New Delhi, April 16 Reliance Industries Ltd (RIL) has converted its first refinery (33 million tonne/year) at Jamnagar from an Export Oriented Unit (EoU) to a normal status so that it can sell all its products in the domestic market.
Industry sources confirmed that after seeking mandatory approvals, the company has converted its refinery status with effect from Thursday. “The decision to covert the refinery status was opted for by the company on its own and not because of the company approaching any deadline or end of any tax holiday,” a source told Business Line.
RIL has gone in for a change in status because of the sharp fall in international crude and petroleum product prices. The decline in prices had narrowed down its export realisation, leading to lower margins. The company clearly feels that it will get higher revenues by selling in the domestic market even if it means paying domestic taxes.
The move will also enable RIL to revive its near defunct petroleum retail business. The business had suffered because of the Government’s refusal to allow domestic retail prices to rise in tandem with international crude oil prices.
RIL’s first refinery in Jamnagar was commissioned in July 1999 and was converted into an EoU in April 2007. As an EoU, the refinery enjoyed tax concessions including income-tax exemption only on exports.
With this conversion, RIL will not have the compulsion to export the entire refinery produce. However, the company may continue to export certain products like jet fuel.
But for taxation issues, RIL could have sold its products to public sector oil companies even while it continued to hold the EoU status. However, with this conversion, changes in tax rules to enable EoU refineries to supply petroleum products to domestic PSU refiners may not be required.
As an EoU refinery RIL would have had to pay both customs and excise duty for selling the products in the domestic market. The excise duty comprises two components - ad valorem and specific. Being sourced from an EoU, the same product would have faced taxation twice if the selling was routed through another domestic refiner.
In addition, RIL would have had to pay income-tax on its profits when it sold fuel in the domestic tariff area.
The conversion will also help RIL in reviving its petroleum retail business. Recently, RIL had called for ‘non-binding offer’ from other players in the industry for a possible joint venture to revive its petroleum retail business. Almost 1,432 retail outlets of RIL were lying shut due to the massive differential in retail selling prices of petrol and diesel sold by Reliance and the PSUs.
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