Oil Companies to Pay GST Only on Value Addition

The Big news has come for the Oil Refineries as there is an announcement for relief in regards to the GST payment against the job outsourced by these oil companies. As earlier, it was speculated that whether the Oil companies have to pay the GST on the total valuation.

But due to the announcement made by the Revenue Authorities that the payment of GST would only be required on the Value Addition done by the Job workers and not on the Total valuation, the Refineries are now feeling glad.

We know that many Oil refineries get some of the processes outsourced by the Job workers and as a process, they provide Raw materials to these Job workers and they supply the final products to the Refineries. Thus, if the GST would be charged on the Total valuation, this would be a matter of concern for the Companies, as they already make payment to these Job workers for the services they are providing to these companies.

The Kerala bench of Authority of Advance Ruling (AAR) ruled that the outsourced process be treated as job work.

Ruling—The activity of sending Regasified Liquefied Natural Gas (RLNG), De-Mineralized Water (DM Water), Hydrogen Rich off Gas and Raw water free of cost to any person or entity for manufacturing of Hydrogen, Nitrogen and Steam, the activity of manufacturing amounts to ‘job work’ as defined under Section 2(68) read with Section 143 of the CGST/ KSGST Acts.

The ruling will have a great impact on the refineries and thereby on the overall profitability of the refineries, which are financially struggling due to various factors such as the price of crude oil and rising of dollar.