The three-member panel, headed by Planning Commission member B K Chaturvedi that was asked by the Prime Minister to go into the financial position of oil firms, also suggested levying a 'Metro Extra' tax of Rs 2 per litre on diesel, in four installments in large cities where the fuel was being used in expensive cars.

Sources said the Committee, besides suggesting freeing auto fuel pricing from government control, also recommended changes in distribution of domestic LPG by restricting only six refills per connection a year.

Currently, Indian Oil [Get Quote], Bharat Petroleum and Hindustan Petroleum are compensated for losses on sale of petrol, diesel, domestic LPG and kerosene through a combination of government bonds and discounts from upstream firms like ONGC [Get Quote].

The Committee also suggested slashing import duty on petrol and diesel to zero (from 2.5 per cent) as has been done in the case of crude oil, domestic kerosene and LPG. Excise duty on petrol be reduced from Rs 13.75 per litre to Rs 10.

Sources said it also favoured imposing a new tax on oil produced from fields awarded prior to the advent of New Exploration Licensing Policy (NELP) in 1999 -- state-run firms like ONGC would be stripped of any gains above $75 a barrel while private companies like Cairn would be taxed at 40 per cent for gains over this benchmark rate.

The report is yet to be accepted by the government and it looks unlikely that with inflation rate crossing 12 per cent and general elections not far, suggestions will be accepted in toto.