Council acts to ease cascading tax impact on petroproducts: 

Council acts to ease cascading tax impact on petroproducts: 

Context

• The Centre in the GST Council meeting has taken a decision to reduce the cascading effect of excluding petrol, diesel, ATF, natural gas and crude oil from the purview of GST and to incentivize investment in the Exploration and Production sector.
• The decisions include cutting the rate on ancillary services such as transport of natural gas through a pipeline, and import of rigs.

Recommendations for GST rate structure

• Offshore works contract services and associated services relating to oil and gas exploration and production in offshore areas beyond 12 nautical miles would be taxed at 12%.
• The transportation of natural gas through pipelines would attract GST of 5% without input tax credits (ITC), or 12% with full ITC.
• Import of rigs and ancillary goods imported under lease will be exempted from IGST, subject to payment of appropriate IGST on the supply/import of such lease service.
• GST on bunker fuel has been reduced to 5%, both for foreign going vessels and coastal vessels.

Effect of the exclusion

• The exclusion of these products from GST increases the cost of these products as input GST is not creditable against the sale of these products adds to the cost of these products.
• Excise duty/VAT payable on sale of these products is not available as credit to industries buying these products. Thus, it is a double hit.

What are Petro-products?

• Petro – products are materials derived from crude oil as it is processed in oil refineries. They are complex mixtures. The majority of petroleum is converted to petroleum products, which includes several classes of fuels.
• According to the composition of the crude oil and depending on the demands of the market, refineries can produce different shares of petroleum products.
• The largest share of oil products is used as “energy carriers”, i.e. various grades of fuel oil, and gasoline. These fuels include or can be blended to give gasoline, jet fuel, diesel fuel, heating oil, and heavier fuel oils.