Gujarat moves Supreme Court against firms over sales tax

By: | Published: July 17, 2015 12:04 AM

Says British Gas, ONGC, RIL liable to pay sales tax for bringing gas to Hazira from PMT field

The Gujarat government on Thursday moved the Supreme Court stating that British Gas and two other companies — ONGC and Reliance Industries Ltd — are liable to pay sales tax for bringing gas to Hazira from the Panna-Mukta-Tapti (PMT) field, situated off the west coast of India.

The state government is claiming that sales tax dues of around Rs 4,000 crore is payable between 1998-2015 by the three companies, which had entered into the production sharing contract (PSC) with the Centre, for capital investment and exploration.

The state government had assessed the sales tax of around R1,500 crore from 1997 to 2001 on the three contractors while stating that the gas was delivered and sold to GAIL from the territorial region of Gujarat.

However, the companies are contesting the demand notices on the ground that the Gujarat government has no jurisdiction to levy sales tax from them because the delivery point is located 32 nautical miles away from Hazira port in Surat, and hence it does not fall within the territorial waters of India and is also outside Gujarat.

Besides, British Gas is saying the gas is technically an import, as it could have gone anywhere in the world but due to contract obligations with GAIL, it was brought to Hazira.

The HC had in May rejected the state government’s argument, saying the gas sales have not taken place within the state and the Gujarat government had no authority to levy the sales tax under the provisions of the Gujarat Sales Tax Act, 1969 on the transactions. It also asked the state government to refund the amount with interest at the rate of 9% per annum deposited by the contractors while seeking interim relief.

Challenging the Gujarat HC’s order, the Gujarat government in its appeal said that the movement of goods from the continental shelf or exclusive economic zone to Hazira onshore being within the customs frontier is not import into the territory of India and the sales in question are, therefore, chargeable to sales tax under the GST Act.

According to the appeal, when the government of India, which is a signatory to the PSC, has specifically stated that the sale has taken place on-shore, that is, at Hazira, a unilateral assertion made by the contractors that the sale has taken place on the high seas cannot be accepted.

The provisions of the Customs Act have been made applicable to the area of Panna and Mukta and by virtue of the notification issued by the central government, the customs frontiers have been extended to Panna-Mukta area and, therefore, for the purpose of the Customs Act, Panna-Mukta is a part of India, it said. Anything sent to Panna-Mukta from anywhere in the country will not be subject to customs duty as also anything brought from Panna-Mukta to the land area of India will also not be subjected to customs duty. Therefore, the crude and oil produced at Panna-Mukta is considered to have been produced in India, the state government stated.

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