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Controversial Tax-Free Gas: Finally Court to Decide

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After a huge uproar for restoration of tax breaks on production of natural gas, the Oil Ministry has asked the Finance Ministry to let courts decide if 7-year tax exemption should apply only to oil and not on gas produced from the same well.

To background the situation, the government had promised exemption from payment of Income Tax on profit made from production of crude oil and natural gas for seven years from areas awarded under NELP. But in 2008, the then Finance Minister P Chidambarm amended the tax act declaring that the exemption was available only to products with huge carbon footprint (oil) and not to environment friendly fuel (gas). This created a huge uproar that’s burning corporate board rooms even today with grief’s of treachery against Chidambaram!

Although some firms like Niko Resources of Canada and Cairn India have challenged the amendment made in 2008 in courts, the debate is still on.  As such, Oil Secretary S Sundareshan has asked Revenue Secretary Sunil Mitra to allow profit-linked incentives to continue for existing contracts signed under the New Exploration Licensing Policy (NELP) since 1999 under the proposed Direct Tax Code (DTC). In fact, the Oil Secretary is known to have written that as Government has consistently agreed to provide the seven years tax holiday, it may not be appropriate to deprive the benefit for companies under contracts which already exist.

As such, the oil ministry is now leaving the decision to the court, however with a suggestion that a new rule be inserted in the Eleventh Schedule of DTC to protect oil companies’ interest.

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Controversial Tax-Free Gas: Finally Court to Decide

By: S Kumar Deka Read time: 4 min