GST on capital goods for petroleum to impact E&P contracts between govt and operators: FICCI
Urging Oil Minister Hardeep Singh Puri’s intervention, FICCI fears that the additional GST imposed on capital goods used for petroleum and CBM operations will “disrupt” various upstream exploration and production (E&P) projects signed between government and operators.
The industry body in a letter to the Oil Minister pointed out that the government had assured these operators of zero custom duties on imports and zero taxes/ duties on local purchases under deemed exports.
FICCI noted that the Oilfields (Regulation and Development) Amendment Act, 2025, also provides for fiscal stability to upstream E&P operators.
Capital goods for the Petroleum and Coal Bed Methane sectors, which were taxed at 0 per cent under the VAT regime, were brought under 5 per cent with the introduction of GST. This was subsequently increased to 12 per cent in the GST Council Meeting on June 28-29, 2022, and has now been raised further to 18 per cent.
“We wish to draw your attention to the distress of the oil and gas industry, which is already burdened by the non-inclusion of natural gas under GST. This is against the various upstream E&P contracts signed and will further raise the project costs in the sector that demands high-risk capital and long-gestation investments,” FICCI Director General Jyoti Vij said.
It discourages further investments, undermines domestic production and runs contrary to the national goals of energy security and Make in India, she feared.
Earlier this month, the government increased the GST on capital goods for Petroleum, including Natural Gas, and Coal Bed Methane (CBM) operations to 18 per cent, which has been notified on September 18, 2025.
Industry-wide impact
FICCI pointed out that Clause 5 (3) of the Amended Act (Oilfields (Regulation and Development) Amendment Act, 2025) provides fiscal stability to upstream E&P operators.
Quoting from the Act, it said “The terms and conditions of a petroleum lease shall remain stable during the period of the lease for expeditious and efficient development of oilfields or production of mineral oils and shall not be altered to the disadvantage of the lessee during the period of the lease.”
This underlines the government’s commitment to stable contractual and fiscal terms to upstream E&P operators, it added.
“This additional GST on capital goods used for petroleum (natural gas) and CBM operations disrupts the various upstream E&P contracts signed between operators and Government, which assured zero custom duties on imports and zero taxes / duties on local purchases under deemed exports,” FICCI said.
The industry is not seeking any incentive but requests to continue with the agreed contractual terms of E&P contracts, the industry body emphasised.
Citing GST exemption cases, FICCI pointed out that in the defence sector, the government has allowed zero duty imports of certain products to promote domestic manufacturing.
FICCI urged the Oil Minister to reconsider the hike and bring down the GST to 0 per cent, to reduce the unnecessary burden on domestic E&P operators.
“In the interim, the E&P operators should be allowed to adjust GST on their inputs against their dues to the government,” it urged Puri.
This will boost investor confidence, encourage domestic oil & gas production, enhance energy security, which in turn will support reduction in imports and reinforce government’s vision of ‘Make in India,’ promoting the country’s sovereign interest, the industry chamber emphasised.
Published on September 29, 2025
