Petrol and diesel may soon again become cheaper in Delhi as compared to adjoining cities of Uttar Pradesh as ad valorem duty structure has translated into a bigger reduction in daily prices in the national capital.
While petrol and diesel traditionally have been cheaper in Delhi than most states in the country, due to lower local sales tax or VAT, the October 5 cut in the VAT by BJP-ruled states led to fuel being available at cheaper rates in places such as Ghaziabad and Noida - the UP towns that adjoin the national capital.
However, the difference that had peaked to over Rs 3 per litre in case of petrol and about Rs 2.3 in diesel on October 5, has now come down to just 44-57 paisa in petrol and about Re 1 in diesel, an analysis of the daily price revision notification issued by state-owned oil firms showed.
Petrol prices in Delhi Tuesday stood at Rs 71.72 a litre as compared to Rs 71.15 in Ghaziabad and Rs 71.28 in Noida. A litre of diesel in the national capital is priced at Rs 66.39 as opposed to Rs 65.31 in Ghaziabad and Rs 65.44 in Noida.
Industry sources said the gap will extinguish in the next few days if the falling trend continues. Fuel in Delhi may by next week turn cheaper in the national capital when compared with adjoining towns, they said.
While the slump in international oil prices has led to an almost equal reduction in base price of petrol and diesel across the country, the actual cut in rates differs from state to state depending on local VAT.
Retail pump price is calculated after adding central excise duty, dealers commission and VAT to the base price. While excise duty is fixed at Rs 17.98 per litre in case of petrol and Rs 13.83 a litre in diesel and do not change with any variation in base price, the incidence of VAT in most states changes as the levy is ad valorem or a percentage of the total of the base price plus central excise duty.
According to price notifications, Delhi levies a VAT of 27 per cent on petrol. The same on diesel is 16.75 per cent plus Rs 250 per kl air ambience charge.
VAT on petrol in Uttar Pradesh is 23.78 per cent or Rs 14.41 a litre, whichever is higher. In case of diesel, VAT is 14.05 per cent or Rs 8.43 a litre, whichever is higher.
Sources said when rates are falling, VAT in Uttar Pradesh is levied on fixed per litre term because that is higher than ad valorem rate. And so the reductions in the states have been smaller when compared with Delhi.
The Union government on October 4, slashed the petrol and diesel price by Rs 2.50 by reducing excise duty and asking state-owned oil firms to bear subsidy. This was matched by several states which reduced local sales tax or VAT.
BJP-ruled UP too followed suit. Prior to the cut, it levied 26.80 per cent or Rs 16.74 a litre, whichever is higher as VAT on petrol and 17.48 per cent or Rs 9.41 a litre on diesel.
Since Haryana too cut VAT, petrol in Gurugram costs Rs 70.51 a lire and diesel Rs 65.51 Tuesday.
Petrol price has been cut by Rs 11.11 per litre and diesel by Rs 9.3 in Delhi in the past six weeks in step with the reduction in international oil rates.
Rates have been on the decline since October 18. This has wiped off all of the price hike on petrol and diesel in two months beginning August 16.
Petrol price had touched a record high of Rs 84 per litre in Delhi and Rs 91.34 in Mumbai on October 4. Diesel on that day had peaked to an all-time high of Rs 75.45 a litre in Delhi and Rs 80.10 in Mumbai.
Prices had started to climb from August 16. Petrol in Delhi was priced at Rs 77.14 per litre and in Mumbai, it cost Rs 84.58 on August 15. Diesel on that day was priced at Rs 68.72 per litre in Delhi and at Rs 72.96 in Mumbai.
Between August 16 and October 4, petrol price was hiked by Rs 6.86 per litre and diesel by Rs 6.73.
On October 4, the government decided to cut excise duty on petrol and diesel by Rs 1.50 per litre each and asked state-owned fuel retailers to subsidise prices by another Re 1 a litre by reducing their margins.
Many states including Maharashtra matched that with a reduction in local sales tax or VAT.
Subsequent to this, the petrol price came down to Rs 81.50 per litre in Delhi and diesel to Rs 72.95 a litre on October 5. In Mumbai, rates fell to Rs 86.97 per litre for petrol and Rs 77.45 in case of diesel.
As the international oil prices continued to rise, the price of petrol and diesel in Delhi increased to Rs 82.83 and Rs 75.69 on October 17. In Mumbai, rates touched Rs 88.29 a litre for petrol and Rs 79.35 for diesel.
But since then, international oil prices have been falling and the rupee has also appreciated, resulting in a decline in retail rates.