The Tax Department has slapped a service tax demand of over Rs 6,100 crore on the overseas arm of state-owned Oil and Natural Gas Corp (ONGC), a move that may potentially render its investments in oil and gas fields abroad infructuous.
ONGC Videsh Ltd (OVL) has stakes in 37 oil and gas projects in 17 countries around the world. These stakes are held through subsidiaries, branches and joint ventures. For operations of these projects, those units and joint ventures would raise a demand for money on the parent, OVL, which would transmit the investments.
The Service Tax Department now contends that the overseas units are rendering a service to OVL and as such the company is liable to pay service tax at the full rate, sources said.
The department first issued a demand cum show-cause notice on October 11, 2011 requiring OVL to show cause why service tax amounting to Rs 2,816.31 crore plus interest on such amount and penalty should not be demanded and recovered from the company.
