Recently, the President repromulgated the Securities Laws (Amendment) Ordinance, 2014, which expands the Securities and Exchange Board Act’s (SEBI) powers related to search and seizure and permits SEBI to enter into consent settlements. The President also promulgated the Scheduled Castes and the Scheduled Tribes (Prevention of Atrocities) Amendment Ordinance, 2014, which establishes special courts for the trial of offences against members of Scheduled Castes and Scheduled Tribes. With the promulgation of these two Ordinances, a total of 25 Ordinances have been promulgated during the term of the 15th Lok Sabha so far. Ordinances are temporary laws which can be issued by the President when Parliament is not in session. Ordinances are issued by the President based on the advice of the Union Cabinet. The purpose of Ordinances is to allow governments to take immediate legislative action if circumstances make it necessary to do so at a time when Parliament is not in session. Often though Ordinances are used by governments to pass legislation which is currently pending in Parliament, as was the case with the Food Security Ordinance last year. Governments also take the Ordinance route to address matters of public concern as was the case with the Criminal Law (Amendment) Ordinance, 2013, which was issued in response to the protests surrounding the Delhi gang rape incident. Since the beginning of the first Lok Sabha in 1952, 637 Ordinances have been promulgated. The graph below gives a breakdown of the number of Bills passed by each Lok Sabha since 1952, as well as the number of Ordinances promulgated during each Lok Sabha. 
Ordinance Making Power of the President The President has been empowered to promulgate Ordinances based on the advice of the central government under Article 123 of the Constitution. This legislative power is available to the President only when either of the two Houses of Parliament is not in session to enact laws. Additionally, the President cannot promulgate an Ordinance unless he ‘is satisfied’ that there are circumstances that require taking ‘immediate action’. Ordinances must be approved by Parliament within six weeks of reassembling or they shall cease to operate. They also cease to operate in case resolutions disapproving the Ordinance are passed by both Houses. History of Ordinances Ordinances were incorporated into the Constitution from Section 42 and 43 of the Government of India Act, 1935, which authorised the then Governor General to promulgate Ordinances ‘if circumstances exist which render it necessary for him to take immediate action’. Interestingly, most democracies including Britain, the United States of America, Australia and Canada do not have provisions similar to that of Ordinances in the Indian Constitution. The reason for an absence of such a provision is because legislatures in these countries meet year long. Ordinances became part of the Indian Constitution after much debate and discussion. Some Members of the Constituent Assembly emphasised that the Ordinance making power of the President was extraordinary and issuing of Ordinances could be interpreted as against constitutional morality. Some Members felt that Ordinances were a hindrance to personal freedom and a relic of foreign rule. Others argued that Ordinances should be left as a provision to be used only in the case of emergencies, for example, in the breakdown of State machinery. As a safeguard, Members argued that the provision that a session of Parliament must be held within 6 months of passing an Ordinance be added. Repromulgation of Ordinances Ordinances are only temporary laws as they must be approved by Parliament within six weeks of reassembling or they shall cease to operate. However, governments have promulgated some ordinances multiple times. For example, The Securities Laws (Amendment) Ordinance, 2014 was recently repromulgated for the third time during the term of the 15th Lok Sabha. Repromulgation of Ordinances raises questions about the legislative authority of the Parliament as the highest law making body. In the 1986 Supreme Court judgment of D.C. Wadhwa vs. State of Bihar, where the court was examining a case where a state government (under the authority of the Governor) continued to re-promulgate Ordinances, the Constitution Bench headed by Chief Justice P.N. Bhagwati observed: “The power to promulgate an Ordinance is essentially a power to be used to meet an extraordinary situation and it cannot be allowed to be "perverted to serve political ends". It is contrary to all democratic norms that the Executive should have the power to make a law, but in order to meet an emergent situation, this power is conferred on the Governor and an Ordinance issued by the Governor in exercise of this power must, therefore, of necessity be limited in point of time.” 
Thanks to Vinayak Rajesekhar for helping with research on this blog post.
In the past few months, retail prices of petrol and diesel have consistently increased to all-time high levels. On October 16, 2021, the retail price of petrol in Delhi was Rs 105.5 per litre, and that of diesel was Rs 94.2 per litre. In Mumbai, these prices were even higher at Rs 111.7 per litre and Rs 102.5 per litre, respectively.
The difference in fuel retail prices in the two cities is due to the different tax rates levied by the respective state governments on the same products. In this blog post, we look at the tax components in the price structure of petrol and diesel, the variation in these across states, and the major changes in taxation of these products in the recent years. We also discuss changes in the retail prices over the past few years and how it compares vis-à-vis the global crude oil prices.
