OREANDA-NEWS. August 1, 2012. The Government of India vide its notification No.P-20029/18/2001-PP dated 16th January , 2003, notified "The Irrecoverable Taxes Compensation Scheme", 2002 to compensate the oil companies for irrecoverable state taxes to facilitate smooth transition from the administered pricing regime to the market determined pricing scheme.

The scheme provided for compensation to Oil marketing and Refining companies in respect of irrecoverable state taxes levied by the States/ local authorities  such as Entry Tax on Crude, Surcharge on sales tax, CST/Purchase tax on inter company sales of petroleum products and any other irrecoverable taxes. The compensation was set off with the amount being collected by OMCs through the consumer selling price under the head 'State Surcharge' for the period 2002-03. The 'state surcharge' element in the price build up ensured that the incidence of any irrecoverable tax of the particular state was recovered from the respective state. The rate of 'State Surcharge' has remained unchanged since then.

Over the last several years, oil companies have been suffering increasing level of under-recoveries on account of irrecoverable taxes because of following reasons :

a) New irrecoverable levies by State Governments

b) Changes in State tax structures etc

c) Steep increase in the prices of crude oil and petroleum products in the international markets and consequential increase on the taxes

d) Increase in Retail Selling Prices of the petroleum Products and consequential increase of the taxes

As a result of the above mentioned factors, the irrecoverable taxes have undergone reduction in some states and increase in others. Thus, there was a need to review the said scheme to make the levy rational on a state-to-state basis to reflect reduction in prices in states where the irrecoverable taxes have undergone decrease and effect increase in prices in states where the said taxes have been increased as well as to reduce the burden of the OMCs on account of irrecoverable taxes. Accordingly it has been decided to implement the revised structure of 'state specific cost (SSC)' to cover the irrecoverable taxes w.e.f midnight of 24/25 July, 2012.

As a result of the said revision, HSD prices shall stand reduced in 11 states. SKO(PDS) prices shall stand reduced in 9 states, LPG(Dom) prices shall stand reduced in 12 states and MS Prices shall stand reduced in 11 States. Similarly, HSD Prices shall stand increased in 7 states, SKO(PDS) prices shall stand increased in 8 States, LPG(Dom) prices shall stand increased in 6 States and MS Prices shall stand increased in 7 States.