Cairn told to shell out tax

The petroleum ministry has asked Cairn India to pay a production tax on the oil it has started to produce from its prolific Rajasthan fields even though the contract does not clearly lay the onus of the levy on it.

Cairn will have to pay the Rs 2,500 per ton oil cess in proportion to its 70 per cent interest in the Rajasthan fields while state-owned Oil and Natural Gas Corp (ONGC) will pay for its 30 per cent stake, the oil secretary, Mr R.S. Pandey said on Friday.

“In our view and as per legal opinion we have obtained, cess is to be paid by Cairn and ONGC. Cairn has protested (as its liability on cess is not defined in the Production Sharing Contract) but we have told them to pay so they are paying (under protest),” he said.

Mr Pandey said Cairn is likely to challenge the levy of Oil Industry Development Act (OIDA) cess.

“They will contest it at appropriate forums. If there is any legal remedy, they can try their luck.”

The government had in all pre-NELP blocks like Rajasthan that were awarded to foreign firms, clearly stated that the contractor will not bear any cess and royalty on oil and gas. This liability was vested on licensee, which in the Rajasthan block case is Oil and ONGC.

The PSC for Rajasthan block clearly makes ONGC liable to pay royalty but there is no specific mention of OIDA cess, which in similar PSCs of that era was also the responsibility of ONGC.

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