The Hindu Business Line : I-T holiday extension brings cheer to 3 PSU refineries

The upcoming public sector refineries – Paradeep, Bina, and Bhatinda – got a boost today after the Finance Minister, Mr P. Chidambaram, extended the seven-year Income-Tax holiday to refineries being commissioned by March 31, 2012.

However, confusion continued to prevail on whether the tax benefit would be available for companies getting into oil and gas exploration and production.

Replying to the debate on the Finance Bill, 2008 in the Lok Sabha today, the Finance Minister said, a new proposal in the Bill seeks to insert a new proviso in sub-section (9) of section 80-IB so as to provide that no deduction shall be allowed to an undertaking engaged in refining of mineral oil, if it begins refining on or after April 1, 2009.

Consequent to this proposal, the three public sector refineries under construction in Paradeep, Bina and Bhatinda may not qualify for tax benefit since their commissioning may not be completed before April 1, 2009, he said.

“With a view to ensuring that the benefit to these refineries is not denied on account of their inability to adhere to this deadline, it is proposed to amend the proposal to provide that such refineries would be eligible to avail themselves of the benefit if they begin refining not later than the March 31, 2012,” the Finance Minister said. “Refinery margins are very high thanks to crude oil now touching $120/barrel. There is no justification to give tax exemptions to pure refineries. Therefore, a conscious decision had been taken to sunset the clause from April 1, 2009,” he said.

The Finance Bill proposal would have meant that Bharat Petroleum Ltd’s Bina refinery, Indian Oil Corporation’s Paradeep refinery and HPCL-Mittal combine’s Bhatinda refinery would have been at a disadvantage as they are to be commissioned from 2010-12.

However, confusion continued on whether the tax breaks for oil and gas production under Section 80- IB (9) would be given or not. The Industry and the Petroleum Ministry have been seeking clarifications so that the prospective bidders for the Seventh round of New Exploration Licensing Policy (NELP) can come with absolute clarity.

“If there is no tax holiday for E&P companies then the NELP bid document would be required to accordingly state that production of natural gas is not eligible for tax breaks,” industry sources said.

Mr Chidambaram said that the notes to the Finance Bill had merely reproduced the Income-Tax Department’s stated position in various tribunals and courts on the issue. The dispute would be resolved in a matter of six months, he said.

He said, “Some concerns have been expressed regarding the scope of Section 80-IB (9) of the Income-Tax Act……this sub-Section allows a 100 per cent tax exemption in respect of an undertaking which begins ‘commercial production or refining of mineral oil’ for a period of seven consecutive assessment years. The scope of this Section is under adjudication since Assessment Year 2001-02 before different tax authorities.”

“In my view, we should allow the disputed issues to be resolved in the normal course by the tribunals and courts. Nevertheless I wish to clarify certain doubts that may have arisen because of the ‘Notes on Clauses’ attached to the Finance Bill,” he said.

“Besides, it is a well settled proposition of law that Notes on Clauses have no legal effect and are not binding on the courts. I may assure potential bidders that the benefit of Section 80-IB (9), as finally interpreted by the courts, will be applicable to all exploration and production contracts, whether obtained through nomination or bidding,” he said.

The Petroleum Ministry had already postponed last date of bidding for 57 blocks offered under NELP-VII to May 16 in absence of clarity on the issue. The seven-year tax holiday has been the salient feature of all NELP bid rounds, including the latest one.

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