The Hindu Business Line : ONGC may reimburse part of service tax to shipping cos

Mumbai, May 28 Shipping companies and other offshore service providers may get some financial relief soon, with ONGC indicating that it is “inclined” to reimburse at least a part of the service tax that these companies had been paying to the Government for offering marine logistics services to the oil major for the past one year.

This comes in the wake of a clarification from the Government a few months ago that marine logistics services, including operation of offshore supply vessels, for oil exploration and production did come under the ambit of service tax. ONGC has been disputing this on the ground that offshore oil exploration and production did not come under the definition of mining of minerals, oil and gas, which is subject to service tax.

While ONGC has been sticking to this claim, shipping companies and other offshore service providers, such as Great Eastern, Great Offshore, Dolphin Offshore and Garware Offshore, have been getting notices from the Tax Department to pay the 12 per cent service tax. A few of the companies, in a bid to avoid complications, had been paying the tax, hoping that ONGC would be reimbursing it.

“These companies had not included the tax component while finalising their hire charges for supplying offshore vessels to ONGC, as the issue was not clear. While the future hire rates would include the tax component, the companies expect ONGC to reimburse at least part of the service tax they have already paid so far,” industry sources told Business Line.

Clearly, ONGC will now have to cough up higher charges for hiring offshore support vessels for oil exploration and production as shipping companies will certainly revise the hire charges, including the tax component, in the wake of the latest Government clarification.

ONGC, which has in operation (both hired and owned) over 125 offshore vessels off the west coast alone, pays hire charges of between $1,800 and $20,000 a day or even more depending on the type of the vessels. The hire charges are significantly more in the case of new generation vessels, which are fitted with DP (Dynamically Positioning) systems.

In fact, the question of whether offshore vessels came under the purview of service tax has been raking shipping companies for long. According to the provisions, any marine logistics services automatically came under the Service Tax applicability. Under Section 65 (105) (3ZY) of the Act, it has been specified that the services connected to mining of minerals, oil and gas also attracted the tax.

Sources said the Government is of the view that offshore services cannot be “viewed in isolation” as far as service tax applicability is concerned, and hence, the services cannot be exempted from the tax.

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