TMI BlogGST ON PETROLEUM PRODUCTS – Need for review of of the Statutory ProvisionsX X X X Extracts X X X X X X X X Extracts X X X X ..... GST ON PETROLEUM PRODUCTS – Need for review of of the Statutory Provisions - By: - Sasidharan Gopalakrishnan - Goods and Services Tax - GST - Dated:- 9-6-2017 - - When GST is implemented, the Central Excise Duty (CENVAT) leviable under the Central Excise Act 1944 (CE Act) will get replaced by CGST under the CGST Act 2017 (CGST Act) for all commodities including petroleum products falling under Chapter 27 of HSN, except for the five specified petroleum products, excluded from GST for the time being.. These five petroleum products viz. Petroleum Crude, Motor Spirit commonly known as Petrol, High Speed Diesel, Aviation Turbine Fuel and Natural Gas have temporarily been kept out of GST and GST Council shall decide the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from which they shall be included in GST. (Ref: Q.6 of FAQ on GST (2nd Edition) dated 31.03.2017 ) This is sought to be achieved through the following statutory changes:: Sec 9 of the CGST Act which authorizes the levy collection of CGST contain the following provisions: QUOTE : 9. (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s may be prescribed and shall be paid by the taxable person. (2) The central tax on the supply of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel shall be levied with effect from such date as may be notified by the Government on the recommendations of the Council. UNQUOTE: Existing Sec. 3 of CE Act which authorizes levy collection of Duty of Excise (CENVAT) and Special Duty of Excise (SED) at rates set forth in the First and Second Schedules of the Central Excise Tariff Act 1985 , is amended replaced by new section Sec 3 (vide The Taxation Laws Amendment Act 2017 ). This new Sec 3 of the CE Act authorizes levy collection of Duty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Excise (CENVAT) at rates set forth in the Fourth Schedule, The Fourth Schedule which is inserted in CE Act through this amendment, is the extract of the existing First Schedule of Central Excise Tariff Act 1985 , but containing only those items for which CENVAT is proposed to be continued. The GST Rate Schedule for Goods, finalized by the GST Council, prescribes the rates of GST for all commodities grouped under Chapter nos 1 to 98 of HSN classification. Out of the five specified petroleum products Petroleum Crude falls under HSN Heading 2709 , Petrol,Diesel and ATF fall under HSN Heading 2710 along with other Petroleum Oils Oils obtained from Bitumenous minerals, AND Natural Gas falls under HSN Heading 27 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11 along with other Petroleum Gases other Gasesous Hydrocarbons. In the GST Rate Schedule for Goods, under Chapter 27 - Petroleum products, the five specified petroleum products are sought to be excluded from GST by express mentioning of such excluded products, in the Rate Schedule against the appropriate entry for the goods under the relevant HSN Chapter heading. In this backdrop, when one analyses the new statutory provisions, it appears that the new provisions with respect to Petroleum Products do not achieve what exactly is sought to be achieved , as can be seen from the following: Sec 9(2) of GST Act states: .The Central Tax on the supply of Petroleum Crude, High Speed Diesel, Motor Spirit (commonly known as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Petrol), Natural Gas and Aviation Turbine Fuel shall be levied with effect from such date as may be notified Against Item Sl. No. 27 of the GST Rate Schedule , while mentioning GST rates for Goods under Chapter 27 , HSN Heading 2709 (Petroleum Crude) has been omitted and under HSN Heading 2710 , Petrol, Diesel ATF have been expressly excluded. However while mentioning goods under HSN Heading 2711 , Natural Gas has not been expressly excluded. This indicates a GST liability at prescribed rates for Natural Gas alongwith other gases falling under HSN Heading 2711 . Under the newly inserted Fourth Schedule of Central Excise Act 1944 , which seeks to prescribe cenvat rates only for items sought to be retained under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CENVAT , the following entries appear: 2710 Petroleum oils and oils obtained from bituminous minerals, other than crude; preparations not elsewhere specified or included, containing by weight 70% or more of petroleum oils or of oils obtained from bituminous minerals, these oils being the basic constituents of the preparations; waste oils - Petroleum oils and oils obtained from bituminous minerals (other than crude) and preparations not elsewhere specified or included, containing by weight 70% or more of petroleum oils or of oils obtained from bituminous minerals, these oils being the basic constituents of the preparations, other than those containing biodie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel and other than waste oil 2710 12 -- Light oils and preparations: --- Motor spirit (Commonly known as petrol) : 2710 12 11 ---- Special boiling point spirits (other than benzene, toluol) with nominal boiling point range 55-115 C Kg. 14%+Rs. 15.00 per litre 2710 12 12 ---- Special boiling point spirits (other than benzene, toluene and toluol) with nominal boiling point range 63-70 C Kg. 14%+Rs. 15.00 per litre 2710 12 13 ---- Other Special boiling points ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sprits (other than benzene, benzol, toluene and toluol) Kg. 14%+Rs 15.00 per litre 2710 12 19 ---- Other Kg. 14%+Rs. 15.00 per litre 2710 12 20 --- Natural gasoline Liquid Kg. 14%+Rs 15.00 per litre 2710 12 90 --- Other Kg. 14%+Rs15.00 per litre 2710 19 -- Other : 2710 19 10 --- Superior Kerosene oil (SKO) Kg. .. 2710 19 20 --- Aviation turbine Fuel (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TF) Kg. 14% 2710 19 30 --- High speed diesel (HSD) Kg. 14%+Rs 15.00 per litre 2710 19 40 --- Light Diesel oil (LDO) Kg. .. 