Oil explorers like Oil and Natural Gas Corp(ONGC) have refused to reimburse service tax on offshore vessels they hire, giving foreign flag vessel owners an edge over Indian shipowners. Shipping Secretary A P V N Sarma has sought intervention of his counterpart in Petroleum Ministry for "suitable directives to E&P operators for reimbursement of service tax."
"E&P operators like ONGC who have charter hired Offshore Supply Vessels (OSVs) have declined to reimburse the Service Tax on the basis of their own interpretation (of rules)," he wrote to Petroleum Secretary last month.
The vessel owners are to pay service tax to government irrespective of the position taken by oil firms.
"Indian OSVs owners are unable to participate in any tender of E&P operators because they have to factor the Service Tax component too in their quote with the result the rate quoted by Indian owners are bound to be on higher side as compared to foreign vessel owners who do not have to pay service tax at all," he wrote.
Finance Ministry had this year included shipping industry under the ambit of the Service Tax. Under the new directive, any services provided for the supply of tangible goods, that includes machinery equipment and appliances for use and does not transfer right of possession and effective control, is liable to service tax. OSVs, as per Finance Ministry, fall under this category.
E&P (exploration and production) firms like ONGC that hire OSVs, refuse to shell out service tax on use of the vessels.