The Hindu Business Line : ‘Natural gas’ tax holiday only for NELP-VIII blocks

New Delhi, July 7 The Budget 2009-10 move to extend tax holiday for profits arising from commercial production of natural gas will be applicable only in respect of hydrocarbon exploration blocks awarded under the New Exploration Licensing Policy (NELP)-VIII round of bidding, a top Finance Ministry official said.

Also, companies can avail themselves of the tax holiday only in cases where the commercial production of natural gas commenced on or after April 1, 2009.

Clearing doubts

“The Budget amendment (on tax holiday for profits derived from commercial production of natural gas) is a prospective one. The tax holiday will be available only for blocks licensed under NELP-VIII,” Mr P.V. Bhide, Revenue Secretary, told Business Line.

This clears the doubts arising from interpretations made in certain quarters that the tax holiday for profits from natural gas production was available on a retrospective basis to even exploration blocks awarded in the earlier rounds of NELP.

In the Budget speech, the Finance Minister, Mr Pranab Mukherjee, announced the move to extend tax holiday for profits from commercial production of natural gas from exploration blocks licensed under NELP-VIII.

In the same paragraph relating to tax holiday, he added that the Government also proposes to retrospectively amend the same provision—Section 80-IB (9)—to provide that “undertaking” for the purpose of that section will mean all blocks awarded in any single contract.

So far, the term “undertaking” in sub-section (9) has not been defined. In the context of mineral oil, the meaning of the term “undertaking” has been the subject matter of considerable dispute.

The taxpayers have been holding the view that every well in a block licensed constitutes a single “undertaking” and accordingly the tax holiday (for mineral oil) is available for each such well.

However, the Finance Ministry has now said that this view is against the legislative intent. Now, the law is proposed to be amended on a retrospective basis to specify that all blocks licenced under a single contract, awarded under NELP or any other law by the Centre or State Government, will be treated as a single “undertaking”.

The definition of undertaking will be applicable both in relation to mineral oil and natural gas.

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