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Service tax to hit gas prices

By Jyoti Mukul in New Delhi
March 03, 2005 11:42 IST
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There was a case for increasing natural gas prices by at least Rs 115 for every thousand standard cubic metres as service tax was a pass-through tax, officials told Business Standard.

 The petroleum ministry is already seeking a price revision in natural gas from Rs 2,850 per thousand cubic metres to a fixed price of Rs 3,200 per tcm and Rs 3,600 per tcm for the fertiliser and power sectors, respectively, on a provisional basis.

It is seeking import parity for other users. In the case of oil companies, transportation of their own product will not attract the 10 per cent levy.

This leaves pure pipeline companies like Petronet LNG with a disadvantage. The company is already on the block and is finding no takers. The oil companies, as per one estimate, may end up forking out Rs 300 crore (Rs 3 billion) on account of the service tax.

"We are calculating the exact effect but as of now, it appears that sales to other companies will not attract service tax since products are transported via pipelines to our depot points and then sold to other companies," Indian Oil Corporation executives said.

Hindustan Petroleum and Bharat Petroleum, for instance, buy products from Panipat refinery in the northern region. The products are moved by pipeline to Bhatinda to IOC's own depots so sales to these companies are not through pipelines.

IOC, however, will feel the impact in the case of crude oil pipeline and that, too, only in the case of its Bongaigaon refinery which receives crude through the Oil India Ltd pipeline.

 "The pipeline sector will become a non-starter. It is already not economically viable and the 10 per cent service tax will make it more unviable," said S Madhavan, head, indirect tax practice, PricewaterhouseCoopers.

Pipeline tariffs are pegged at 75 per cent of railway freight. With the railways reducing freight for petroleum products by 10 per cent and the government imposing a 10 per cent service tax, the effective price advantage offered by pipelines will stand reduced to roughly 10 per cent.

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Jyoti Mukul in New Delhi
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