Union Finance Minister Nirmala Sitharaman on Friday announced that that petrol and diesel will not be brought under the ambit of Goods and Services Tax.
After a meeting of the GST Council in Uttar Pradesh’s Lucknow city, the finance minister said that the discussion on bringing petroleum products under the tax system was only taken up because of the Kerala High Court’s suggestion to do so.
“It was decided, we will report to Kerala HC that matter has been discussed and [the] council felt it was not the time to bring petroleum products under GST,” Sitharaman said.
This was the first meeting of the council in over 20 months owing to the Covid-19 health crisis. The council also took several other key decisions in the meeting.
Fuel and GST
The finance minister announced reduction of the GST rates of biodiesel, which is supplied to oil marketing companies for blending with diesel, from 12% to 5%.
Earlier, the governments of Maharashtra and Kerala had said they would oppose any decision to bring fuel rates under the GST.
“Although nobody is speaking in public, there is a serious move on part of the Centre to bring petrol and diesel under GST, citing one nation, one tax regime,” Maharashtra Deputy Chief Minister Ajit Pawar said on Friday, according to The Indian Express.
Pawar added that the Centre had the right to modify rules, but any policy decision that adversely affected the generation of state revenue was unacceptable.
Kerala Finance Minister KN Balagopal on Thursday said that fuel prices had increased in the state because the Centre had increased the charges under cess, PTI reported. The state is set to lose Rs 8,000 annually if petrol and diesel is brought under the GST regime, the minister added.
Fuel prices in India have risen progressively since May 2020. The Centre imposes an excise duty of Rs 32 for every litre of fuel currently.
In August, Union Minister of Petroleum and Natural Gas Hardeep Singh Puri had defended the Centre’s excise duty, saying that the money is used to finance various welfare schemes.
Puri and Sitharaman had also blamed the United Progressive Alliance government for deregulating the prices of petrol and diesel in 2010. The BJP leaders said that it caused an impact on the local market when international rates of fuel change.
The Union ministers had also pointed out that the Congress government had issued oil bonds worth Rs 1.34 lakh crore to control the prices of petrol.
Oil bonds are special securities issued by the government of India to public entities like oil marketing companies, Food Corporation of India and fertiliser companies in lieu of cash subsidies.
Puri had said that the Congress passed on this “problem” to the Bharatiya Janata Party government.
GST on medicines
On Friday, Sitharaman also announced that the GST council decided to extend concessional rates for drugs used in the treatment of the coronavirus disease till December 31. It was earlier applicable till September 30.
The finance minister said that the concessional rates were applicable only for medicines and not for medical equipment. These medicines are amphotericin B and tocilizumab, used in the treatment of mucormycosis or “black fungus” cases, and remdesivir and heparin given to Covid-19 patients.
She also said that GST would not be levied on zolgngelsma and viltepso drugs as they are “very expensive”, costing around Rs 16 crore. These drugs are not used in the treatment of the coronavirus disease.
In June, the Centre had proposed cuts in the Goods and Services Tax rates on medicines and equipment used for the treatment of Covid-19. The proposal had then reduced tax rates on medical-grade oxygen, concentrators, ventilators, and BiPAP machines from 12% to 5%.
GST compensation to states
On Friday, Sitharaman said that a Group of Ministers will be formed to look into the matter of compensation to the states. The group will submit its report within two months of its formation.
The Centre levies a GST compensation to compensate the states for the loss of revenue arising due to the implementation of the tax. The maximum amount of tax is imposed on tobacco products.
Sitharaman said that the economic impact of the pandemic has led to higher compensation requirement due to lower GST collection and reduced collection of GST compensation cess, the finance ministry said in a statement.
“GST compensation of Rs 91,000 crore has been released to all States/ UTs to partly meet the compensation payable for the period April’20 to March’21 as the amount in GST Compensation Fund was not adequate to meet the full compensation requirement,” the statement said.
After the meeting, Sitharaman said that tax towards compensation for states will have to be collected till March 2026 to allow the states to pay back loans taken between financial year 2020-’21 and 2021-’22, according to India Today.
Since April 2020, the Centre has released GST compensation worth Rs 1,13,000 to the states.
The GST council also decided to levy taxes on food delivery platforms such as Swiggy and Zomato. Sitharaman said that the delivery platforms will collect 5% GST from consumers instead of the restaurant they pick up the orders from, reported NDTV.
However, the Centre insisted that no new tax was being collected but that the collection point for GST was just being transferred.
The finance minister also said that GST on locomotive and rail parts will be increased from 12% to 18%. She said that tax on pen parts is 18%, while it is 12% on certain kinds of pens. In view of this, the council has decided to charge 18% on both pen and pen parts.
Further, import of leased aircraft have been exempted from payment of IGST, or Integrated Goods and Services Tax, which is charged on inter-state supply of goods and services.
Sitharaman also said that training programmes for which the Centre bears 75% of the cost will now be exempt from GST.
The council also extended the exemption by one year on transport of export goods by ships and through air in view of the coronavirus pandemic.