Taxing of petro products under GST a wise move

Sheela Mamidenna

There have been reports about the Govt’s recent move to include petroleum products and liquor under the Goods and Services tax. This could be a welcome move towards the rationalization of the GST regime, many opine. There has been a long drawn battle on the issue between the Centre, the States and the industry. While the States fear a loss of autonomy or losing out on revenue under the standardized model of the GST, legal think-tanks believe the levy of a ‘modest GST’ is welcome until total subsumption of petro products into the regime.

Communicating to the Dollar Business via mail, Ranjeet Mahtani, Partner, Economic Laws Practice, says, reports are rife over a proposal for levy of modest GST tax (2-3%) on certain petroleum products (petroleum crude, high speed diesel, motor spirit i.e. petrol, natural gas and aviation turbine fuel). The topic may be taken up by the newly constituted GST Council for their examination and recommendation. The Council, a constitutional body is inter alia tasked with making recommendation on the date on which GST will be levied on these products.

The proposal to bring in petroleum products within the GST ambit is in line with the recommendations of the Task Force report constituted by 13^thFinance Commission in 2009, as well as the Report of the Chief Economic Advisor, Dr. Arvind Subramanian on Revenue Neutral Rate and Structure of Rates for the GST.

Petroleum products, in the initial phase, may be subjected to both, the present day indirect taxes (including Central Excise duty, VAT) and GST (albeit at nil rate, being zero-rated). Whereas, on the inputs (of goods and services) required by this sector, GST will be charged.

The Hon’ble Finance Minister during the Rajya Sabha debate on Constitutional Amendment Bill indicated that the products above described will be zero-rated, but refund mechanism (in respect of GST paid on inputs) is not clearly spelt out yet. In effect, there is no ability to offset the input-related GST against output indirect taxes levied on the sector. Therefore, according to Ranjeet, “the proposal to levy a modest GST on these products will enable availment of credit by the petroleum industry and a consequent flow down of the tax to the customers like airlines, power, transport of goods and passengers thus maintaining integrity of credit chain. Such proposal will be welcome until total subsumption of these petro products into the GST regime.”