As of now, petroleum products are not covered under GST. However, as per the Constitutional Amendment Bill (pending with the Rajya Sabha), petroleum may be covered under GST from some future date, whenever it is specified. 

So, as of now – retailers are not affected by the GST. What happens in the future will depend on clarifications issued in the future. 

Now let us analyse this in detail – 

Present status of taxation

Presently, the VAT on petroleum products is charged by the State Governments. This explains why the fuel prices are different in various states, since the states get to choose their own tax rates. 

The Government derives the power to tax anything from the Constitution. Therefore, the power to charge tax on the “sale” of goods is vested with the State Governments; but the power to tax the “manufacture” of goods is vested with the Central Government. 

What will change by GST

Since India is implementing Dual GST system, it means that a same transaction will be charged to tax by the Central as well as State Governments. Since this cannot take place unless the Constitution is amended, the BJP Government at the Centre has issued a Constitutional Amendment Bill. 

This bill, which is passed by the Lok Sabha and is pending in Rajya Sabha, talks about the power to tax the “sale” of commodities being given to both the Centre and the States.

The special case of petroleum

The situation is like this –

  1. Presently, the power to charge tax on sale of goods lies with State Governments
  2. In the future, this power must lie with Central Government also because it is necessary for implementing GST.
  3. However, Central Government cannot charge tax on Petroleum, till the date when this is specially notified.

This means that the Central Government will have power to tax all goods except Petroleum. Till such time as another notification is introduced, this position shall continue. Now, what does this signify?

This signifies that the power to charge tax on Petroleum shall continue to be vested in the State Governments. Therefore, the situation of different taxes on fuel shall continue even after implementation of GST.

Your question is – why?

The rationale behind this restriction

According to the Report of Select Committee appended to the Bill, the reasons for non-inclusion are as follows – 

  1. This decision was taken after Finance Minister’s meeting with State Finance Ministers on 15-Dec-2014, where it was discussed that it is necessary to protect the Revenues of the States
  2. Most of the State Governments were of the view that GST should not be levied on Petroleum products, since they derive a substantial part of their revenues from Petroleum, and would not like to share it with Central Government.

Is this justified?

The Expert Committee believes that petroleum forms a basis for a substantial portion of goods and services in India (transport etc.). Therefore, not covering petroleum under GST would ultimately lead to cascading effect on taxes – which is precisely against the core purpose of GST. 

Nevertheless, since the State Governments were not on the same page, this decision was taken. The only good news is that the bill also mentions that GST can be levied on petroleum products in the future, from a date specified.

So how does this affect the Petroleum Traders?

As of now – nothing changes. The introduction of GST does not affect Petroleum insofar as their personal tax liability is concerned. However, the Government has not yet released any directional rules which clarify their position as to the Cenvat Credit and other procedures. 

At this stage, it is appropriate to think that no major change is going to take place in the petroleum industry. This will change only when the Petroleum is covered under GST.

Palkesh Asawa, Chartered Accountant (India)


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