E-Paper
OVL first PSU to get service tax notice, and it’s a big one
NEW DELHI: In a first for a public sector unit, the income tax department has slapped a ₹6,100-crore service tax notice on ONGC Videsh Ltd (OVL) for ‘not paying’
NEW DELHI: In a first for a public sector unit, the income tax department has slapped a ₹6,100-crore service tax notice on ONGC Videsh Ltd (OVL) for ‘not paying’ for services received from overseas units.
OVL holds stakes in 37 oil and gas projects in 17 countries through subsidiaries, branches and joint ventures. For operations of the projects, the units and joint ventures raise a demand for money on parent OVL, which then transmits the investments.
The service tax department has said that since the overseas units are rendering services to OVL, the company is liable to pay service tax at the full rate, sources said.
The department first issued a notice on October 11, 2011, asking OVL to show why service tax amounting to ₹2,816.31 crore plus interest and penalty should not be demanded and recovered. The tax amount was calculated based on foreign currency expenditure reported in OVL’s financial statements during April 1, 2006 to March 31, 2010. Subsequently, five more notices were issued covering the period up to March 31, 2015 for service tax amounting to ₹3,286.36 crore, plus interest and penalty.
The tax department has said that the expenses represent business auxiliary services rendered by OVL’s foreign branches and operators of joint ventures/consortiums of the company, and hence fall under the tax ambit.
OVL, however, claimed that investments made overseas through subsidiaries or branches or joint ventures do not constitute availing of any service. According to laws, service tax can be levied only on services rendered within the country, experts said.
The company said it is legally contesting the tax department’s claim.
OVL operates the projects at an internal rate of return on investments of 12% to 13%, and if it has to pay 14% to 15% service tax on such investments, the projects will give negative returns, and would turn non-viable.
OVL reported a net loss of ₹2,093.5 crore in 2015-16, compared to a net profit ₹1,904.2 crore. It produced 8.916 million tonnes of oil and oil equivalent gas in 2015-16, against 8.874 million tonnes in the previous year. Overall gas production increased from 3.341 billion cubic metres (bcm) during 2014-15 to 3.406 bcm in 2015-16. Oil production was almost flat at 5.51 million tonnes.
(With bureau inputs)
