Ashish Kumar Madnawat

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Decoding GST

Petroleum Products is currently out of the GST ambit ,However, petroleum and petroleum products shall only be subject to GST later depending on the GST Council’s recommendation. States will continue to have power to impose sales tax on sale within state on petroleum products & alcoholic liquor for human consumption vide Entry no 54 of List II of Seventh Schedule to COI. Simultaneously,  Central Excise duty will continue on petroleum products & tobacco products vide  Entry no 84 of List I to COI. This Entry has been replaced with Sec 17 of the constitution amendment act 2016 on 16 September 2016.

− Issues Post GST implementation

  • The Industry will have to comply with the provisions of Current regime as well as proposed GST Regime. Duality of taxing authorities would create chaos. This would result into compliance cost.
  • The other major issue would be the non-creditable tax costs. For Instance, A refinery producing diesel and petrol (motor spirits) will pay GST on procurement of Plant & machinery and other incidental services. These will not be creditable against VAT (levied on Petrol and diesel) & excise. This will lead to an increase in cost.
  • Barring Petroleum products from the ambit of GST would also question on the basic principles of GST implementation. GST aims to remove the cascading effect of taxes , thereby enabling seamless flow of input tax credit. This would mean, “Taxes payable on inputs shall be adjusted against the tax payable on final products”.  The above can be understand with an example, LPG can be produced both from natural gas and crude oil.  LPG is a part of GST regime whereas the crude oil & natural gas would not fall under GST as mentioned earlier.

Proposed “Zero rated GST on petroleum products”

There is a thin line of difference between Zero rated and exempted products. In case of zero rated products, the tax pad at input stage is refunded. The refund of inputs removed the cascading effect of taxes. The liability to pay taxes at the output stage doesn’t arises at all. Under “MGL” exports are treated as Zero rated.

While the story behind exempted product is slightly different , Although there is no tax at output stage but the input tax paid on inputs are not refunded and hence , this turns out to be partial relief.

Highlights after its inclusion

  • It will reduce cascading effect of taxes that will help lower prices.
  • Small GST rate, will help industry in availing Input tax credit.
  • Less compliance.

Reverse Charge under GST

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