revenue source for the states and some states may not be willing to award it a declared goods status.

The ministry of petroleum and natural gas is in favour of giving a Customs duty waiver on LNG not only to the power sector but for the fertiliser and petroleum sectors as well.

The planning commission is of the opinion that it is agreeable to awarding the declared goods status to LNG but allowing Customs duty waiver on only LNG will distort the energy pricing, leading to a need for providing similar benefits to all forms of primary energy.

The power ministry believes that any loss of revenue on account of Customs duty waiver will adequately be compensated by way of additional taxes generated through increased economic activity arising from more power supply.