In a big relief to the oil sector, the government may allow producers of petroleum and natural gas to claim credit for GST on all inputs, input services, and capital goods being paid by them even though the output petroleum products including petrol, diesel, ATF remain outside the new indirect tax framework.
Sources said that the government is looking at an industry proposal to amend CENVAT rules that will allow petroleum producers to claim credit on all taxes paid on inputs under the GST system and get a set-off on these duties against output excise duty paid on five petroleum products that continue to remain outside GST.
“This is a very good proposal that would allow relief from additional tax burden to the tune of Rs 25,000 crore on oil marketing companies at present. The problem is coming as the sector’s input is in GST system where tax set-off is available but the final product is outside the GST system where credit on inputs is not allowed. Tax credits won’t be transferable between the two systems,” said an executive of public sector oil company asking not to be named.
Tax credits on products not in the GST system may create accounting complications, but government sources said this could be done as a temporary measure if the products were expected to come under the new indirect tax system soon. An announcement about the proposed changes may be made in the coming budget.
As of now, five petroleum products viz. petroleum crude, motor spirit (petrol), air turbine fuel (ATF), high-speed diesel and natural gas are included in GST