Relevance: GS III (Indian Economy) | Source: The Hindu 

1. What is the News? 

• The Central Government recently cut a major tax (Excise Duty) on petrol and diesel by a massive ₹10 per litre.
• The Catch: If you go to the petrol pump today, the price is exactly the same. The common citizen gets zero benefit. So, where did the ₹10 go?

2. The Basics: What is Excise Duty? 

• The Definition: Excise duty is a tax the government collects when goods are manufactured or produced inside India.
• Excise duty in India is primarily governed by Article 246 of the Constitution, which empowers Parliament and State Legislatures to make laws regarding taxation, specifically under the Seventh Schedule.
• The GST Rule: Petrol and diesel are kept outside the GST system. Because they are not under GST, the Central Government has the full power to increase or decrease the Excise Duty on fuel to manage its earnings.

3. Why cut the tax if the public gets no relief? 

If the public isn’t getting the ₹10 discount, who is? The answer is the Oil Marketing Companies (OMCs) like Indian Oil and Bharat Petroleum.

• The Problem: Because of global wars, raw crude oil has become extremely expensive.
• The Fear of ‘Mehengai’ (Inflation): Normally, oil companies would just increase the petrol pump prices. But if petrol becomes expensive, transport becomes expensive, and the price of everyday items like vegetables skyrockets.
• The Solution: To save the public from this massive inflation, the government ordered oil companies to “freeze” petrol prices.
• The Cushion: Because these companies were buying expensive oil but selling it cheap to us, they were losing thousands of crores every day. The government gave them this ₹10 tax cut as a financial “bandage” so they can survive these losses without going bankrupt.

4. Balancing the Books: How does the Govt recover the loss?

By giving up this ₹10 tax, the government is losing a massive amount of its own income.

• The Recovery Plan: To make up for this loss, the government heavily increased the Export Duty (the tax charged when companies sell goods to foreign countries).
• The Target: Private oil companies in India were refining fuel and selling it abroad for huge profits because global prices were so high. By taxing these exports heavily, the government earns back a large chunk of its lost money and ensures enough fuel stays inside India.

The “UPSC Trap”

• The “GST Council” Trap: UPSC will try to trick you by saying, “The GST Council recently reduced the tax on petrol.” Incorrect. Petrol is outside the GST system; the Central Government did this on its own.
• The “Consumer Benefit” Trap: A statement might say, “This tax cut directly helped lower the daily transport costs for the Indian public.” Incorrect. The retail prices at the pump did not change at all.

UPSC Value Box

With reference to the taxation of petroleum products and economic management in India, consider the following statements:

1. Petrol and diesel are currently included under the Goods and Services Tax (GST) regime to ensure the same price across all states.
2. Excise duty is an indirect tax applied mainly when foreign goods are imported into India.
3. The government can increase export duties on refined petroleum products to discourage private companies from selling domestic fuel to foreign countries.

Which of the statements given above is/are correct?

(a) 1 and 2 only

(b) 3 only

(c) 2 and 3 only

(d) 1, 2 and 3

Correct Answer: (b)