Industry wants natural gas to be given ''declared goods'' status

New Delhi, June 17: As natural gas grows in importance as a major source of energy in the power, fertiliser, petrochemical and other industries in India, producers are demanding that it be accorded ''Declared Goods'' status under the Central Sales Tax (CST) Act to help them expand and promote a National Gas Grid.

The government gives the ''Declared Goods'' status to those items which are considered to be of utmost importance in inter-state trade and commerce. Goods which need to be moved from one state to another are included in the list so that they do not suffer the incidence of higher tax.

The rate of sales tax on Declared Goods cannot exceed four per cent or the local sales tax rate, whichever is lower, when sold to a registered dealer. If any Declared Goods is sold locally and then again on inter-state basis, the local sales tax becomes refundable.

Industry officials cite the example of coal, which is concentrated in the eastern parts of the country and crude oil, which is available mainly in the north-east. These products have to be transported across states and are therefore included in the list of Declared Goods.

''Natural Gas, including regassified liquefied natural gas (RLNG), needs to be included in the list of Declared Goods. RLNG is available only in the western part of the country. Natural gas is available in the north-east and now in the Krishna Godavari basin. These products have to move from one state to another and should suffer sales tax at a lesser rate. It should also not attract sales tax on each and every sale,'' an IndianOil Corporation (IOC) official explained.

Public sector companies such as IOC, Gas Authority of India Ltd, Bharat Petroleum and Petronet LNG as well as private gas producers have been taking up this issue regularly with the Union Government.

At present, natural gas and RLNG are subject to different sales tax rates which go up to 20 per cent in some states.

''Due to this high and multiple point sales tax structure, the consumers are adversely affected, particularly in the fertilisers and power sectors. It is important to note that suitable relief in sales tax will not only ensure that cost of gas to the end consumer is kept low but will also facilitate development of National Gas Grid in the country,'' an official with a private gas producer said.

''As a fuel, natural gas has to compete with coal, which enjoys a declared goods status under Section 14 of the Central Sales Tax Act, 1956, thus attracting maximum four per cent sales tax. Also, natural gas and crude belong to the same category as that of petroleum. Thus, when crude enjoys 'Declared goods' status under the CST Act, natural gas should also be extended the same benefit,'' the official added.

The empowered committee on VAT, headed by West Bengal Finance Minister Asim Dasgupta, met recently and discussed many issues, including giving ''Declared Goods'' status to natural gas, but could not reach any conclusion. Apex chamber FICCI also supports the industry's demand, saying the high sales tax adversely affects consumers as natural gas is a key input for many sectors. It also points out that gas is clean, abundantly available, and cost competitive.

Experts feel that natural gas would be the most preferred fuel in the global energy basket by 2025.

Currently, natural gas accounts for 24 per cent of the total global primary energy supply, making it the third largest contributor to the global energy basket.

In India's power sector, only 11 per cent of the total generation capacity of 1,26,839 MW is based on gas, whereas the figure for the petrochemicals sector goes up to 43 per cent.

About 58 per cent of production in the fertiliser sector is based on gas. The Department of Fertilisers is proposing a switchover to 100 per cent natural gas which is expected to give a push to gas demand in this sector during the Eleventh Five Year Plan from 40.82 million metric standard cubic metres per day (MMSCMD) in 2007-08 to 79.36 MMSCMD in 2011-12.

The Power Ministry has also undertaken an exercise to identify gas-based projects, likely benefits from which could accrue during the Eleventh Plan period and beyond.

The estimated capacity for these gas-based power plants is 31,765 MW. The magnitude of gas requirement for these plants will be about 100-120 MMSCMD.

UNI