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GST and Petroleum industry

Karan Teli 
on 05 March 2015

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Petroleum Industry has been more into picture for various issues from the day on which GST was launched robustly. Some of the insights on GST in Petroleum Industry are as follows:

Petroleum Products to be part of GST regime, as tabled in 122nd Constitutional Amendment Bill 2014. However, certain key products will not be subject to GST on initial production but shall be covered later on based on GST Council`s recommendation

Concerns of State Governments:

1. Loss of tax revenues on Petroleum products & its flexibility to increase tax rates,
2. Limited period of compensation,
3. Existing VAT rates are less than Standard GST rates.

Dual Taxation Regime:

1. Non - GST goods (Petroleum Crude, Natural Gas, Petrol, Diesel and ATF) will continue to be taxed by rates of Central & State Government

2. Industrial fuels (Naptha, Furnace oil, LPG etc.,) to be taxed under GST

Challenges on dual taxation regime:

1. Complex Compliance Management:

(a) Compliance with existing regimes taxes on Non GST goods like multiple levy of ED/Cess, Special/advalorem rates, entry tax/octroi, VAT, ITC restrictions etc.,

(b) Compliance with GST laws on GST goods

(c) Obtaining Registrations, Maintaining various tax invoices (with different series), tax payments, tax returns & assessments

(d) Statutory declaration forms

(e) Record maintenance for ITC availement and calculations for its eligibility as to exempt & taxable products

(f) Entry tax leviable on the non - GST products even when entry tax get subsumed under GST

(g) Modification in ERP/IT systems, training of personnel's

2. Cash Flows & Tax cost management:

(a) Exploration of Non GST goods (oil and natural gas) being a capital intensive sector is subject to Service Tax while the final products are taxed under GST leading to non availability of ITC and break in value chain on GST goods

(b) Inputs and Inputs services, taxed under GST @27% for a Non GST good will lead to high tax cash outflow making the explorations costlier

(c) Inter state supplies under current laws are not taxed while under GST 1% additional tax is levied. Also, it is not sure whether 1% additional will be charged on Non GST good

3. Continuity of Inconsistent laws:

(a) If any state government continues for levy of laws for a period of one year then such inconsistency would lead to more issues.

Failure to address the following issues:

1. Inputs for exploration of Non GST goods will lead to enhanced cost of operations & cascading effects,

2. Inputs for refineries are outside GST while additives/catalyst are under GST regimes leading to complexities,

3. Dual compliance is cumbersome.


Regards,
Karan Kumar Teli


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