The Hindu Business Line : Service tax: ONGC may have to pay more hire rates

This comes in the wake of the Government indicating to Indian shipping companies that marine logistics services, including operation of offshore supply vessels, did come under the ambit of service tax.

Although shipping companies have not yet got any written clarification on the matter, they feel that they would have to sooner or later pay the tax for offering services of their offshore vessels to ONGC and other exploration companies.

And when this happens, the vessel owners are certain to transfer the entire or part of the tax burden onto ONGC and other exploration companies that hire the vessels.

ONGC, which has in operation (both hired and owned) about 125 offshore vessels off the west coast alone, pays hire charges of between $1,800 and $19,000 per day depending on the type of the vessels. The hire charges are significantly more in the case of new generation vessels, which are fitted with DP (Dynamically Positioning) systems.

If the Government clarified that service tax was applicable to these vessels, the vessel owner would have to pay a basic tax of 12 per cent, apart from other surcharges. “Certainly, the companies will pass on at least a part of the burden to ONGC by revising their hire charges,” an industry source told Business Line.

In fact, the question of whether offshore vessels came under the purview of service tax has been raking shipping companies for long. As per the provisions in the last Union Budget, any marine logistics services automatically came under the Service Tax applicability. Under Section 65 (105) (3ZY) of the Act, it has been specified that the services connected to mining of minerals, oil and gas also attracted the tax.

However, sources said, ONGC has been maintaining that offshore oil exploration could not be bracketed under mining, and hence, offshore support services would not attract the tax.

Towing this line, shipping companies also have not been paying service tax on hiring out their offshore vessels to ONGC.

It was in September last that shipping companies realised that it was time to clear the confusion. The companies collectively shot out a letter to the Government, seeking clarification on the applicability of the tax in relation to their services, the sources said.

For, the companies did not want to pay any penalty if it were clarified that the service attracted the tax.

Although the Government is yet to furnish a written clarification, it has sounded out that offshore support services fell well within the purview of the tax.

The Government is reportedly of the view that offshore services cannot be “viewed in isolation” as far as service tax applicability is concerned, and hence, the services cannot be exempted from the tax.

Shipping companies, however, have not been slapped with any notices from the tax department, so far.

With ONGC set to float tenders for hiring of 30 modern offshore vessels, shipping companies are eagerly waiting for the Government clarification, which would help them decide on the hire charges.

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