Pradhan says will ask finance ministry to address issues of oil and gas players

Major oil and gas players in the country have sought intervention from the petroleum ministry to include crude oil, petrol, diesel, aviation turbine fuel and natural gas under the ambit of the goods and service tax (GST).

In a workshop moderated by the petroleum ministry on Monday, the companies highlighted that the exclusion of those products from the GST will result in huge stranded taxes in the hands of the oil industry due to non-availability of input tax credit towards non-GST products.

According to industry estimates, the overall GST impact on the petroleum sector will be to the tune of ~25,000 crore. Petroleum Minister Dharmendra Pradhan has assured the companies their concerns will be raised before the finance ministry.

The petroleum products outside GST will come under the current taxation structure, including excise duty, central sales tax and state value-added tax. On one hand, while the companies will have to pay 18 per cent GST on procurement of various goods, it will not be able to claim input tax credit on the products they sell. This is likely to hit Indian Oil Corporation (IOC) by ~5,000 crore, while Hindustan Petroleum (HPCL) and Oil India expect a hit of ~400 crore and ~175 crore, respectively.

ONGC Chairman and Managing Director Dinesh K Sarraf had on Friday said all oil companies were concerned about the implementation of the GST. Crude oil, natural gas and certain downstream products were out of the purview of the GST. "So while we will pay GST on inputs, we do not get credit on our output," he had said. The petroleum ministry has written on the issue to the finance ministry. "But the issue is beyond the ministry of finance and is with the GST Council," he said. The industry representatives said the GST in its present form needs few amendments and clarifications as it may have a negative impact on domestic oil and gas production, manufacturing, capital investment, pipeline expansion plans etc. It was also brought to the notice of the ministry that exclusion of the pipeline network from the definition of plant and machinery may adversely affect longterm capital investment in the pipeline infrastructure projects. The roll-out of the goods and services tax (GST) scheduled from July 1, will allow Tata Steel to sell finished products manufactured at its Kalinganagar steel mill, in Odisha, outside the state.

Tata Steel was bound by a memorandum of understanding (MoU) signed with the state government in November 2004 to sell finished products from its Kalinganagar products within the state. The restrictive clause was not applicable to exports.

Kalinganagar started commercial operations in May 2016. Since then, its products such as ferroshots and hot rolled coils were exported, mainly to Southeast Asia. The finished steel products could not be sold within Odisha as the state lacked downstream industries to absorb these.

Though Odisha has a nameplate capacity of 21 million tonnes (mt) annually in steel making, hardly 2.6 mt is consumed within the state. The consumption of finished steel points to the lack of downstream industries, despite the presence of steel majors like Tata Steel, Jindal Steel & Power Ltd (JSPL), Jindal Stainless Ltd (JSL) and Bhushan Steel.

Due to lack of demand for its products within Odisha, Tata Steel sorely needed to despatch products to other states where demand was robust.

Accordingly, Tata Steel had asked the state government to do away with the restrictive clause on sales.The state government was dithering due to revenue implications. The GST will help Tata Steel overcome this barrier because the tax is imposed on the destination principle and the consuming state will receive the tax revenue.

“Now we see no hurdle to sell products from Kalinganagar facility. The GST roll-out will ensure seamless transportation of our products. Though we were shipping products overseas, we preferred to sell more in the domestic market to ensure better margins,” a Tata Steel source said. “After GST, we have no ground to restrain Tata Steel to sell its products within the state. We will not oppose their sales,” an Odisha government official said.

The finished steel products could not be sold within Odisha as the state lacked downstream industries to absorb them