Industry body Confederation of Indian Industry (CII) has asked for the inclusion of all petroleum products under the goods and services tax (GST) at the earliest. GST was rolled out on July 1, 2017, subsuming most of the central and state indirect taxes into a single tax. However, petroleum products like crude oil, natural gas, diesel, petrol, and aviation fuel are outside the ambit of GST as of now. In its suggestions to the Union government, CII said until this is done, C Forms should be continued to avoid high tax incidence on these products. Though the understanding is that the previous value-added tax (VAT) and central sales tax (CST) rules would continue to apply to the excluded products. However, the related sectors continue to incur huge GST impact on all inputs without any set-off, as the sale of crude oil and natural gas are outside the purview of GST and are subject to existing OIDB cess, CST Act and state VAT, said a CII press release. As per the earlier provisions of CST Act, a purchaser can make the interstate purchase of non-GST goods (petroleum and petroleum products) by availing concessional rate of CST at the rate of 2 per cent against Form-C for five defined purposes — resale, used in the manufacture or processing of goods for sale, used in the telecommunication network, used in mining, or used in the generation or distribution of electricity or any other form of power. Certain state commercial tax departments hold the same view. As a result, fertiliser companies are not eligible for Form-C as the gas is used to manufacture Urea and not for the manufacture of natural gas or any of the above-mentioned categories. Likewise, automobile manufacturers are not eligible for Form-C for inter-state purchase of diesel, petrol or natural gas, which they have to mandatorily fill in the tanks of new vehicles. Further, after the GST law, if purchasing dealer is not engaged in inter-state supply of goods (as defined under the CST Act), he will not be liable for registration, and thus, not eligible for the issuance of Form-C, which imposes an additional tax cost burden, stressed CII. Till now, fertiliser manufacturers, power producers, automobile manufacturers and other industries were buying natural gas and other petroleum products by paying 2 per cent CST against Form-C being purchased in other states. However, after the introduction of GST, credit on VAT paid on petroleum products, including natural gas, is not available and the amendment of the CST Act has significantly altered interstate sale of products.
Therefore, after GST, there has been an increased tax cost on the products, which was not the intent of the government, CII pointed out.
The Central Government vide Taxation Laws Amendment Act 2017, amended the definition of "goods” under the CST Act, to include — crude petroleum; high-speed diesel (HSD), petrol, ATF, natural gas, and alcoholic liquor for human consumption. CII further pointed out that the basic objective of providing benefit vide Form-C was to negate the effect of high rate of taxation when the interstate transaction of goods take place for specific purposes. It was to safeguard the interest of consumers so that they don’t have to pay a high cost for certain products and also, to promote interstate transactions. However, after GST, since Form-C is not available for such interstate purchase of goods, therefore, the extra tax burden will be shifted to the consumer. Further, it will also hamper the interstate movement of goods by creating an artificial taxation barrier and natural gas users may switchover to liquid fuels, which are not environment-friendly. Though upstream sector requires additional fiscal incentives to sustain, withdrawal of concessional CST rate will tantamount to a regressive step for the trade and industry, stated CII. CII has earlier suggested that petroleum products, natural gas, electricity, alcohol and real estate should be covered under GST. This will ensure that the input taxes received setoff credits and there are no stranded costs. CII further requested that the practice of issuance of Form-C under CST law should be continued till petroleum products are covered under the GST and the required amendment in CST law be issued. Alternatively, since VAT is a non-creditable tax, the rate should be reduced to 4 per cent or lower which was the effective rate when credit on VAT was available before July 1, suggested CII.