Petrol and Diesel to come under GST ambit

petrol and diesel to come under the GST ambit
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Last updated on April 14th, 2021 at 05:22 pm

Petrol and Diesel to come under GST ambit 

Looking at the current scenario in India, where most of the goods and services have been brought under the GST ambit, people have developed a wrong notion that that GST cannot be levied on petroleum products like crude, high-speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel.

BUT the fact is different…..

On Wednesday 26th June 2019, Shri Dharmendra Pradhan the Union Minister for Petroleum and Natural Gas while replying to the question raised by Shri Amar Shankar Sable, the MP of Maharashtra; gave a written reply in the Rajya Sabha hinting about bringing petroleum products under the GST ambit and also mentioned that any decision which relates to the levy of GST on petroleum products will be taken based on recommendation of the GST Council.

  • GST Council is the federal decision-making body. Any decision to take place there should be 100% consensus from all the members.
  • It consists of Minister-in-charge of Finance/Taxation/any other Minister nominated by the States/Union Territories as their representatives.
  • It is also believed that State/Union Territory Govt.s are more powerful than the Central Govt.s in the GST Council Meeting.
Petrol and Diesel to come under GST ambit

Is it possible for the GST council to include petroleum products under GST?

Answer to this YES. It is possible for GST Council to bring petroleum products under the GST regime based on following powers:-

Article 279A(5) of Constitution

There is a specific mention in the article 279A (5) of the Constitution which provides that, GST Council can recommend the date from which GST shall be levied on petroleum crude, high-speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel. Which means it is constitutionally included under GST and it can be brought under the GST regime once the decision regarding its inclusion and date it is taken by the GST Council.

Section 9(2) of CGST Act, 2017

There is a specific mention in section 9(2) of CGST Act,2017 which states that Government may notify the effective date for inclusion of all the petroleum products which are excluded for now,  based on recommendations of GST Council.

Note: Petroleum products here means – petroleum crude, high-speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel.


Why was GST not levied on all the petroleum products with the launch of GST in July 2017?

  • With the launch of GST in July 2017, certain petroleum products such as kerosene, naphtha, and LPG  were included under the GST regime.
  •  However, these five petroleum products such as crude oil, petrol, diesel, ATF and natural gas were excluded from the list of items that were placed under the GST regime.
  • The major source of revenue for the States is derived from the taxes levied on petroleum products.
  • As of now, petroleum products attract two types of indirect taxes one is excise duty and VAT in India. Rather three types of levy as most of the crude oil is imported and customs duty is also paid on it.
  • VAT is ad valorem form of tax which results in higher revenues for the state when rates are high.
  • Centre was of the view that switching over from VAT to GST for petroleum products might imbalance the economy and the way the State operates and functions smoothly as it is no doubt one amongst the major source of revenue for the State.
  • States also wanted little more time to get accustomed to the new regime and flexibility to tax a few items such as stamp duty on real estate, VAT on Petroleum products, excise on alcohol, etc. as they deemed fit.
  • Centre was also of the opinion that overall levy from the point of view of Government was not going to reduce significantly as GST Department intended to impose cess over and above 28% (current highest GST slab) on petrol and diesel.
  • Lastly, it is not easy for the GST Council to get unanimous consensus from all the States & Union Territories for the switchover from the current system of levy (i.e VAT) to GST as revenue for the states/UT gets severally impacted.


What will be the change if petrol and diesel are brought under GST ambit?

If petroleum products are brought under the GST regime

  • Rate of tax on petrol and diesel will be the same all over the country.
  • Petrol pump owners and petroleum industry like ONGC, BPCL, HPCL, etc. will not have to comply with two tax regimes i.e VAT & GST.
  • Input tax credits which are not transferable now and lapse will be utilized for paying output liability.
  • It will help to bring the cost of various products down as the whole product chain from input to final product would come under the GST regime. Generally, petroleum products such as industrial fuel and CNG are used as inputs in the factory for which the credit of taxes paid becomes an additional cost and credit cannot be availed due to different tax regimes.
  • Double taxation would be avoided i.e VAT on excise duty is levied which increases the rate to the final consumer.
  • Experts say if petrol and diesel are brought under the GST regime price for petrol and diesel will see reduction ins prices by approx 20-30 Rs.
Petrol and Diesel to come under GST ambit

Demands from the Aviation Sector and Petroleum/Oil Industry

  • Aviation Sector and Ministry of Petroleum and Natural Gas have made repeated requested for inclusion of the petroleum products under the GST regime to Finance Ministry. As the sector is losing the benefit of single tax i.e GST which otherwise would accrue to them as well. The input tax credit for taxes can be optimally utilized only when the entire chain from inputs to the final product pays GST.
  • Amongst several others, one of the arguments given for the failure of Jet Airways, Damania Airways, Air Sahara, Kingfisher, and Air Deccan is also the high cost of aviation fuel. As per global reports, ATF constitutes around 40% of the total operating cost for an airline which was higher than most of the counties in the world. Centre levies 11% excise duty on Automatic transmission fluid (ATF) and over and above this State levies approx 25-30% VAT.

Is the GST really going to be implemented on petroleum products ????

Looking at the current situation of the market, petroleum products will not see the doors of the GST regime soon. The written reply, the discussion, and the press release show that groundwork to bring it under the GST regime has started. For now, we can only wait and expect to see the nation following a single tax regime for indirect taxes.

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Disclaimer: The above content is for general information purpose only and does not constitute professional advice. The author/ website will not be liable for any false, inaccurate, incomplete information. Any reliance you place on above content is therefore strictly at your risk.

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About CA Ankita Khetan 196 Articles
Ankita is a Chartered Accountant in practice and holds a Diploma in IFRS (from ACCA, UK). She is also a Commerce PG and Certified Independent Director (from IICA). She holds a certification in Forex and Treasury Management. Her area of expertise is GST and Income tax. She is passionate about reading, writing, and sharing knowledge on areas related to finance and taxation.

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