GST on capital goods undermines promise of stable fiscal terms in new oilfield law: Industry to Puri

The recent hike in GST on capital goods used in oil, gas, and coal bed methane sectors undermines the stable contractual and fiscal terms promised in the recently approved oilfields legislation, an industry association said in a letter to Oil Minister Hardeep Singh Puri.

In the second letter to the minister this month, the Federation of Indian Chambers of Commerce and Industry (Ficci) on September 25 said the increase in GST on capital goods used for petroleum (including natural gas) and coal bed methane (CBM) sectors from 12 per cent to 18 per cent places an added burden on an industry which already was facing a disadvantage because of non-inclusion of natural gas under GST.

"This (GST increase) is against the various upstream exploration & production (E&P) contracts signed and will further raise the project costs in the sector that demands high-risk capital and long-gestation investments," Ficci wrote.


"It discourages further investments, undermines domestic production, and runs contrary to the national goals of energy security and Make in India."

The industry body recalled Parliament recently passing the Oilfields (Regulation and Development) Amendment Act, 2025, providing fiscal stability to upstream E&P operators.

"This (GST hike) underlines the government's commitment to stable contractual and fiscal terms to upstream E&P operators," Ficci said.

"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 customs duties on imports and zero taxes/duties on local purchases under deemed exports".

FICCI said the industry wasn't seeking any incentive, but wanted the government to continue with the agreed contractual terms of E&P contracts.

India imports 88 per cent of its oil needs and roughly half of its gas requirement. To cut down this import dependence, the government has been placing emphasis on raising domestic production.

An increase in GST on capital goods used for petroleum (including natural gas) and coal-bed methane (CBM) sectors will be an additional burden on the petroleum and CBM operations, which require significant risk capital.

To buttress its point, Ficci cited the government allowing zero-duty imports of certain products to promote domestic manufacturing in the defence sector.

"In order to ensure the sanctity of the E&P contracts and the principle of fiscal stability, we humbly request that the increase in GST rates to 18 per cent on capital goods used for petroleum (natural gas) and CBM operations should be reconsidered and brought down to 0 per cent slab, to reduce the unnecessary burden on domestic E&P operators," it said.

In the interim, the E&P operators should be allowed to adjust GST on their inputs against their dues to the government, it added.

This, Ficci said, will boost investor confidence, encourage domestic oil and gas production, and enhance energy security, which in turn will support a reduction in imports.