Subsidy impact: ONGC faces extra tax claims

Oil and gas upstream major ONGC is paying the price for the government's faulty policy. ONGC provides price discounts on crude oil sale to public sector oil marketing companies under the subsidy burden-sharing regime. However, since confusion prevails over the question of whether ONGC's tax liabilities should be computed on the basis of pre-discount or post-discount price in central as well as state tax authorities, they often end up assessing the company's tax obligations at pre-discount prices. This leads to litigation since the company takes a legal recourse to ward off excess tax claims.

For example, ONGC had to shell out an extra Rs 3,686 crore toward its royalty obligations on the onshore blocks to state governments during 2003-08. Since ONGC's actual royalty payment exceeded the statutory limit of 20% of the well-head price, income tax officials have disallowed the excess expenditure on these blocks for computing ONGC's tax liabilities for the period.

Meanwhile, income tax officials have also disallowed the subsidy payout by the company towards sharing under-recoveries of public sector oil marketing companies on key petroleum products like petrol and diesel. ONGC has taken a legal recourse to challenge the extra demand raised by income tax officials.

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