A crucial meeting of the Goods and Services Tax (GST) Council on Friday, September 17, was expected to bring the petroleum prices under the ambit of the indirect tax regime. However, Union Finance Minister Nirmala Sitharaman clarified that bringing petrol and diesel under GST may take longer as subsuming the current excise duty and VAT into one national rate would impact revenues.
This was the first time that the council held a physical meeting. It had been conducting virtual meetings since the onset of the COVID-19 pandemic. Many states have also been against the inclusion of petroleum products under GST and have opposed any plans to initiate talks regarding the matter.
"GST Council today discussed the issue of bringing petroleum under the GST purview as per the Kerala HC order. But decided that it was not a time for it," FM Sitharaman said, as quoted by Mint.
Based on a writ petition, the Kerala High Court had given six weeks to the GST council to decide if it would be possible for the GST Council to bring petrol, diesel, and three other petroleum products under GST. However, Sitharaman had earlier said that the Centre is open to the possibility, but most of the states are against the decision.
Why GST Despite Opposition?
GST is thought to end the problem of near-record high petrol and diesel prices in India. It is supposed to end the cascading effect of tax on tax (state VAT being levied not just on the cost of production but also on the excise duty charged by the Centre on such output), The Hindu reported.
Since GST is a consumption-based tax, bringing petroleum products under the regime would mean states, where these products are sold, are provided the revenue and not ones that derive the most benefit out of them because they are the production centre.
With their large population and a resultant high consumption, Uttar Pradesh and Bihar would get more revenues than states like Gujarat.
States Strongly Oppose Move
Notably, states generate a considerable amount of revenue from taxing petroleum products. Each state consists of its taxation structure for petrol and diesel. States will tend to earn less compared to the current earnings from petrol and diesel sales as value-added tax (VAT) if the GST is brought even under the 28 per cent tax slab, India Today reported.
India presently imposes the highest taxes on petrol and diesel, because of the high central and state taxes. The current petrol price is ₹101 per litre in the national capital whereas in Mumbai it is over ₹97. On the other hand, one litre of diesel costs ₹88 in Delhi and ₹96.19 per litre in Mumbai.
Thus bringing petrol and diesel under GST would give much-required relief to people, however, the issue is politically sensitive and impacts states. Due to this, it may take a while before the proposal to include petroleum products under GST becomes a reality.
After considering many factors like crude oil price, dealer commission, transportation change, and excise duty, states determine the tax on petroleum products.
States like Maharashtra, Kerala, and Karnataka have openly boycotted the idea of bringing petroleum products under GST.
Most of the opposition leaders said that the rising fuel prices result from an excise duty hike by the Centre in 2020. Kerala finance minister KN Balagopal had said that the move could lead to an annual loss of ₹8,000 crore. Despite Karnataka being a BJP-ruled state, it has vehemently opposed the move. Maharashtra finance minister Ajit Pawar said the Centre should not infringe on the state's right to taxes.
How GST Council Works?
The GST council is a governing body that regulates and directs each step for implementing goods and service tax in India with decisions over tax rates and further implementation measures. The GST council assimilates suggestions and regulation into one form and improvise the changes formally through notifications and circulars with the help of its departments and finance ministry.
On September 13, 2021, the Supreme Court has urged the GST council to take special note of issues currently existing in the GST Act and try to resolve the formula of assessment for claiming a GST refund. While pronouncing its judgement, the Apex Court said, "Provisions of Article 246a are available to both parliament and state. Article 246a embodies the constitutional principle of the simultaneous levy." "Cannot expand the regime beyond what the legislature has provided. Anomalies in the law is a matter of legislative policy. GST council should take note of the anomalies," the court added.
The GST council is supposed to make the recommendation to the Union and State on the following matters:
- On subsuming of different taxes, cess, and surcharge in GST.
- Details of services and goods that will be subjected to GST or which will be kept out from this tax.
- On the Threshold limit below which, services and goods will be exempted from this tax.
- On GST rates that includes floor rate with bands of GST and any special rate for the time being to arrange resources to face any natural calamity.
- Making special provisions for the states like Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh, and Uttarakhand.
- On model law on GST, Principal of levy of GST and the principals which will govern the Place of Supply.