ONGC, Cairn face Rs 1,922 crore service tax on royalty payments

NEW DELHI: In a setback to energy firms like ONGC and Cairn India, the government will from this fiscal levy service tax of about Rs 1,922 crore on royalties they pay to the exchequer on oil and gas they produce.

Companies currently pay 9.09 per cent of the price they realise on oil and gas produced from onland or onshore fields and 16.67 per cent on the same from offshore areas.

The Central Board of Excise and Customs (CBEC), in a recent clarification, has stated that the licence granted by the government to a company to exploit a natural resource is a taxable service and hence liable for service tax.

As a rule, service tax is paid by the entity providing the service, but in certain cases it is the liability of the party that receives the service to remit the levy under a system called reverse charge.

In the circular clarifying on service tax liability on use of wireless spectrum, CBEC stated that all periodic payments such as royalty on use of natural resources will attract 15 per cent service tax.

Following the clarification, the Service Tax department has sent letters to companies like Oil and Natural Gas Corp (ONGC), Cairn India Ltd and Reliance Industries seeking information on royalty payments, industry sources said.

Oil and Natural Gas Corporation Limited (ONGC)