The Central government has announced the notification to bring natural gas under the Goods and Services Tax (GST) regime to realise Prime Minister insight for a gas-based economy and boosting the stake of the environment-friendly fuel in India’s energy basket. In this article, we will discuss on Tax liability on the supply of CNG.
Tax liability on the supply of CNG
The Central government should bring natural gas under the Goods and Services Tax (GST) regime to realise Prime Minister vision for a gas-based economy and boosting the stake of the environment-friendly power in India’s energy basket. Natural gas is presently outside the ambit of GST, and occurring legacy taxes central excise duty, state VAT, central sales tax continue to be applicable on the fuel.
Also, Non-inclusion of natural gas under GST portal is having an unfavourable impact on its tariffs due to stranding of taxes in the hands of gas producers and is also impacting natural gas-based industries due to stranding of inheritance taxes.
In a pre-Budget notice to the Finance Ministry, FIPI boasts of members from across the oil and gas expanse and declared the value-added tax (VAT) rate on natural gas is very outstanding in various states on 14.5 per cent in Uttar Pradesh and Andhra Pradesh, 15 per cent in Gujarat, 14 per cent in Madhya Pradesh.
Positive Impact on Gas Based Industries
Gas-based industries do not receive the benefit of a tax credit of VAT expended on purchases of natural gas, it is occurring in a boost in the expense of production of such industrial consumers and would have an inflationary impact on the economy. Inclusion of natural gas under the GST ambit will have a favourable impact on gas-based industries, promote usage of the fuel and avoid stranding of taxes.
Further Notification by Central Government
Further, FIPI also sought rationalization of GST on transportation of natural gas through the channel. Presently, GST on service of transportation of natural gas through the pipeline is acceptable at the rate of 12 per cent (with ITC benefit) and at the rate of 5 per cent (without ITC benefit).
Additionally, as per GST laws, two numerous registered units of an entity are considered distinct persons and inter-unit billing for the supply of goods/services between such units are required to be carried out with applicable GST.
Input Tax Credit (ITC) of GST payable on the inter-unit billing, for services of transportation of natural gas, will not be accessible to the recipient unit of GAIL,” it added. Natural gas is a much cleaner source of energy than other possibilities available and is mainly used in priority sectors like power, CNG and fertilizer.
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