GST ON PETROLEUM PRODUCTS – Need for review of of the Statutory Provisions

[Sasidharan Gopalakrishnan]

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 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::

1. 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 as 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:

2. 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).

3. This new Sec 3 of the CE Act authorizes levy & collection  of Duty 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.

4.  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 2711 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:

1. Sec 9(2) of GST Act states:…”.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…”
2. 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.
3. 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 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 biodiesel 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 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 (ATF)	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 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	Kg.	…..
	- In gaseous state:
2711 21 00	-- Natural gas	Kg.	14%
2711 29 00	-- Other	Kg.	…..

 

4. 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 Chapter 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 mentioned  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 /exemptions prescribed in notification issued under Sec. 5A and the the last one by the Tariff Entry itself..

5. 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.

6. 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 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 simultaneously 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 liable 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 relevant statutory provision as mentioned above, to avoid confusion and consequent litigations.

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