RIL tax battle with UP holds up gas sale to NTPC, IOC

Reliance Industries Ltd's legal battle over the Uttar Pradesh government's decision to impose 21 per cent value-added tax on gas is holding up supply to NTPC's two power plants and Indian Oil Corporation's Mathura refinery, despite a group of ministers making allocation to them.

While IOC has now approached the Ministry of Petroleum and Natural Gas for permission to receive an equivalent quantity of gas at its Panipat refinery, NTPC is hoping to sign an agreement with RIL for the uncontracted quantity soon.

RIL supplies 3.57 million standard cubic metres a day (mscmd) of gas to four fertiliser companies in the state — to Iffco for its Aonla and Phulpur units, Kribhco for Shahjahanpur, Indo Gulf Fertiliser for Jagdishpur and Tata Chemicals for Babrala. Senior officials said pending resolution of the tax dispute, being heard in the Lucknow bench of the Allahabad high court, RIL was seeking bank guarantees from existing customers for the tax incidence on the quantity sold since April 2009. When asked, an RIL spokesperson did not comment.

According to a decision of an empowered group of committee, IOC is to get a total of 1.6 mscmd of gas from Reliance's D6 block off Andhra. It is receiving about 0.9 mscmd gas at its Baroda refinery and is still awaiting signing of a gas sales purchase agreement with RIL for the remaining 0.7 mscmd.

In the case of NTPC, the EGoM allotted a total of 4.46 msmcd gas in two tranches. A gas sales and purchase agreement has been signed for 2.3 mscmd, with the two companies yet to sign an agreement for the remaining 2.16 mscmd. Of the uncontracted quantity, NTPC's Auraiya plant in UP has been allotted 0.26 mscmd and the Dadri plant another 0.54 mscmd. A senior NTPC executive added there were issues other than taxation, such as transportation, that were being sorted.

RIL, that produces about 60 msmcd of gas from its D6 deepwater field, pays a central sales tax of two per cent to the Andhra government on interstate sale of gas. The company has contested imposition of the local sales tax by UP on the argument that this will lead to double taxation and increase the gas price substantially. As against $0.09 per British thermal unit of central sales tax being paid currently, gas consumers would have to pay an additional $0.88 in local sales tax.

For RIL, interstate sale takes place in Andhra Pradesh. Reliance group company Reliance Gas Transportation and Infrastructure Ltd merely transports gas on behalf of customers through its pipeline. Saloni Roy, tax partner, Ernst & Young, says local sales tax or VAT is levied only if a sale takes place within the state. "Only a second sale should attract VAT," she said, without going into the specifics of this case. CST is charged at a lower rate of two per cent if the purchaser gives to the seller an undertakng that the product would be used for power, mining, resale, manufacturing and telecommunication purposes.