Diesel issue under company scope

The core issue in your inquiry regarding the supply of diesel to vendors for machinery (like JCBs and tractors) involves understanding that diesel is currently outside the scope of the Goods and Services Tax (GST) regime in India.

Because diesel is not a "taxable supply" under GST, there are several key implications for your company's compliance and operational processes:

1. No Input Tax Credit (ITC)

Since diesel is not subject to GST, your company cannot claim any Input Tax Credit on the purchase or supply of diesel. Even if your business is registered under GST, the tax paid on fuel (via excise duty and state VAT) cannot be set off against the GST liability of your company.

2. No Tax Invoicing Requirements

• Non-GST Invoices: You cannot issue a "Tax Invoice" (as defined under the GST Act) for the supply of diesel because it is a non-GST good. You should issue a standard commercial invoice or a debit note that reflects the actual cost recovery from the vendor.

• Documentation: Maintain clear documentation (such as fuel logs, quantity slips, and internal transfer records) to justify these transactions during audits. These should be treated as internal expenses or reimbursements rather than taxable outward supplies.

3. Compliance & Documentation Focus

When providing diesel to vendors for their machinery, you should focus on the following areas to ensure legal and audit compliance:

• Contractual Terms: Ensure your service agreements with vendors explicitly state that the company will provide the diesel at a specific cost, or that the cost will be recovered from the vendor's service invoice.

• Cost Recovery: If you are recovering the cost of diesel from the vendor, this is effectively a recovery of expenses. It is prudent to clarify with your tax consultant whether this recovery should be treated as an "exempt supply" or merely a "reimbursement of expenses," as this can impact your aggregate turnover calculation.

• Internal Controls: Use a tracking system to monitor the exact quantity of diesel issued to each piece of equipment (JCB/Tractor). This prevents misuse and provides a clean audit trail showing that the diesel was consumed for company-related contract work.

• Separate Accounting: Treat fuel expenses and their recoveries in separate ledger accounts to avoid confusion with GST-applicable transactions in your books of accounts.

Summary

• GST Status: Diesel is not under GST; therefore, no ITC can be claimed, and no GST should be charged on the diesel supply.

• Invoicing: Do not issue GST invoices for diesel; use commercial invoices to record the expense recovery.

• Audit Trail: Maintain robust internal logs and clear contractual clauses regarding fuel provision to ensure the activity is transparently reflected as a legitimate business expense/recovery rather than an attempt at tax evasion.