The formation of charge neutrality level (CNL) in highly conducting Cadmium oxide (CdO) thin films is demonstarted by the observed variation in the band gap upon annealing and doping. It may be explained by the observation that Tin (Sn) doping breaks the perfect periodicity of CdO cubic crystal structure and creates virtual gap states (ViGS). The level of local CNL resides at the branch point of ViGS, making the energy at which native defect's character changes from predominantly donor-like below CNL to predominantly acceptor-like above the CNL and a schematic band diagram is developed to substantiate the same. Further investigations using soft x-ray absorption spectroscopy (SXAS) at Oxygen and Cadmium edges show the reduction of Sn4+ to Sn2+. The analysis of the spectral features has revealed an evidence of p-d interaction between O 2p and Cd 4d orbitals that pushes the valence band minima at higher energies which is symmetry forbidden at г point and causing a positive valance band dispersion away from the zone centre in the г ~ L, K direction. Thus, origin of the CNL is attributed to the high density of the Oxygen vacancies as confirmed by the change in the local electronic structure and p-d hybridization of orbitals.