At a time when the oil ministry is wooing foreign investors to the Indian hydrocarbon sector, news of a service tax demand on ONGC Videsh Ltd (OVL) has brought back concerns that India’s tax regime is still unpredictable.
The oil ministry has taken up the matter with the finance ministry, so that a clarification can be issued on the taxability of subsidiaries of Indian companies investing abroad.
“We are taking up the matter with finance ministry. We agree that clarification needs to be issued in this to ensure predictability in government policies,” oil minister Dharmendra Pradhan told HT.
He said his ministry believes that the service tax notice slapped on OVL is untenable.
The finance ministry on its part says it is a legacy issue, and is looking into the matter.
The Rs 6,100-crore notice was first slapped on OVL in 2011 and is stuck in legal tangle, with the state-run company challenging the demand. The 2011 notice demanded Rs 2,816.31 crore plus penalty and interest on the sum, on OVL’s overseas expenditure between 2006 and 2010.
Subsequently, five more service tax notices have been issued, and the amount has also ballooned as expenditure of following years kept getting added.
{{/usCountry}}Subsequently, five more service tax notices have been issued, and the amount has also ballooned as expenditure of following years kept getting added.
{{/usCountry}}“The notice issued in 2011 was based on the contention that OVL’s expenditure abroad can be interpreted as service provided by it to its parent company (ONGC),” said an official in the finance ministry, who did not wish to be named.
“But this is not our doing. It was done by the previous regime. We are looking into it and this matter with OVL will soon be resolved,” the official said.
Top sources in the oil ministry refute the tax department’s interpretation. “Investments and expenditure do not come under the purview of service tax in India,” one official said.
OVL has stakes in 37 oil and gas projects in 17 countries around the world. These stakes are held through subsidiaries and joint ventures.
The tax notice on OVL is the first time that a state-run company or its subsidiary has been dragged into a tax tussle with the government.