New Delhi: The oil and gas industry has sought abolition or a review of the oil industry development (OID) cess on crude oil produced from nomination and pre-NELP exploration blocks in the FY27 Union Budget, citing adverse impact on domestic production and project viability.
OID cess, levied under the Oil Industries (Development) Act, 1974, was converted from a specific rate to an ad-valorem levy of 20 per cent from March 1, 2016, following a sharp fall in global crude prices.
While the shift to an ad-valorem structure was intended to provide relief, oil and gas industry association Federation of Indian Petroleum Industry (FIPI) in a representation for FY27 Budget to the finance ministry said the 20 per cent rate has proved excessive, noting that historically the cess has ranged 8-10 per cent of crude prices.
The cess applies only to crude produced from nomination and pre-New Exploration Licensing Policy (NELP) blocks, many of which are mature and in decline, requiring higher investment to sustain output.
In contrast, OID cess is not levied on production from NELP, Open Acreage Licensing Policy (OALP) and Discovered Small Field (DSF) blocks, where fiscal incentives are aimed at boosting domestic output, it said.
India’s biggest oil and gas producing fields such as Mumbai High and Bassein fields of Oil and Natural Gas Corporation (ONGC) are nomination fields while Vedanta Cairn’s Rajasthan block is a pre-NELP field.
FIPI also flagged that OID cess is imposed only on domestically produced crude, placing local producers at a disadvantage compared with imported oil and running counter to the objectives of ‘Make in India’ and ‘Atmanirbhar Bharat’.
In addition to OID cess, producers in nomination and pre-NELP blocks pay royalty (10 per cent on offshore and 20 per cent on onshore production), National Calamity Contingent Duty (₹50 per tonne), basic excise duty (Re 1 per tonne) and VAT (5 per cent).
Royalty and OID cess are production-linked levies that cannot be passed on to buyers, significantly raising costs and rendering several development projects unviable, especially during periods of low crude prices.
As an alternative to complete abolition, the industry body proposed a graded OID cess linked to crude oil prices. Under the proposal, no cess should apply up to USD 25 per barrel; a 5 per cent levy between USD 25-50 per barrel; 10 per cent between USD 50-70 per barrel; and 20 per cent above USD 70 per barrel, to moderate the impact of price volatility while sustaining government revenues.
FIPI also urged the government to remove the National Calamity Contingent Duty (NCCD) and Basic Excise Duty on domestically produced crude oil in the FY27 Union Budget, citing compliance burden and adverse impact on ease of doing business.
NCCD, levied at ₹50 per tonne on indigenous crude oil, was introduced by the finance ministry as a temporary measure to replenish the National Calamity Contingency Fund and was originally valid until February 29, 2004.
However, the levy has continued for over two decades, prompting repeated representations from the industry for its withdrawal.
In addition, Basic Excise Duty of Re 1 per tonne was imposed on domestic crude oil through the Finance Bill, 2019. FIPI said the duty has led to avoidable compliance requirements under excise law without yielding any meaningful revenue benefit.
According to the industry body, removal of NCCD and Basic Excise Duty on domestic crude production would simplify the fiscal regime, reduce regulatory burden and support ease of doing business, particularly for upstream oil producers.
