Terming the levy of service tax on oil exploration companies as a "retrogade step", the industry has asked the government to refund it as this drains away a substantial part of funds committed for oil exploration.

"It is a retrogade step. This levy of service tax on E&P (exploration and production) companies drains away a substantial part of funds committed for exploration as taxes, thus reducing funds available for carrying out actual exploration," RIL Senior Vice President (Commercial) R Ganapathisubramanian said quoting a presentation on behalf of the Petroleum Federation of India (Petrofed).

"There is a need to formulate a scheme for 'refund of service tax paid by E&P entities' on various critical services as the input service tax of over 12 per cent becomes an unrecoverable cost," the presentation said.

The tax was introduced by the government in the 2007 Budget and has since been resisted by upstream oil companies.

"Instead of providing concession of refund of service tax paid by the E&P sector, the government has increased service tax burden on exploration and production companies by extending provisions of services tax to installations, structures and vessels in the coastal shipping (CS) and exclusive economic zones (EEZ)," Ganapathisubramanian quoted from the presentation.