The landmark GST taxation that was implemented in the country from July 1, 2017 includes primarily most of the goods and services barring few and among them are five of the major oil products that generate the highest revenue for oil companies. For these products which include crude oil, diesel, petrol, natural gas and jet fuel, oil companies has asked finance ministry to devise a temporary system such that oil companies are allowed to claim input tax credit on these items until they are made part of the GST regime. Some of the other oil products such as cooking gas, naptha and kerosene are however made part of GST.
Know all about Input Tax credit
So, currently oil companies have to deal with two parallel taxations systems wherein the GST paid for equipment and services used in operation of the oil companies is not available for set-off against VAT and excise duty paid on the output including crude oil, petrol, diesel, natural gas and jet fuel. The resultant stranded taxes, in accordance to an estimate reach Rs 25000 crore annually.
To address the heavy burden which would befall oil companies by way of stranded tax, oil ministry representative has urged the finance ministry to allow input tax credit on these 5 oil products.
Oil Ministry has further raised the issue of taxation on equipment including rigs which are used in oil exploration and production. GST is proposed not on the overall rig value but on the value of service a rig offers that results in higher taxation burden for oil companies. Another similar concern is of the taxation on the movement of rig between states. Also, in respect of offshore contracts, GST shall now be levied on the 100% contract value as against the earlier practice which charged service tax only on 40% of the total contract value.