A new excise law to refine 80-year-old Act will make life easier for oil firms

While the Goods and Services Tax has subsumed most goods into it, five products in the oil and gas sector were left in the excise duty regime as states were not prepared to bring these high-revenue-earning items into the GST regime. (Bloomberg)
While the Goods and Services Tax has subsumed most goods into it, five products in the oil and gas sector were left in the excise duty regime as states were not prepared to bring these high-revenue-earning items into the GST regime. (Bloomberg)

Summary

The proposed Central Excise Bill 2024 aims to align the excise duty regime with the GST and customs frameworks, potentially reducing compliance burden for oil and gas companies

A new law proposed to replace the eight-decade-old Central Excise Act will cut the compliance burden on oil and gas companies that are currently governed by the excise duty regime. 

The proposed Central Excise Bill 2024 aims to align the excise duty regime with the modern Goods and Services Tax (GST) and customs frameworks. If passed, experts say, compliance requirements for companies such as Oil and Natural Gas Corp. Ltd, Oil India Ltd and Indian Oil Corp. would be aligned with those of the GST regime.

The Central Board of Indirect Taxes and Customs (CBIC) has sought public feedback on the proposed Bill. Businesses have until 26 June to offer their suggestions on the proposed law, which includes some sweeteners.

When it comes to duty refunds, interest on delayed refunds will begin accruing after 60 days from the date of the refund application, instead of the three-month period outlined in the current excise law, explained Rachit Jain, partner at Lakshmikumaran & Sridharan Attorneys.

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There is also some relaxation for the taxman. Tax authorities will have three years to raise duty demands, as opposed to the two-year time limit prescribed in the existing excise law, said Jain. 

“This Bill may lead to a reduction in compliance burden, and provide a comprehensive legal framework better suited to the current economic landscape," said Jain. 

The leftovers

While the Goods and Services Tax has subsumed most goods into it, five products in the oil and gas sector—crude oil, petrol, diesel, natural gas, and jet fuel—were left in the excise duty regime as states were not prepared to bring these high-revenue-earning items into the GST regime. Tobacco attracts both GST and central excise duty.

The Centre collected more than 3 trillion from central excise in the financial year 2023-24, a bit lower than the 3.19 trillion collected in the year before. States levy value-added tax on petroleum products, not state GST.

The proposed Central Excise Bill 2024 seeks to eliminate outdated provisions and incorporate certain regulations into the law itself. Tax credit-related provisions in the excise duty regime are proposed to be included in the new Bill itself.

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Experts see the effort to modernise the excise law as a sign of the inclusion of petroleum products into GST. In 2015, the service tax law underwent modifications that facilitated a smooth transition to the GST regime for services, said Sanjay Chhabria, lead, indirect taxation, at Nexdigm, a business and professional services company. 

“In the same way, the government is now focusing on modernising the Central Excise Act with the goal of promoting 'ease of doing business' and ultimately transitioning the left-over commodities to GST," explained Chhabria. 

Refining a tax-inefficient system

Oil exploration and production companies such as ONGC and Oil India are subject to GST on purchases such as capital goods and materials used in their operations, but the crude oil they produce is subject to excise duty. 

Similarly, refiners like Indian Oil Corp. are subject to GST on purchases of capital goods, materials and services used in their business, but the sale of refined petroleum products is subject to excise duty. This makes them tax-inefficient as credit for taxes paid in one system is not available under another tax system. 

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Given that excise duty applies only to a limited number of products, a lengthy and outdated law is unnecessary, said Rajat Mohan, executive director at accounting and advisory firm Moore Singhi, adding that a new excise law was long overdue. “The government has rightly proposed a practical and relevant draft tailored for these specific sectors," he said.

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