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.
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.
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.
Source: Economic Times
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