Central Sales tax implications on big-ticket investments are becoming a touchy issue with the states because of the huge revenue implications.
The Rajasthan government, which has been betting big on the oil discovery by Cairn India at Barmer, has recently shot off a stinker to the Centre, apprehending revenue loss from the shifting of the delivery point of oil to outside the state.
The letter has asked for stalling the recent decision of the empowered committee of secretaries to shift the delivery point of crude from the oilfield in Rajasthan to Salaya on the Gujarat coast. ?The move is disturbing as it will deprive the state of substantial tax revenue for decades from the sale of crude,? state chief secretary, D C Samant, said in his letter to the petroleum ministry.
Worried over the possibility of the issue being trapped in the Centre-state tangle, the contractor, Cairn India, has already gone ahead to take a legal view from PwC.
According to PwC, even if the delivery point is shifted to Gujarat, the central sales tax will still be applicable and collected by the state from where the goods have originated. ?The transaction will be considered as a sale/purchase occasioning the movement of goods from one state to another and accordingly will be taxable as an inter-state sale under the CST Act,? PwC said. On its part, the petroleum ministry has (on March 10) asked the department of revenue to confirm the opinion of PwC.
The quantum of revenue inflows to the Rajasthan government from Cairn India?s Barmer project can be gauged from the fact that on the expected daily production of 150,000 barrels of oil a day (out of the five commercial discoveries announced so far) and on a crude price, of say $80 a barrel, accruals from royalty (12.5%) and state tax (2%) would work out to be around Rs 2,500 crore a year. Any tinkering with the revenue stream is, therefore, bound to have such a reaction.