The Confederation of Indian Industry (CII) has called for inclusion of Petroleum and Natural Gas under GST at the earliest. Till such time as this is done, C Forms should be continued to avoid high tax incidence on these products, said CII.
GST has been rolled out from 1 July 2017 by subsuming most of the Central and State indirect taxes into a single tax. However, Petroleum and Petroleum products (Crude Oil, Natural Gas, HSD, MS, and ATF) are outside the ambit of GST as of now. Though the understanding is that the previous VAT and 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 sale of crude oil and natural gas are outside the purview of GST and are subject to existing OIDA Cess, Central Sales Tax Act and State Value Added Tax, said a CII press release.
As per the earlier provisions of CST Act, a purchaser can make the interstate purchase of the non GST goods (petroleum and petroleum products) by availing concessional rate of CST @2 percent against Form-C for (i) re-sale by him, or (ii) use by him in the manufacture or processing of goods for sale, or (iii) use by him in the telecommunication network, or (iv) use by him in mining, or (v) use by him in the generation or distribution of electricity or any other form of power. Hitherto, fertilizer manufacturers, power producers, automobile manufacturers and other industries were buying natural gas and other petroleum products by paying CST @2 percent against Form-C being purchased in other states. However, after 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 inter-state sale of the products. Therefore, post GST, there has been an increased tax cost on the products, which was not the intent of the government, pointed out CII.
The Central Government vide Taxation Laws Amendment Act 2017, amended the definition of “Goods” under the CST Act, to include only- Crude Petroleum; HSD; Petrol; ATF; Natural gas; and Alcoholic liquor for human consumption. Consequently, certain State Commercial Tax Departments have taken a narrow interpretation that the concessional rate of 2 percent against C Forms can be availed only if the specified goods are used for resale, or manufacture of the same goods and not for manufacture of any other goods, or in telecommunication, or mining, or generation of power.
As a result, fertilizer companies are not eligible for C Form as the gas is used to manufacture Urea and not for manufacture of Natural Gas or any of the above mentioned categories. Likewise, automobile manufacturers are not eligible for C form 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); then 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.
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 inter-state transaction of goods takes place for specific purposes. It was to safeguard the interest of consumers so that they don’t have to pay high cost for certain products and also, to promote inter-state transactions. However, post GST, since Form-C is not available for such inter-State purchase of goods, therefore, the extra tax burden will be shifted to the consumer.
Further, it will also hamper the inter-state 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 receive setoff credits and there are no stranded costs. CII further requested that the practice of issuance of C Form 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 non-creditable tax, VAT rate should be reduced to 4 percent or lower which was the effective rate when credit on VAT was available before July 1, suggested CII.