Cairn India’s efforts to raise the nation’s crude oil output has hit another roadblock with the Rajasthan government stopping work on a pipeline needed to transport the precious commodity to refiners saying it would result in loss of tax revenues to the state.Though Rajasthan is not opposed to crude oil being taken to refineries outside the state for processing, it fears loss of sales tax — in the form of value added tax (VAT) — revenues if the delivery point of the output from Cairn’s Barmer fields is shifted. The state government has stopped work on giving right of user (RoU) for the pipeline being built to transport the oil to Gujarat coast, official sources said.Cairn has sought shifting of the delivery point so that the 585-km pipeline needed for transporting the crude to Gujarat coast can be included in the cost for developing the oil field and recovered from the sale of oil.However, the legal opinion on the matter contradicts the Rajasthan government’s stand saying any crude oil sale outside the state would be considered inter-state sale irrespective of the delivery point and attract 3 per cent central sales tax.Sources said that according to the legal opinion obtained from PricewaterhouseCoopers (PwC), any sale that involves the movement of goods from one state to another is an inter-state transaction. Thus, even if the delivery/sale is made in the state of origin but the goods are transported outside state of origin, central sales tax (CST) is payable. Therefore, irrespective of the delivery point being in Rajasthan or Gujarat, VAT does not apply as the crude oil has to be transported outside Rajasthan for refining. CST would be payable and the current rate is 3 per cent. CST is collected from the buyer and has to be deposited with the government treasury in Rajasthan, the PwC legal opinion stated.Cairn plans to start producing oil from the Rajasthan fields by mid-2009, with a peak output now estimated at 1,75,000 barrels per day, one-fourth of the nation’s crude oil production. Oil from Rajasthan fields will help cut the country’s import dependence, which in case of crude oil is currently 79 per cent.CST is expected to be phased out in 2010 and replaced by goods and service tax (GST). GST is likely to be based on destination, irrespective of the delivery point being in Rajasthan or outside.
