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State-run Oil and Natural Gas Corporation (ONGC) has asked for restoration of a seven-year income tax holiday on production of natural gas, and inclusion of the environment-friendly fuel in the proposed Goods and Services Tax (GST) regime.

In its pre-Budget memorandum, ONGC said sub-section (9) of Section 80-IB of the Income Tax Act allowed a seven-year exemption from payment of income tax to an undertaking engaged in production of mineral oil — crude as well as gas.

The then finance minister P Chidambaram had in the Finance Bill for 2008 excluded natural gas from the definition of mineral oil and had promised in Parliament to allow courts and tribunals to decide if gas was part of mineral oil as defined by the Act.

ONGC said subsequent changes, however, “virtually overturned the already-decided cases” where it was upheld that mineral oil includes gas. The company added that the Finance Bill for 2009 made retrospective legal amendments to re-write the law from 1999-2000 and pre-judging the matters pending before courts and tribunals.

“Even if changes proposed are considered necessary to reflect a change in the government’s policy in regard to the oil and gas sector, it would have been appropriate to bring such changes on prospective basis,” it said.

“The retrospective amendments in law, in fact, undermine the confidence of tax payers in the fairness of tax administration and finality of tax proceedings,” ONGC said.

The company said tax holiday for gas was promised in the New Exploration Licensing Policy under which eight bid rounds have been held since 1999 and changes now would erode investor confidence.

ONGC wanted tax holiday to be enhanced from seven years to 10 years, as has been provided for other infrastructure sectors such as power generation and distribution.

Also, gas should be included in the GST regime and if that is not possible, it should be included as ‘Declared Goods’ so as to bring uniformity in sales tax on the clean fuel, it said.
At present, states like Gujarat, Maharashtra and Assam charge high sales tax/VAT rates of 12.5-20 per cent. Declared Goods status would make the duty uniform at 4 per cent.

Natural gas is the feedstock for vital industries such as fertiliser and source of fuel for power sector. Natural gas is a clean gas and termed as energy of the future,” it said.
It also sought exemption of exploration and production companies from payment of service tax on input services received in relation to production of crude oil and natural gas

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