A Supreme Court decision on May 6 could have a positive impact on the oil & gas industry as well set a precedent for FBT, or Fringe Benefit Tax, interpretation. The decision holds that transportation expenditure for chartering employees from their place of residence to the work place, or rig, in India shall be exempt from levy of FBT.

Mukesh Butani, International Tax & Transfer Pricing Head, BMR Associates, said the benefit would be there for the first two years of FBT.

A: The impact is on oil and gas operators. Essentially, oil and gas operators have to transport people, what they technically call as mobilise and de-mobilise people to rigs that could be located onshore and offshore. The question before the Authority on Advanced Ruling was that the transportation cost that is incurred for these employees, whether they are exempted from the levy of Fringe Benefit Tax or not on the contention that you are really moving people from their residence to the place of work.

And the Authority on Advanced Ruling answered this in the negative. The Supreme Court said that is not correct. You need to really look at a wider interpretation of the term, whether the employee is moving from his residence to place of work or not. Hence such costs incurred will not be liable for Fringe Benefit Tax.

A: It is significant from the point of view of the oil and gas industry. The liberal interpretation that the Supreme Court has given that you need to look at transportation of employees in the wider sense. It doesn’t necessarily have to be restricted and the fact that they are not Indian employees having a house in India, are foreign employees and are resident elsewhere, and their transportation cost will also be covered.

So, there is a significant amount of cost that gets incurred by oil and gas companies moving people around to rigs and to difficult conditions where they have to operate in. It is very clear that the levy will no longer apply. The benefit is far greater in the first two years when the deemed fringe benefits tax on transportation was 20%, which was subsequently brought down to 5% in the latter budget. So, the benefit would be there for the first two years of FBT.