ONGC to appeal in Supreme Court against Gujarat HC order

HC asked it to pay Rs 10,000 cr in past royalty dues

Oil and Natural Gas Corp (ONGC) today said it would appeal in the Supreme Court against a Gujarat High Court order asking it to pay Rs 10,000 crore in past royalty dues, saying it cannot pay the levy on revenue it hasn't earned.

The Gujarat High Court had on November 30 directed ONGC to pay royalty to the state government on the gross bill price of crude oil.

The company, as per Government of India directive, pays royalty on the net or actual price realised from refiners after allowing for fuel subsidy discounts.

"ONGC is in the process of filing an appeal in Supreme Court of India against the order of Gujarat High Court and making Union Government as party," the company said in a filing to the stock exchanges.

As per government directive, ONGC offers discounts on crude oil to make up part of the losses refiners suffer on selling diesel, cooking gas (LPG) and kerosene at state controlled rates.

When subsidy sharing started in 2003, ONGC paid royalty on output from offshore fields to the central government at post-discount sale price while it paid state governments for crude from onshore fields at pre-discount sale price.

"This has resulted in royalty payout to the state governments in excess of the statutory limit of 20% of the price realised by ONGC, as stipulated in the Oilfields (Regulation and Development) Act, 1948. In fact it was as high as 49.8% of realised price on the gross billing," it said.

The Oil Ministry in 2008 allowed ONGC to pay state governments royalty on the net price realised.

"Consequently, ONGC started making payment of royalty on crude oil from April 1, 2008, at post-discount to state governments, in line with royalty payment to Central government and as per the provisions of ORDA," ONGC said, adding it had paid Rs 3,419 crore excess royalty to the government of Gujarat during 2003-04 to 2007-08.

The Gujarat government went to the High Court, which on November 30 directed ONGC to pay royalty on onshore crude production at pre-discount (gross) price. For April 2008 to September 2013, this works out to Rs 10,000 crore, ONGC said.

"Further, the payment of royalty on pre-discount price is of recurring nature. Similar implications would arise in other states like Assam, Andhra Pradesh and Tamil Nadu, where ONGC is producing crude from onshore fields," the filing said.

In a separate but related issue, ONGC has been asked to pay VAT on pre-discount price from 2004-05 onwards by the Gujarat VAT Tribunal, against which ONGC is in the process of filing an appeal in the Gujarat High Court.

ONGC said it has written to the Oil Ministry, saying in case the decision on the royalty issue goes against it, the Centre should compensate it as "discounts to refineries are being extended as per directive of Government of India."

"Such royalty payment by ONGC would tantamount to payment out of revenue which has not been earned by or paid to ONGC. ONGC is not in a position of bearing such a huge burden, particularly when it is of recurring nature," it added.