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Centre seeking VAT exemption on crude oil stored in Vizag cavern puzzles State
May, 11th 2015

While Andhra Pradesh is awaiting incentives and tax concessions from the Centre as part of the promised special category status, strangely it has got a proposal from the Centre seeking tax exemption on crude oil stored in underground cavern at Visakhapatnam.

The proposal seeking VAT exemption on crude oil was also sent to Tamil Nadu and Karnataka besides Andhra Pradesh. The Union government is setting up three strategic crude oil storages in the underground rock caverns at Mangalore in Karnataka, Padur in Tamil Nadu and Visakhapatnam in Andhra Pradesh.

The underground crude oil storages would serve as energy cushion during emergency situations like wars when crude supplies could be disrupted. The Centre has recently decided to utilise part of crude stored in Visakhapatnam underground facility by supplying it to HPCL for refining purposes and production of petroleum products and earn some returns on the investment on storage facilities.

But as transporting crude for refining purpose would attract VAT in the States where it is stored, Centre wrote to the three States seeking exemption of five per cent VAT imposed on the crude oil.

Being an NDA ally, Telugu Desam government is in a dilemma whether or not to concede the Centre’s proposal given its tight financial situation. Chief Minister N. Chandrababu Naidu recently called for a meeting with the Finance and Revenue Departments to discuss the proposal.

Government sources, however, said the Tamil Nadu almost turned down the Centre’s proposal and the Karnataka government was also apparently not in favour of extending VAT exemption. Andhra Pradesh officials said the State could lose minimum Rs.300 crore if it cleared the VAT exemption on crude. They suggested that the State should wait for the official response of the neighbouring States before taking a decision.

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