Taxes make up around 50% of the retail price
Public sector Oil Marketing Companies (OMCs) revise the retail prices of petrol and diesel in India on a daily basis, according to changes in the price of global crude oil. The price charged to dealers includes the base price set by OMCs and the freight price. As on October 16, 2021, the price charged to dealers makes up 42% of the retail price in the case of petrol, and 49% of the retail price in the case of diesel (Table 1).
The break-up of retail prices of petrol and diesel in Delhi (as on October 16, 2021), shows that around 54% of the retail price of petrol comprises central and states taxes. In the case of diesel, this is close to 49%. The central government taxes the production of petroleum products, while states tax their sale. The central government levies an excise duty of Rs 32.9 per litre on petrol and Rs 31.8 per litre on diesel. These make up 31% and 34% of the current retail prices of petrol and diesel, respectively.
Table 1: Break-up of petrol and diesel retail prices in Delhi (as on October 16, 2021)
|
Component |
Petrol |
Diesel |
||
|
Rs/litre |
% of retail price |
Rs/litre |
% of retail price |
|
|
Price Charged to Dealers |
44.4 |
42% |
46.0 |
49% |
|
Excise Duty (levied by centre) |
32.9 |
31% |
31.8 |
34% |
|
Dealer Commission (average) |
3.9 |
4% |
2.6 |
3% |
|
Sales Tax/ VAT (levied by state) |
24.3 |
23% |
13.8 |
15% |
|
Retail Price |
105.5 |
100% |
94.2 |
100% |
Note: Delhi levies 30% VAT on petrol and 16.75% VAT on diesel.
Sources: Indian Oil Corporation Limited; PRS.
While excise duty rates are uniform across the country, states levy sales tax/ Value Added Tax (VAT) which varies across states. For instance, Odisha levies 32% VAT on petrol, while Uttar Pradesh levies 26.8% VAT or Rs 18.74 per litre, whichever is higher. Refer to the table 3 in annexure for sales taxes/VAT levied across the country. The figure below shows the different tax rates levied by states on petrol and diesel. In addition to the tax rates shown in the graph, many state governments, such as Tamil Nadu, also levy certain additional levies such as cess (Rs 11.5 per litre).
Figure 1: Sales tax/VAT rates levied by states on petrol and diesel (as on October 1, 2021)
Note: The rates shown for Maharashtra are averages of the rates levied in the Mumbai-Thane region and in the rest of the state. Only percentages are being shown in this graph.
Sources: Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas; PRS.
Note that unlike excise duty, sales tax is an ad valorem tax, i.e., it does not have a fixed value, and is charged as a percentage of the price of the product. This implies that while the value of excise duty component of the price structure is fixed, the value of the sales tax component is dependent on the other three components, i.e., price charged to dealers, dealer commission, and excise duty.
Retail prices in India compared to global crude oil price
India’s dependence on imports for consumption of petroleum products has increased over the years. For instance, in 1998-99, net imports of petroleum products were 69% of the total consumption, which increased to around 95% in 2020-21. Because of a large share of imports in the domestic consumption, any change in the global price of crude oil has a significant impact on the domestic prices of petroleum products. The two figures below show the trend in the price of global crude oil and retail prices of petrol and diesel in India, over the last nine years.
Figure 2: Trend of the global crude oil price vis-à-vis retail prices of petrol and diesel (in Delhi)
Note: Global Crude Oil Price is for the Indian basket. Petrol and diesel retail prices are for Delhi. Figures reflect average monthly price.
Sources: Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas; PRS.
Between June 2014 and October 2018, the retail selling prices did not adhere to change in global crude oil prices. The global prices fell sharply between June 2014 and January 2016, and then subsequently increased between February 2016 and October 2018. However, the retail selling prices remained stable during the entire period. This disparity in the change in global and Indian retail prices was because of the subsequent changes in taxes. For instance, central taxes were increased by Rs 11 and 13 between June 2014 and January 2016 on petrol and diesel respectively. Subsequently, taxes were decreased by four rupees between February 2016 and October 2018 for petrol and diesel. Similarly, during January-April 2020, following a sharp decline of 69% in the global crude oil prices, the central government increased the excise duty on petrol and diesel by Rs 10 per litre and Rs 13 per litre, respectively in May 2020.
