State-owned oil producers ONGC and Oil India along with private sector Cairn India have asked the government to cut cess on crude oil in view of slump in prices.

The Oil Industry (Development) Act, 1974 provides for collection of cess as a duty of excise on indigenous crude oil. Cess incurred by producers is not recoverable from refineries and thus forms part of cost of production of crude oil. The cess was levied at Rs 60 per tone in July 1974 and subsequently revised from time to time.

Most of crude oil produced in India comes from pre-NELP and nomination blocks and is liable for payment of cess.

While New Exploration Licensing Policy (NELP) blocks like Reliance Industries' KG-D6 area are exempt from payment of cess, pre-NELP discovered blocks like Panna/Mukta and Tapti and Ravva pay a fixed rate of cess of Rs 900 per ton.

However, these major producers want the government to levy ad-valorem rate of cess which will result in higher payouts when prices are high and lower payout when rates fall. Currently, ONGC and OIL pay a cess of Rs 4,500 per ton on crude oil they produce from fields given to them on nomination basis. Cairn has to pay the same cess for oil from Rajasthan block.

Their association, PetroFed last week wrote to revenue secretary Hasmukh Adhia and oil secretary KD Tripathi seeking levy of 8 per cent cess on price of crude oil realised.