What is the duty on naphtha?
Yesterday’s DDT query on the rate of duty on naphtha attracted several queries from importers and Customs officers. Many complained that DDT should have answered the question instead of leaving a question. We were under the impression that it was CBEC’s job. DDT understands that Bills of Entry are pending in several Customs stations for want of clarity on the rate of duty applicable to naphtha.
Let us see the position as on 29.2.2008.
First of all Naphtha is not mentioned in the tariff. Notification No. 23/2006 which prescribes an effective rate of 16% excise duty for naphtha mentions only naphtha falling under heading 2710 of the First Schedule to the Central Excise Tariff Act, 1985. From this, we should infer that naphtha falls under heading 2710.
2710 | Petroleum oils and oils obtained from bituminous minerals, other than crude; preparations not elsewhere specified or included, containing by weight 70% or more of petroleum oils or of oils obtained from bituminous minerals, these oils being the basic constituents of the preparations; waste oils | |||
- | Petroleum oils and oils obtained from bituminous minerals (other than crude) and preparations not elsewhere specified or included, containing by weight 70% or more of petroleum oils or of oils obtained from bituminous minerals, these oils being the basic constituents of the preparations, other than waste oils: | |||
2710 11 | -- | Light oils and preparations: | ||
-- | Motor Spirit: | |||
2710 11 11 | -- | Special boiling point spirits (other than benzene, toluol) with nominal boiling point range 55-1 15°C | kg. | 16% + Rs. 15.00 per litre |
2710 11 12 | -- | Special boiling point spirits (other than benzene, benzol, toluene and toluol) with nominal boiling point range 63-70°C | kg. | 16% + Rs. 15.00 per litre |
2710 11 13 | -- | Other special boiling point spirits (other than benzene, benzol, tolunene and toluol) | kg. | 16% + Rs. 15.00 per litre |
2710 11 19 | -- | other | kg. | 16% + Rs. 15.00 per litre |
And it should perhaps fall under heading 2710 11 19, for which the rate of duty is 16% + Rs. 15/- per litre as per the tariff. However as per Notification No. 23/2006, the effective rate of duty is 16%. That is prior to 1.3.2008.
As everyone knows from 1.3.2008, the Finance Minister announced a reduction in excise duty from 16% to 14%.
Then what happens to Naphtha?
As per Sl. No. 15 of Notification No. 2/2008 dated 1.3.2008, the effective rate of duty applicable to naphtha is
15
2710 11 11, 2710 11 12, 2710 11 13, 2710 11 19, 2710 11 20 and 2710 11 90
14% + Rs.15.00 per litre
But Notification No. 23/2006 which prescribes an effective rate of duty of 16% is not amended.
So, as of now, we have two notifications, 23/2006 and 2/2008 prescribing two effective rates of duty for naphtha.
1. 14% + Rs. 15 per litre, and
2. 16%
Now which of these rates should the assessee and the Department follow?. [It seems some oil companies assume that there is a third rate of 14%, because the Finance Minister announced a reduction from 16% to 14%. And because naphtha was charged to 16% earlier, it should be charged to 14% now. But the fact is that there is no 14% duty for naphtha.]
It is now settled law that when two rates are applicable, the assessee can choose the one beneficial to him. You may have a look at 2007-TIOL-26-SC-CUS.
Further the TRU JS DO Letter dated 29.02.2008, clearly states in para 2.2,
2.2 Since the reduction in the general rate has been carried out by notification, the possibility of the same product/ item being covered by more than one notification cannot be ruled out. In such a situation, the rate beneficial to the assessee would have to be extended if he fulfils the attendant conditions of the exemption.
It seems the Department wants to collect 14%+ Rs. 15 per litre for naphtha, while the Oil Companies want to pay only 14%. BOTH ARE WRONG. The applicable rate would be 16% if it is less than 14%+Rs. 15 per litre.
The fact is that the good Board forgot about Notification No. 23/2006 and so the Oil Companies do not get the benefit of reduction in duty for naphtha, announced by the FM.
God can give you only so many boons as the poojari is prepared to deliver!