Sharp increase in excise duty collections
As a result of the increase in excise duty in May 2020, the excise duty collection increased sharply from Rs 2.38 lakh crore in 2019-20 to Rs 3.84 lakh crore in 2020-21. The year-on-year growth rate of excise duty collection increased from 4% in 2019-20 to 67% in 2020-21. However, sales tax collections (from petroleum products) during that period remained more or less constant (Figure 3).
Figure 3: Excise duty and sales tax/ VAT collection from petroleum products (in Rs lakh crore)
Note: The excise duty component in the figure includes cess on crude oil.
Sources: Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas; PRS.
Share of states in excise duty has decreased over the years
Though central taxes (such as excise duty) are levied by the centre, it has only 59% of the revenue from these taxes. The remaining 41% of the revenue is required to be devolved to the state governments as per the recommendations of the 15th Finance Commission. These devolved taxes are un-tied in nature, states can spend them according to their own discretion. The excise duty levied on petrol and diesel consists of two broad components: (i) tax component (i.e., basic excise duty), and (ii) cess and surcharge component. Of this, only the revenue generated from the tax component is devolved to states. Revenue generated by the centre from any cess or surcharge is not devolved to states. Currently, the Agriculture Infrastructure and Development Cess, and the Road and Infrastructure Cess are levied on the sale of petrol and diesel in addition to the surcharge.
In the Union Budget 2021-22, the Agriculture Infrastructure and Development cess on petrol and diesel was announced at Rs 2.5 per litre and Rs 4 per litre, respectively. However, simultaneously, the basic excise duty and surcharge were reduced by equal amounts, so that the overall rate remains the same. Essentially, this provision shifted a revenue of Rs 1.5 per litre of petrol and Rs 3 per litre of diesel from the states’ divisible pool of taxes to the cess and surcharge revenue, which is entirely with the centre. Similarly, over the last four years, the share of tax component in the excise duty has decreased by 40% in petrol and 59% in diesel (table 2). At present, majority of the excise duty levied on petrol (96%) and diesel (94%) is in the form of cess and surcharge, due to which it is entirely under the centre’s share (Table 2).
Table 2: Break up of excise duty (Rs per litre)
|
Excise duty |
Petrol |
Diesel |
||||||
|
Apr-17 |
% share of total |
Feb-21 |
% share |
Apr-17 |
% share of total |
Feb-21 |
% share |
|
|
Tax (devolved to states) |
9.48 |
44% |
1.4 |
4% |
11.33 |
65% |
1.8 |
6% |
|
Cess and surcharge (centre) |
12 |
56% |
31.5 |
96% |
6 |
35% |
30 |
94% |
|
Total |
21.48 |
100% |
32.9 |
100% |
17.33 |
100% |
31.8 |
100% |
Sources: Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas; PRS
As a result, the devolution to states out of the excise duty has declined over the last four years. Even though the excise duty collections have increased sharply between 2019-20 and 2020-21, the devolved component has declined from Rs 26,464 to Rs 19,578 (revised estimate) in the same period.
Annexure
Table 3: Sales taxes/VAT rates levied on petrol and diesel across states (as on October 1, 2021)
|
State/UT |
Petrol |
Diesel |
|
Andaman & Nicobar Islands |
6% |
6% |
|
Andhra Pradesh |
31% VAT + Rs.4/litre VAT+Rs.1/litre Road Development Cess an d Vat thereon |
22.25% VAT + Rs.4/litre VAT+Rs.1/litre Road Development Cess and Vat thereon |
|
Arunachal Pradesh |
20% |
13% |
|
Assam |
32.66% or Rs.22.63 per litre whichever is higher as VAT minus Rebate of Rs.5 per Litre |
23.66% or Rs.17.45 per litre whichever is higher as VAT minus Rebate of Rs.5 per Litre |
|
Bihar |
