Classification of Consumer Deposits by Oil Marketing Companies

Opinion of Expert Advisory Committee (EAC) of ICAI on classification of consumer deposits collected for LPG supply by OMCs

Facts of the Case:

• Oil Marketing Companies (OMCs) selling LPG (Liquid Petroleum Gas) to domestic as well non-domestic customers are in the practice of taking deposits for Cylinders and regulators from the customers for supply of Gas. These deposits build up the liability of the company over the years and are generally continued for perpetuity and repaid in minimal cases.
• These OMCs classify these deposits as non-current liability taking into account the economic reality and the principle of Substance Over Legal Form. However, the company decided to take the opinion of experts on the classification of these deposits as Current Liability or Non-Current Liability since different viewpoints are possible in the classification of these deposits.

Opinion of Expert Advisory Committee

The EAC opined that where a specific transaction or event is covered by a specific requirement of an Ind AS, the general principles, like ‘substance over form’, which the OMCs applied to arrive at the above conclusion, should not override a specific provision given in the standard. The oil companies are required to refund the deposits as and when the connection is surrendered by the customer and do not have an unconditional right to defer such settlement. Therefore, the same should be classified as ‘current liability’, as per Ind AS 1.