Curious case of taxability of petroleum products

Ever wondered why the sale of petrol and diesel has not been brought under the purview of GST?

It is primarily for the reason of generation of higher revenue to the Government upon levying multiple taxes such as Raw oil tax, Refinery tax, Excise Duty (imposed by central Govt.), Dealer Commission, VAT (imposed by State Govt.), Road Development Cess (imposed by State and Center Govt.), Other Cess (imposed by State and Center Govt.) resulting in the tax rate being nearly 69%.

In case the Government decides to bring certain petroleum products under GST, it may even decide to levy heavy compensation cess as in case of tobacco and other products.

The current article aims at discussing the impact of the rising prices on retailers and certain difficulties currently faced under GST regimen.

Impact on retailers:

For an unkeen eye, the business seems to be flourishing with high profit margins as the prices are elevated often.

However, the expenses incurred by the business in terms of payment of taxes indicates the contrary.

Let us analyze the unapparent expenses incurred due to the multiple taxes levied:

• As mentioned earlier petrol and diesel are taxed under pre-GST regime. However, VAT credit on purchase of the fuel is not eligible for availment as input tax to the tax payer.
• A taxpayer engaged in the supply of petroleum products may procure various inputs and input services paying GST for the same.
• Section 16 of the CGST Act, 2017 provides that “every registered person shall be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business.”
• However, Section 17 restricts ITC on transactions where further supply are not taxed (Exempt Supplies, free gifts, goods lost, personal consumption or non-business use etc). Therefore, a taxpayer shall be eligible for ITC only on supply of taxable goods/services. Resultantly, an assesse making supply of petrol and diesel is not eligible for availment of Credit of Input Tax charged to him since the supply is not taxable under GST, thereby leading the taxpayer to remit the duties twice being under both GST and pre-GST regime thereby ruling out the sheer essence and purpose of introducing GST in removing the cascading effect of taxes.
• It may be noted that certain petroleum products (crude, diesel, petrol, natural gas & ATF) were meant to be brought under the purview of GST at the later date as the Government by way of notification may prescribe. Until then, the same would continue to be taxed under pre-GST tax laws.

Categorization and disclosure of supply of petrol and diesel:

• The sale of petrol/diesel is covered within the scope of supply provided under section 7 of CGST Act, 2017. However, the said supply is not chargeable under GST as per the provisions of Section 9(2). since SInce, the said supply is not leviable under GST, the same would become non-taxable supply as per the meaning of non-taxable supplies provided under Section 2(78) of CGST Act. Currently, the supply of Alcoholic liquor for human consumption and certain petroleum products are not leviable under GST by virtue of Section 9 of CGST Act read with Section 5 of IGST Act. Non Taxable Supplies are also part of ‘Exempt Supply’ as per the definition provided under Section 2(47) of CGST Act.
• As regard to filing of GST Returns, Table 8 of Form GSTR-1 requires disclosure of Nil Rated Supplies, Exempt Supplies and Non-GST supplies i.e., supplies where the tax incidence is nil. Currently the matter on hand is the appropriate disclosure of the supply of said fuel in the GST returns.
• In layman’s language the terms Non-GST and Non-taxable supply mean the same. Though the end result of the two would bear no tax implications, are the two terms conceptually different?
• Under section 2(78), the term non-taxable supply has been defined as follows:
  “non-taxable supply means a supply of goods or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act.”
•  It may be noted that the term ‘Non-GST Supply’ has not been defined under the act. In view of the word Supply being used in association with the term ‘Non-GST’ a logical inference can be made that transactions which are covered under the scope of ‘Supply’ but not taxable under GST such as certain petroleum products and alcoholic liquor for human consumption may be understood as Non-GST supplies (It may be noted that activities provided under Schedule III are excluded from the scope of Supply, so they can be neither ‘Non-Taxable Supplies’ nor ‘Non-GST Supplies’; hence, commonly referred as ‘No-Supply’ transactions)
• Though there are no apparent tax implications on disclosure of the said supply either under exempt or non-GST supply and the said disclosure is merely for statistics.
• In view of the above, such supplies may be disclosed either as Non-GST supplies (if it is understood to mean Non-Taxable Supplies) or Exempt Supplies (as it exempt supplies cover even Non-Taxable Supplies). In any case, the credit of Input Tax Charged on the inward supplies (taxable under GST) so far as is used in making such Exempt Supplies (includes Non-Taxable Supplies) would be ineligible warranting the ITC apportionment provisions under Section 17 of CGST ACT read with Rules 42 and 43 of CGST Rules, 2017.
  ver wondered why the sale of petrol and diesel has not been brought under the purview of GST?
  It is primarily for the reason of generation of higher revenue to the Government upon levying multiple taxes such as Raw oil tax, Refinery tax, Excise Duty (imposed by central Govt.), Dealer Commission, VAT (imposed by State Govt.), Road Development Cess (imposed by State and Center Govt.), Other Cess (imposed by State and Center Govt.) resulting in the tax rate being nearly 69%.
  In case the Government decides to bring certain petroleum products under GST, it may even decide to levy heavy compensation cess as in case of tobacco and other products.
  The current article aims at discussing the impact of the rising prices on retailers and certain difficulties currently faced under GST regimen.

