The Constitutional Amendment (101) Act 2016 proposes to levy CGST and SGST or IGST on supplies of all goods and services other than on supplies of ‘Petroleum Products’ like Crude Oil, Natural Gas, Motor Spirit, Diesel and Aviation Fuel.
The Act also proposes that the Petroleum Products would be subject to the levy of GST/SGST/IGST from a date to be recommended by the GST Council and until then, all the Petroleum Products would continue to be subjected to the levy of Excise Duty and either VAT or CST.
A Petroleum Refinery uses Crude Oil and Natural Gas in the Refining process. All the chemicals, catalysts and all services supplied to a Refinery which refines Crude Petroleum would be liable to GST, whereas output of a refinery would necessarily be a mix of GST products like LPG, Kerosene Naphtha, furnace oil, Bitumen Lube Base oils etc. and non GST Products like Motor Spirit , Diesel and Aviation Fuel. Moreover, all Plant and Machinery used by a Refinery would also be under GST.
As per Section 16(6) of the model GST Act, where the goods and / or services are used by the registered taxable person partly for effecting taxable supplies and partly for effecting non-taxable supplies, including exempt supplies, but excluding `Zero-Rated Supplies’, the amount of credit shall be restricted to so much of the input tax as is attributable to the taxable supplies including ‘zero rated supplies’.
Motor Spirit, Diesel and Aviation Fuel. produced by a Refinery would attract levy of Excise Duty and VAT / CST and it is also a fact that they suffer the highest rates of tax, both under the Central and State legislations. Hence, it would be unfair to call supplies of these products either non-taxable Supplies’ or ‘exempt supplies’.
All other sectors of the economy are better off due to the introduction of GST, particularly the Trading / retail sector, which gets tax credits under GST , compared with denial of service tax credits under the existing regime as output Tax is either state VAT or CST.
Similar to tobacco products which are kept both in GST as well as Excise duty regime, Motor Spirit, Diesel , Aviation Fuel, Crude Oil and Natural Gas should also be brought into the net of GST in addition to levy of existing Indirect Taxes.It will enable Petroleum sector to take full credit of Input taxes in GST regime.
Good analysis.