While petrol and diesel traditionally have been cheaper in Delhi than most states in the country, due to lower local sales tax or VAT, the October 5 cut in the VAT by BJP-ruled states led to fuel being available at cheaper rates in places such as Ghaziabad and Noida — the UP towns that adjoin the national capital.
However, the difference that had peaked to over ₹ 3 per litre in case of petrol and about ₹ 2.3 in diesel on October 5, has now come down to just 44-57 paisa in petrol and about Re 1 in diesel, an analysis of the daily price revision notification issued by state-owned oil firms showed.
Read: Petrol is now cheaper than diesel in these cities
Petrol prices in Delhi Tuesday stood at ₹ 71.72 a litre as compared to ₹ 71.15 in Ghaziabad and ₹ 71.28 in Noida. A litre of diesel in the national capital is priced at ₹ 66.39 as opposed to ₹ 65.31 in Ghaziabad and ₹ 65.44 in Noida.
Industry sources said the gap will extinguish in the next few days if the falling trend continues. Fuel in Delhi may by next week turn cheaper in the national capital when compared with adjoining towns, they said.
While the slump in international oil prices has led to an almost equal reduction in base price of petrol and diesel across the country, the actual cut in rates differs from state to state depending on local VAT.
Retail pump price is calculated after adding central excise duty, dealers commission and VAT to the base price. While excise duty is fixed at ₹ 17.98 per litre in case of petrol and ₹ 13.83 a litre in diesel and do not change with any variation in base price, the incidence of VAT in most states changes as the levy is ad valorem or a percentage of the total of the base price plus central excise duty.
According to price notifications, Delhi levies a VAT of 27 per cent on petrol. The same on diesel is 16.75 per cent plus ₹ 250 per kl air ambience charge.
VAT on petrol in Uttar Pradesh is 23.78 per cent or ₹ 14.41 a litre, whichever is higher. In case of diesel, VAT is 14.05 per cent or ₹ 8.43 a litre, whichever is higher.
Sources said when rates are falling, VAT in Uttar Pradesh is levied on fixed per litre term because that is higher than ad valorem rate. And so the reductions in the states have been smaller when compared with Delhi.
The Union government on October 4, slashed the petrol and diesel price by ₹ 2.50 by reducing excise duty and asking state-owned oil firms to bear subsidy. This was matched by several states which reduced local sales tax or VAT.
BJP-ruled UP too followed suit. Prior to the cut, it levied 26.80 per cent or ₹ 16.74 a litre, whichever is higher as VAT on petrol and 17.48 per cent or ₹ 9.41 a litre on diesel.
Since Haryana too cut VAT, petrol in Gurugram costs ₹ 70.51 a lire and diesel ₹ 65.51 Tuesday.
Petrol price has been cut by ₹ 11.11 per litre and diesel by ₹ 9.3 in Delhi in the past six weeks in step with the reduction in international oil rates.
Rates have been on the decline since October 18. This has wiped off all of the price hike on petrol and diesel in two months beginning August 16.
Petrol price had touched a record high of ₹ 84 per litre in Delhi and ₹ 91.34 in Mumbai on October 4. Diesel on that day had peaked to an all-time high of ₹ 75.45 a litre in Delhi and ₹ 80.10 in Mumbai.
Prices had started to climb from August 16. Petrol in Delhi was priced at ₹ 77.14 per litre and in Mumbai, it cost ₹ 84.58 on August 15. Diesel on that day was priced at ₹ 68.72 per litre in Delhi and at ₹ 72.96 in Mumbai.
Between August 16 and October 4, petrol price was hiked by ₹ 6.86 per litre and diesel by ₹ 6.73.
On October 4, the government decided to cut excise duty on petrol and diesel by ₹ 1.50 per litre each and asked state-owned fuel retailers to subsidise prices by another Re 1 a litre by reducing their margins.
Many states including Maharashtra matched that with a reduction in local sales tax or VAT.
Subsequent to this, the petrol price came down to ₹ 81.50 per litre in Delhi and diesel to ₹ 72.95 a litre on October 5. In Mumbai, rates fell to ₹ 86.97 per litre for petrol and ₹ 77.45 in case of diesel.
As the international oil prices continued to rise, the price of petrol and diesel in Delhi increased to ₹ 82.83 and ₹ 75.69 on October 17. In Mumbai, rates touched ₹ 88.29 a litre for petrol and ₹ 79.35 for diesel.
But since then, international oil prices have been falling and the rupee has also appreciated, resulting in a decline in retail rates.