GST relief for oil companies on outsourced work

In what could come as urgent relief for oil companies, revenue authorities have allowed refineriesNSE 0.00 % to pay GST only on value addition done by job workers against on the total valuation.
Many oil refineries outsource some of the processes to job workers. These refineries provide the raw
material to the job worker and a final product is then delivered. There were concerns that the tax authorities would impose GST on the total valuation of the final product against value addition by the job worker.
The Kerala bench of Authority of Advance Ruling (AAR) on Friday ruled that the outsourced process be treated as job work.
“The controversy with respect to the scope of job work activities gets settled to a very large extent by this pragmatic ruling, which has clearly held that the activities done in this case for the refinery would fall within the purview of job work,” said Abhishek A Rastogi, partner, Khaitan and Co, which represented the oil refineries.
Petroleum products are beyond the purview of GST. However, if oil companies had to pay GST on the total valuation, they would have faced trouble passing the cost on to the consumer, or taking credit for it would be tough.
People in the know point out that for most of the top oil companies, the impact would have been anywhere between ₹500 crore and ₹4,000 crore.
“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 the rising dollar,” said Rastogi.
Most of the refineries supply raw materials like raw water and liquefied natural gas to their job workers. After processing, the job workers, or companies that do the job work, supply products like hydrogen, nitrogen and steam. For the process, job workers charge some price.
While oil companies would still be required to pay GST on the jobs outsourced, the impact would not be as severe, say experts.

In what could come as urgent relief for oil companies, revenue authorities have allowed refineriesNSE 0.00 % to pay GST only on value addition done by job workers against on the total valuation.
Many oil refineries outsource some of the processes to job workers. These refineries provide the raw material to the job worker and a final product is then delivered. There were concerns that the tax authorities would impose GST on the total valuation of the final product against value addition by the job worker.
The Kerala bench of Authority of Advance Ruling (AAR) on Friday ruled that the outsourced process be treated as job work.
“The controversy with respect to the scope of job work activities gets settled to a very large extent by this pragmatic ruling, which has clearly held that the activities done in this case for the refinery would fall within the purview of job work,” said Abhishek A Rastogi, partner, Khaitan and Co, which represented the oil refineries.
Petroleum products are beyond the purview of GST. However, if oil companies had to pay GST on the total valuation, they would have faced trouble passing the cost on to the consumer, or taking credit for it would be tough.
People in the know point out that for most of the top oil companies, the impact would have been anywhere between ₹500 crore and ₹4,000 crore.
“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 the rising dollar,” said Rastogi.
Most of the refineries supply raw materials like raw water and liquefied natural gas to their job workers. After processing, the job workers, or companies that do the job work, supply products like hydrogen, nitrogen and steam. For the process, job workers charge some price.
While oil companies would still be required to pay GST on the jobs outsourced, the impact would not be as severe, say experts.