26% or Rs 16.65/Litre whichever is higher (30% Surcharge on VAT as irrecoverable tax) |
19% or Rs 12.33/Litre whichever is higher (30% Surcharge on VAT as irrecoverable tax) |
|
Chandigarh |
Rs.10/KL cess +22.45% or Rs.12.58/Litre whichever is higher |
Rs.10/KL cess + 14.02% or Rs.7.63/Litre whichever is higher |
|
Chhattisgarh |
25% VAT + Rs.2/litre VAT |
25% VAT + Rs.1/litre VAT |
|
Dadra and Nagar Haveli and Daman and Diu |
20% VAT |
20% VAT |
|
Delhi |
30% VAT |
Rs.250/KL air ambience charges + 16.75% VAT |
|
Goa |
27% VAT + 0.5% Green cess |
23% VAT + 0.5% Green cess |
|
Gujarat |
20.1% VAT+ 4% Cess on Town Rate & VAT |
20.2% VAT + 4 % Cess on Town Rate & VAT |
|
Haryana |
25% or Rs.15.62/litre whichever is higher as VAT+5% additional tax on VAT |
16.40% VAT or Rs.10.08/litre whichever is higher as VAT+5% additional tax on VAT |
|
Himachal Pradesh |
25% or Rs 15.50/Litre- whichever is higher |
14% or Rs 9.00/Litre- whichever is higher |
|
Jammu & Kashmir |
24% MST+ Rs.5/Litre employment cess, Reduction of Rs.0.50/Litre |
16% MST+ Rs.1.50/Litre employment cess |
|
Jharkhand |
22% on the sale price or Rs. 17.00 per litre , which ever is higher + Cess of Rs 1.00 per Ltr |
22% on the sale price or Rs. 12.50 per litre , which ever is higher + Cess of Rs 1.00 per Ltr |
|
Karnataka |
35% sales tax |
24% sales tax |
|
Kerala |
30.08% sales tax+ Rs.1/litre additional sales tax + 1% cess |
22.76% sales tax+ Rs.1/litre additional sales tax + 1% cess |
|
Ladakh |
24% MST+ Rs.5/Litre employment cess, Reduction of Rs.2.5/Litre |
16% MST+ Rs.1/Litre employment cess , Reduction of Rs.0.50/Litre |
|
Lakshadweep |
Nil |
Nil |
|
Madhya Pradesh |
33 % VAT + Rs.4.5/litre VAT+1%Cess |
23% VAT+ Rs.3/litre VAT+1% Cess |
|
Maharashtra – Mumbai, Thane , Navi Mumbai, Amravati & Aurangabad |
26% VAT+ Rs.10.12/Litre additional tax |
24% VAT+ Rs.3.00/Litre additional tax |
|
Maharashtra (Rest of State) |
25% VAT+ Rs.10.12/Litre additional tax |
21% VAT+ Rs.3.00/Litre additional tax |
|
Manipur |
32% VAT |
18% VAT |
|
Meghalaya |
20% or Rs15.00/Litre- whichever is higher (Rs.0.10/Litre pollution surcharge) |
12% or Rs9.00/Litre- whichever is higher (Rs.0.10/Litre pollution surcharge) |
|
Mizoram |
25% VAT |
14.5% VAT |
|
Nagaland |
25% VAT or Rs. 16.04/litre whichever is higher +5% surcharge + Rs.2.00/Litre as road maintenance cess |
16.50% VAT or Rs. 10.51/litre whichever is higher +5% surcharge + Rs.2.00/Litre as road maintenance cess |
|
Odisha |
32% VAT |
28% VAT |
|
Puducherry |
23% VAT |
17.75% VAT |
|
Punjab |
Rs.2050/KL (cess)+ Rs.0.10 per Litre (Urban Transport Fund) + 0.25 per Litre (Special Infrastructure Development Fee)+24.79% VAT+10% additional tax on VAT |
Rs.1050/KL (cess) + Rs.0.10 per Litre (Urban Transport Fund) +0.25 per Litre (Special Infrastructure Development Fee) + 15.94% VAT+10% additional tax on VAT |
|
Rajasthan |
36% VAT+Rs 1500/KL road development cess |
26% VAT+ Rs.1750/KL road development cess |
|
Sikkim |
25.25% VAT+ Rs.3000/KL cess |
14.75% VAT + Rs.2500/KL cess |
|
Tamil Nadu |
13% + Rs.11.52 per litre |
11% + Rs.9.62 per litre |
|
Telangana |
35.20% VAT |
27% VAT |
|
Tripura |
25% VAT+ 3% Tripura Road Development Cess |
16.50% VAT+ 3% Tripura Road Development Cess |
|
Uttar Pradesh |
26.80% or Rs 18.74/Litre whichever is higher |
17.48% or Rs 10.41/Litre whichever is higher |
|
Uttarakhand |
25% or Rs 19 Per Ltr whichever is greater |
17.48% or Rs Rs 10.41 Per Ltr whichever is greater |
|
West Bengal |
25% or Rs.13.12/litre whichever is higher as sales tax+ Rs.1000/KL cess – Rs 1000/KL sales tax rebate (20% Additional tax on VAT as irrecoverable tax) |
17% or Rs.7.70/litre whichever is higher as sales tax + Rs 1000/KL cess – Rs 1000/KL sales tax rebate (20% Additional tax on VAT as irrecoverable tax) |
Sources: Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas; PRS.
