Petroleum Minister Murli Deora on Tuesday sought removing excise duty on diesel in phases to check runaway inflation, which at 6.12 per cent is at a two-year high.

Deora, who met Finance Minister P Chidambaram for pre-budget consultation, also sought infrastructure status for oil and gas exploration business and pipelines so to encourage prospecting in unexplored basins and promoting use of environment friendly natural gas as fuel.

"Yes, we are for reduction in excise duty on diesel. Despite the fall in international crude prices, oil companies continue to make a loss of Rs 0.50 a litre on diesel. Besides, such a duty reduction would help contain inflation," he said after the hour-long meeting.

Deora, however, refused to elaborate on his demands. "Clearly, the Finance Ministry has benefited from the surge in international oil prices," an official said, adding that Deora sought a Re 1 per litre cut in excise on diesel in the Budget for 2007-08.

The current excise duty on diesel is 8.16 per cent plus Rs 3.32 a litre - the two together translating into a total levy of Rs 4.98 per litre. Last year, excise duty on diesel was Rs 3.41 per litre.

Sources said revenues from excise duty on diesel has increased to Rs 24,214 crore (Rs 242.14 billion) in 2005-06 from Rs 16,338 crore (Rs 163.38 billion) a year ago.  Revenue on diesel as percentage of total excise revenues has increased to 22 per cent from 16 per cent.

"Finance Ministry is also getting increased revenues from raising cess on domestic crude oil to Rs 2,500 per tonne from Rs 1,800 per tonne previously," he said.

"It is slated to get Rs 6,700 crore (Rs 67 billion) this year as against Rs 5,100 crore (Rs 51 billion) previously, the incremental revenues more than compensating for the excise duty cut," the official said.

The Petroleum Ministry was seeking a shift to specific duties on fuel from the current mix of ad-valorem and specific duties. The current excise duty on petrol is 8.16 per cent of ex-factory price plus Rs 13.26 a litre.

The official said the ministry had also proposed inclusion diesel in the list of 'declared goods'. This would mean that the fuel attracts a uniform state sales tax rate of four per cent instead of rates as high as 29 per cent.

In the last Budget, the Finance Minister had included LPG in the list of 'declared goods'. The Petroleum Ministry's demand for infrastructure status to exploration business and pipelines would entitle E&P and pipeline projects to avail of a 10-year income tax holiday.

It also sought tax holiday for LNG import and re-gasification projects, cross-country pipelines for crude, gas and petroleum products and crude and product import facilities, the official said.

The ministry was also for withdrawal of service tax on 'Survey and Exploration of Mineral' to promote domestic E&P. The official said the ministry has also sought zero customs duty on capital goods imported for new refineries and refinery expansion.

The ministry also wanted basic customs duty reduced on projects imports to zero for crude, product and gas pipelines and CNG/auto LPG infrastructure.

To promote use of environment friendly natural gas as fuel, the ministry demanded 'Declared Goods' status so that the fuel attracts a uniform rate of 4 per cent central sales tax instead of varied taxes rates across the states, going as high as 20 per cent in some cases.

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