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THE INSIGHT

Will Govt permit Input Tax Credit on GST if paid on Petrol & Diesel?
By Jaimini Khurjekar
Sep 23, 2021

GIST of relevant provisions of Central Goods and Services Tax Act, 2017, related to input tax credit

1. As per definition under Section 2(59) ? "input" means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business;

2.  As per definition under Section (60) ?"input service" means any service used or intended to be used by a supplier in the course or furtherance of business;

3. As per definition under Section (62) ? "input tax" in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes—

(a) the integrated goods and services tax charged on import of goods;

(b) the tax payable under the provisions of sub-sections (3) and (4) of section 9;

(c) the tax payable under the provisions of sub-sections (3) and (4) of section 5 of the Integrated Goods and Services Tax Act;

(d) the tax payable under the provisions of sub-sections (3) and (4) of section 9 of the respective State Goods and Services Tax Act; or

(e) the tax payable under the provisions of sub-sections (3) and (4) of section 7 of the Union Territory Goods and Services Tax Act,

but does not include the tax paid under the composition levy;

4. As per definition under Section (63) ? "input tax credit" means the credit of input tax;

5.  Chapter V of Central Goods and Services Tax Act, 2017 provides for Input Tax Credit provisions under Section 16 to Section 21

6.  Section 16 (1) provides for Eligibility conditions for taking input tax credit which inter alia provides that Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business the said amount shall be credited to the electronic credit ledger of such person

7. Section 17 provides for apportionment of credit and blocked credits

8.  Section 17(5) provides for list of items goods and services on which input tax credit shall not be available

9. Section 18 deals with availability of input tax credit in special circumstances.

Comments / conclusion

1.  Looking to the above provisions, it is clear that GST legislation does not debar Petrol and Diesel from availing input tax credit subject to the provisions of Section 16 to section 21 of Chapter V of CGST Act, 2017.

2. Currently the cascading effect of reversal of credits on inputs used in the manufacture of Petrol and Diesel in the hands of refineries are substantial and the entire process of reversal is too cumbersome.

3.  Currently Petrol and Diesel are not covered as “input" under existing Cenvat Credit Rules.

4. Similarly these products being out of GST, currently the Input Tax creditof GST paid on inputs and input services is not available in the hands of manufacturers as well as end users under GST legislation

Therefore, if Input Tax credit under GST regime is extended to these two products, lot of cascading effect will get reduced and ultimate end user i.e. consumer will be benefited. Refineries can avail ITC of GST paid on inputs and input services used for manufacture of these two products and consequently pass on this benefit to consumers.

As far as availment of Input Tax Credit of GST paid on Petrol and Diesel in the hands of Individual buyer the same will not be available and to that extent there will not be any leakage of revenue. However, end users using these products for supply of goods and services in furtherance of business can avail ITC and will be benefited to a great extent. For example, if ITC of GST paid on Diesel is allowed in the hands of Goods Transport operator, his cascading cost will come down drastically. By bringing these products under ITC chain there will be more tax payers coming under Tax net.

However, in case Govt still wants to deny ITC benefit to these two products as “input", then necessary amendments in CGST Act 2017 will need to be made.

[The views expressed are strictly personal.]