Impact on retailers:

For an unkeen eye, the business seems to be flourishing with high profit margins as the prices are elevated often.

However, the expenses incurred by the business in terms of payment of taxes indicates the contrary.

Let us analyze the unapparent expenses incurred due to the multiple taxes levied:

• As mentioned earlier petrol and diesel are taxed under pre-GST regime. However, VAT credit on purchase of the fuel is not eligible for availment as input tax to the tax payer.
• A taxpayer engaged in the supply of petroleum products may procure various inputs and input services paying GST for the same.
• Section 16 of the CGST Act, 2017 provides that “every registered person shall be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business.”
• However, Section 17 restricts ITC on transactions where further supply are not taxed (Exempt Supplies, free gifts, goods lost, personal consumption or non-business use etc). Therefore, a taxpayer shall be eligible for ITC only on supply of taxable goods/services. Resultantly, an assesse making supply of petrol and diesel is not eligible for availment of Credit of Input Tax charged to him since the supply is not taxable under GST, thereby leading the taxpayer to remit the duties twice being under both GST and pre-GST regime thereby ruling out the sheer essence and purpose of introducing GST in removing the cascading effect of taxes.
• It may be noted that certain petroleum products (crude, diesel, petrol, natural gas & ATF) were meant to be brought under the purview of GST at the later date as the Government by way of notification may prescribe. Until then, the same would continue to be taxed under pre-GST tax laws.

Categorization and disclosure of supply of petrol and diesel:

• The sale of petrol/diesel is covered within the scope of supply provided under section 7 of CGST Act, 2017. However, the said supply is not chargeable under GST as per the provisions of Section 9(2). since SInce, the said supply is not leviable under GST, the same would become non-taxable supply as per the meaning of non-taxable supplies provided under Section 2(78) of CGST Act. Currently, the supply of Alcoholic liquor for human consumption and certain petroleum products are not leviable under GST by virtue of Section 9 of CGST Act read with Section 5 of IGST Act. Non Taxable Supplies are also part of ‘Exempt Supply’ as per the definition provided under Section 2(47) of CGST Act.
• As regard to filing of GST Returns, Table 8 of Form GSTR-1 requires disclosure of Nil Rated Supplies, Exempt Supplies and Non-GST supplies i.e., supplies where the tax incidence is nil. Currently the matter on hand is the appropriate disclosure of the supply of said fuel in the GST returns.
• In layman’s language the terms Non-GST and Non-taxable supply mean the same. Though the end result of the two would bear no tax implications, are the two terms conceptually different?
• Under section 2(78), the term non-taxable supply has been defined as follows:
  “non-taxable supply means a supply of goods or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act.”
• It may be noted that the term ‘Non-GST Supply’ has not been defined under the act. In view of the word Supply being used in association with the term ‘Non-GST’ a logical inference can be made that transactions which are covered under the scope of ‘Supply’ but not taxable under GST such as certain petroleum products and alcoholic liquor for human consumption may be understood as Non-GST supplies (It may be noted that activities provided under Schedule III are excluded from the scope of Supply, so they can be neither ‘Non-Taxable Supplies’ nor ‘Non-GST Supplies’; hence, commonly referred as ‘No-Supply’ transactions)
• Though there are no apparent tax implications on disclosure of the said supply either under exempt or non-GST supply and the said disclosure is merely for statistics.
• In view of the above, such supplies may be disclosed either as Non-GST supplies (if it is understood to mean Non-Taxable Supplies) or Exempt Supplies (as it exempt supplies cover even Non-Taxable Supplies). In any case, the credit of Input Tax Charged on the inward supplies (taxable under GST) so far as is used in making such Exempt Supplies (includes Non-Taxable Supplies) would be ineligible warranting the ITC apportionment provisions under Section 17 of CGST ACT read with Rules 42 and 43 of CGST Rules, 2017.