Petroleum products, alcohol and power are out of GST net.

The Centre and the States have agreed to leave out alcohol, petroleum products and electricity duty out of the proposed Goods and Services Tax (GST) system.

This means that consumers of these products will not be affected by any tax rate changes arising out of the implementation of the GST.

Currently, alcohol and electricity are State subjects for taxation purposes. Petroleum products are already out of the existing VAT (value added tax) regime, and sales of these products are subject to sales tax determined by the States. At present, it is only the States that can levy tax at the retail stage, and not the Centre.

“Regarding taxation on alcohol, petroleum products such as petrol and diesel, and also electricity duty, there is now convergence between the Centre and the States that these will remain outside the GST to begin with,” Dr Asim Dasgupta, Chairman of the Empowered Committee of State Finance Ministers, said.

This consensus is important because until now the Centre and States had differing views on the subject. In the first discussion paper on GST, the States had proposed that alcoholic beverages be kept out of the purview of GST.

States had suggested that sales tax/VAT can continue to be levied, as is the current practice. Also, excise duty, which is being levied by the States, may not also be affected. However, the Department of Revenue did not agree to the suggestion to keep alcoholic beverages out of the GST net. The Union Finance Ministry had, in response to the discussion paper, taken the stance that alcoholic beverages should be brought under the purview of the GST in order to remove the cascading effect of GST paid on inputs such as raw material and packaging material. The Department had also said that sales tax/VAT and State excise duty can be charged over and above GST. As for the petroleum products, the Empowered Committee had suggested that the basket of petroleum products, that is, crude, motor spirit (including ATF) and diesel, should be kept outside the GST.

It had said that sales tax could continue to be levied by the States on these products with the prevailing floor rate.

However, the Union Finance Ministry was of the view that petroleum products may be brought under the GST. It contended that keeping crude petroleum and natural gas out of the GST net would imply that the credit on capital goods and input services going into exploration and extraction would not be available, resulting in cascading.

Leaving diesel, ATF and motor spirit out of the purview of GST would make it extremely difficult for refineries to apportion the credit on capital goods, input services and inputs, the Revenue Department had said.

Source : thehindubusinessline.com