Reliance in tax row with D6 gas consumers

Vol 16, PW 24 (27 Jun 13) Midstream & Downstream

Angry fertiliser and power sector consumers are upset with Reliance for asking them to pay more tax than expected for D6 gas supplies.

Reliance insists that from July 1st this year they must pay 14.5% Value Added Tax (VAT) on their D6 gas supplies instead of the much lower 2% Central Sales Tax (CST) they’ve been paying until now. Reliance wrote to all its gas customers across India on June 4 telling them about the new tax structure following an oil ministry order five days earlier directing it to divert some of the 2.1m cm/d D6 gas meant for Rashtriya Chemicals and Fertilisers (RCF) in Mumbai to power producers in Andhra Pradesh.

In response Reliance actioned a gas swap mechanism that will see RCF receive R-LNG instead of the D6 gas it was receiving till date. Until now Reliance was charging 2% CST because D6 gas transported from Andhra Pradesh to Gujarat amounts to an interstate sale.

But because of the gas swap Reliance must now charge 14.5% VAT because the point of sale for D6 gas is Gadimoga in Andhra Pradesh, where the state's VAT applies. Last week Delhi-based IFFCO wrote to Reliance arguing that “since gas is sold in Andhra Pradesh and utilised in Gujarat it amounts to an interstate sale and that CST applies.

” Nor does IFFCO want to pay transportation charges because under a swap, gas is not actually shipped. Noida-based National Fertilisers (NFL) sent a similar letter to Reliance last week.

Note: “Oil ministry guidelines for gas swapping say the beneficiary (Andhra power producers) must bear costs," says a NFL source. "Why should we pay VAT" Gas consumers argue they have C-Form certificates from the sales tax department showing they should be charged CST.

In March 2011, the oil ministry published gas swap guidelines, allowing GAIL to divert 2.6m cm/d of D6 gas from its LPG production facilities to power plants in Andhra Pradesh. GAIL used imported R-LNG to plug its own shortfall.

The ministry's order is clear that power stations who benefit from a swap must pay the actual cost of imported LNG.

LNG Summit