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Last updated: 24 Jan, 2020  

Petrol.Border.Thmb.jpg GST credit against excise duty on petroleum products

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SME Times News Bureau | 24 Jan, 2020
In a big relief to the oil sector, government may allow producers of petroleum and natural gas to claim credit for GST on all inputs, input services and capital goods being paid by them even though the output petroleum products including petrol, diesel, ATF remain outside the new indirect tax framework.

Sources said that government is looking at an industry proposal to amend CENVAT rules that will allow petroleum producers to claim credit on all taxes paid on inputs under the GST system and get a set-off on these duties against output excise duty paid on five petroleum products that continue to remain outside GST.

"This is a very good proposal that would allow relief from additional tax burden to the tune of Rs 25,000 crore on oil marketing companies at present. The problem is coming as sector's input are in GST system where tax set-off is available but final product is outside the GST system where credit on inputs is not allowed. Tax credits won't be transferable between the two systems," said an executive of public sector oil company asking not to be named.

Tax credits on products not in GST system may create accounting complications, but government sources said this could be done as a temporary measure if the products were expected to come under the new indirect tax system soon. An announcement about the proposed changes may be made in the coming budget.

As of now, five petroleum products viz. petroleum crude, motor spirit (petrol), air turbine fuel (ATF), high speed diesel and natural gas are included in GST, but is governed under existing Central Excise Act as well as State VAT and Central Sales Tax Act, till GST Council recommends the same for coverage under GST.

In the absence of a consensus among states, the five products remain outside the GST fold. Accordingly, input tax credit of GST paid on procurements is not allowed against the output tax liability to the supplier of the said products and is an additional cost for the producers of oil and gas.

"It's a matter of time now before petroleum products are also included under GST. It could happen gradually with gas and ATF being placed under GST first before other products move there. Till that time, if a tax set-off mechanism involving excise duty paid on petroleum products is evolved, it would work best for the sector," said a government official privy to the development.

The GST Council could consider bringing natural gas in the GST net ahead of other four petroleum products. Inclusion of gas would not pose a challenge for the Council as it largely an industrial product where a switchover to new taxation would not be difficult. The revenue implication for the states is also low in the case of this switchover. This could be followed by including ATF in GST fold.

Ministry of petroleum and natural gas has been pushing for inclusion of petroleum products in the indirect tax system for some time now as it feels that this would bring down volatility in its retail pricing that is constantly under pressure on rising global oil prices.

Industry body FICCI has also pitched for provision of credit of GST against excise duty on petroleum products as a temporary measure till all products get into the indirect tax system.
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