2710 19 50 --- Fuel oil Kg. .. 2710 19 60 --- Base oil Kg. .. 2710 19 70 --- Jute batching oil and textile oil Kg. .. 2710 19 80 --- Lubricating oil Kg. .. 2710 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19 90 --- Other Kg. .. 2711 Petroleum gases and other gaseous hydrocarbons - Liquefied: 2711 11 00 -- Natural gas Kg. 14% 2711 12 00 -- Propane Kg. .. 2711 13 00 -- Butane Kg. .. 2711 14 00 -- Ethylene, propylene, butylene and butadiene Kg. .. 2711 19 00 -- Other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kg. .. - In gaseous state: 2711 21 00 -- Natural gas Kg. 14% 2711 29 00 -- Other Kg. .. It may be seen that , in the Fourth Schedule , under HSN 2710 12 -- Light oils Preparations, all the types of Motor Spirits are listed under a common heading viz. Motor Spirit (commonly known as Petrol). This is not technically correct since all categories of products defined as Motor Spirits as per the Chapter Notes/Supplementary Notes under Chapter 27 are not commonly known as Petrol.t Motor Spirits as per HSN Cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pter 27 are of different categories: 2710 12 11 - Special Boiling Spirits: with nominal boiling point range 55-115 C; 2710 12 12 - Special Boiling Point Spirits: with nominal boiling point range 63-70 C; 2710 12 13 Other Special Boiling Point Spirits 2710 12 19 - Other Special Boiling Spirits: Petrol .(commonly known as Petrol) Naphtha..(commonly known as Naphtha) Others..(other than Petrol and Naphtha) Out of the above, different categories of Motor Spirits, only one category of product under 2710 12 19 (commonly known as petrol) is to be excluded from GST (and consequently to be retained under CENVAT), as per Sec. 9(2) of the CGST Act . If this is to be achieved, Cenvat Rates ment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioned in the Fourth Schedule of Central Excise Act 1944, against other categories of Motor Spirit, has to be either deleted, or fully exempted under specific notification under Sec. 5A of CE Act 1944 , failing which GST and CENVAT would become simultaneously chargeable on Motor Spirit other than Petrol, which includes SBPS (2710 12 11) and Naphtha (2710 12 19), among others. It is worth mentioning in this connection that the existence of Motor Spirit under distinct categories other than Petrol, has already been recognized under the Central Excise Tariff by providing for separate rates of Duty for Motor Spirit commonly known as Petrol , Naphtha and SBPS (other than Petrol Naphtha ), the first two vide separate effective rates /ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emptions prescribed in notification issued under Sec. 5A and the the last one by the Tariff Entry itself.. Similar is the case of Light Oils Preparations other than Motor Spirit, falling under 2710 12 20-Natural Gasolene Liquid (NGL) and 271012 90- Others (other than NGL) for which CENVAT rates have been mentioned in Fourth Schedule, even though they are covered under GST. Here also Cenvat rates mentioned in the Fourth Schdeule need to be deleted or fully exempted under specific notification under Sec. 5A of CE Act 1944. In the case of Natural Gas, CENVAT rate has been prescribed under Fourth Schedule against Headings 2711 11 00 and 2711 21 00; But Natural Gas has been excluded while prescribing GST rate for Goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... falling under 2711 in the GST Rate Schedule. This results in a situation Natural Gas falling under 2711 becomes simultaneously liable for CENVAT and GST. This needs to be corrected by express mention of exclusion of Natural Gas in the items under 2711 in GST Rate Schedule or providing exemption from GST for Natural under Sec. 11 of CGST Act. Summary: GST Rate schedule for Goods , finalised by GST Council, prescribes 18% for commodities falling under HSN Heading : 2711 - Petroleum Gases, which includes Natural Gas among other items falling thereunder; Amended Central Excise Law, prescribes Cenvat Rate @ 14% for Natural Gas falling under HSN heading 2711 11 00 and 2711 21 00. Thus Natural Gas will be simultaneou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sly liable for GST and Cenvat. GST Rate schedule for Goods finalized by GST council prescribes GST rates for all petroleum products falling under HSN Headings 2710 , 2711, 2712 and 2713 other than Petrol, Diesel and ATF. At the same time, amended Central Excise Law (Fourth Schedule to the Act), prescribes Cenvat Rates not only for Petroleum Crude (Nil Rate), Petrol, Diesel, ATF and Natural Gas, but also for some other petroleum products and intermediates which will fall under HSN Headings 2710 12 11 , 2710 12 12 , 2710 12 13 , 2710 12 19, 2710 12 20 and 271012 90.. Thus Some Petroleum Products intermediates falling under 2710 12 11 , 2710 12 12 , 2710 12 13 , 2710 12 19, 2710 12 20 and 271012 90, will be simultaneously l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iable for GST and Cenvat .- examples are SBPS (2710 12 11, Naphtha (2710 12 19) and Reformat (2710 12 19) With the above provisions in the GST Law and Central Excise Law co-existing, both GST and Cenvat would be chargeable on Natural Gas and some other Petroleum Products and intermediates like SBPS, Naphtha, and Reformat.. This needs to be rectified by appropriately correcting the entries against S.No. 27 / Chapter 27 in the GST Rate Schedule of Goods and the entries against the relevant sub headings under Tariff Item 2710 in the (proposed) Fourth Schedule of Central Excise Act 1944 Concluision: Oil Industry may have to bring this issue to the notice of the Authorities for appropriate rectification, of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant statutory provision as mentioned above, to avoid confusion and consequent litigations. ******** - - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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