Tax dept, OMCs locked in dispute over excise duty, oil firms served notice

The indirect tax department and oil marketing companies are locked in a battle over levy of excise duty on ethanol-blended motor spirit (EBMS), with the latter being issued notices over non-payment of dues, which they have strongly contested.

The matter pertains to difference in interpretation in provisions of the central excise act, with the Intelligence wing of the central board of indirect taxes and customs (CBIC) arguing that oil companies have pocketed excise duty collected on the ethanol portion of EBMS as the price of EBMS and petrol is the same.

Oil companies have contested the claim saying that since EBMS is an exempt product, no duty was collected on that by them. They have further added that the higher or lower price of EBMS compared to that of motor spirit cannot be ground to suggest that duty was collected.

The matter will be taken up by the concerned adjudicating authority, according to officials in the know. “There is a major interpretation issue on the subject. The matter will be taken up by the adjudication authority,” said a government official.

As per investigation conducted by DGGI, Pune during 2016 on sale of Ethanol-blended Motor Spirit (EBMS) by oil companies on the assumption that as the sale price of EBMS and petrol are same, thus excise duty has been collected on the ethanol portion of EBMS. A notice in this regard was issued on April 8, 2019 proposing to raise a demand of Rs 4002 crore.

Shares of Hindustan Petroleum Corporation (HPCL) and Indian Oil Corporation (IOC) fell up to 1 percent on Tuesday over reports that Director General (DG) of Goods and Services Tax (GST) Intelligence has booked cases against the oil majors for evasion of excise duty.

State-run Indian Oil Corporation said on Tuesday that the case filed against by the company by DG-DST (Intelligence) in Pune on alleged evasion of Rs 4,000 crore comes from a difference in interpretation in the provisions of the central excise act. 

A similar showcause notice was also issued to HPCL. An IOC official said that it is contesting this show cause notice since the demands of the Excise department is not tenable as per the settled legal provisions.

On the other hand, companies are of the view that EBMS is an exempt product for the purpose of levy of excise duty. At present, OMCs are blending 5-10 per cent of ethanol with petrol to promote greener fuel with lesser emissions. 

"The amount on the invoice is towards the price of the EBMS. Therefore IndianOil has not collected / recovered any amount representing as ‘excise duty’ on sale of EBMS," said an IOC official. He added that wether the price of EBMS is high or lower to Motor Spirit, cannot be the ground to hold that IndianOil has collected the amount representing excise duty.

Similar types of show cause notices have also been issued to HPCL and BPCL during 2017 which are also being contested by them.

IndianOil is one of the largest contributor to the national exchequer in the form of duties and taxes. During the year 2018-19, Rs.1,93,422 crore was paid to the exchequer as against Rs.1,90,670 crore paid in the corresponding previous year.