Petroleum Federation of India - · PDF file · 2016-07-15Petroleum Federation of India Impact of GST on Oil and Gas sector July 2016. 1 2 ... Indian GST Centre and States ... Return

For discussion purpose only

Petroleum Federationof IndiaImpact of GST on Oil and GassectorJuly 2016

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Contents

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Oil and gas industry - Overview

GST - Legislative framework

GST - Impact for oil and gas sector

Page 3 12 July 2016 Impact of GST on Oil and Gas sector

Oil and gas -industry -Overview


Oil and gas industry

Down-stream

Mid-stream

Up-stream

► Searching for potential underground/underwater crude oil and natural gasfields

► Drilling of exploratory wells► Drilling and operating the wells that

recover and bring the crude oil/rawnatural gas to the surface

► Transportation andstorage

► Refining of crude oil andprocessing and purifyingraw natural gas

► Marketing and distributionof products derived fromcrude oil and natural gas


GST –Legislativeframework


Legal framework

IndianGST

► Centre and States to levy GST oncommon base (CGST & SGST)

Dual-GST

► Additional 1% origin based tax oninter-state supplies of goods

► Integrated-GST (IGST) on inter-state supplies / import of goodsand services

► Crude, MS, HSD, ATF and Natural gasto be included at a future date

► However, services (e.g. transportation)related to petroleum products seemsto be included in GST

Additional 1% tax

Inter-state supplies / import ofgoods & services

Petroleum products


Rates as per report by Committee headed byCEA

Particulars Rates

Exempted goods and services Nil

Precious metals 2% - 6%

Merit goods 12%

“Standard” rate (goods and services) 17% - 18%

Demerit goods 40%

* Notes:1. The rates given are combined CGST + SGST rates

SGST rates may vary within a small band


GST - Impactfor oil andgas sector


Multiple tax laws

Products Oil Cessand NCCD

Exciseduty

VAT / CST SGST /CGST

IGST

Crude ü x ü x xNatural gas x x ü x xHSD, MS, ATF x ü ü x xNaphtha, LPG, SKO etc. x x x ü ü


VAT / CST

No tax

NCCD, Oilcess

GST on production and extraction

Excise duty,VAT

Service tax

CGST, SGST

IGST /CGST, SGST

Service Tax(Reverse Charge)

BCD, SAD, CVDBCD, IGST

Local procurementof goods

Procurement ofservices

Import of goodsImport of services

Inter-State procurement ofgoods

IGST+ 1% Origintax

Excise Duty, CST

IGST (ReverseCharge)

Gas

NCCD, Oilcess

VAT / CST

VAT / CST

No tax

Other - such as fertiliserplant

VAT / CST

Creditable taxes

Non creditable taxes

Proportionate credit

Refinery

Crude

Whether currentexcise and customs

exemption wouldcontinue in GST


GST on midstream sector

Excise duty,VAT

Service tax

CGST, SGST

IGST /CGST, SGST



Creditable taxes



Procurement ofservices



IGST + 1% Origintax

Excise Duty, CST


Service Tax

GST Customer


IGST / CGST, SGST

GST on refining and sale

Excise duty,VAT

Service tax

CGST, SGST

CGST, SGST



Creditable taxes



Intra-stateprocurement ofservices



IGST + 1% Origintax

Excise Duty, CST


MS, HSD, ATF

Goods within GSTe.g. LPG, SKO

Excise duty, VAT,CST


Proportionate credit


Customer

Industrial Customer

GST impact oncombination of

sectors


Additional returns

Present regimeReturn For To be filed by

GSTR 1 Outward supplies(sale, stocktransfer, export)

10 of nextmonth

GSTR 2 Inward supplies(purchases, import)

15th of nextmonth

GSTR 3 Monthly return 20th of nextmonth

GSTR 7 Tax deducted atsource

10th of nextmonth

GSTR 8 Annual return 31st Decemberof next FY

ITC ledger Continuous

Cash ledger Continuous

Tax ledger Continuous

Return Time period To be filed byExciseER 1 Monthly return 10th of next monthER 4 Annual return 30th November of

next FYVAT return in each stateMonthly / Quarterly return As prescribedAnnual return As prescribedAudit reports As prescribedService TaxST 3 (Half yearly) 25 days from half

year endAnnual return 30th November of

next FY

Additional in GST regime

Current complexities 30 additional SGST laws CGST law IGST law

Additional registrations, compliances, 5 returns and assessments in GST in each state where operationsliable to GST under forward charge / reverse charge / TDS


Complex credit mechanism

Under GST scenario, Input Tax Credit is to be matched withOutput Tax as given below:

S. No. INPUT TAXCredit against OUTPUT TAX

CGST SGST IGST OT

1 CGST ü X ü X

2 SGST X ü ü X

3 IGST ü ü ü X

First Second Third

Order for credit set-off

Additional 3 credit pools in each state(where business operations are liable to GST)

Creditmechanism


Commonissues


Credit availment

► Input – Goods used for making anoutward supply

► Input service – Service used formaking an outward supply

► Input tax Credit – IGST / CGST /SGST charged on supply of goods /service to him and is used forfurtherance of business

► Input tax credit is linked to anygoods of service used forfurtherance of business

► Input tax is not linked with inputsor input services

Legal provision


Reversal of credits

► Section 16 (6) of Model GST Law:► Goods or services used partly

for effecting taxable suppliesand partly for non-taxablesupplies

► The amount of credit shall berestricted to so much of the inputtax as is attributable to thetaxable supplies

► MS, HSD, ATF, Natural gas andCrude constitute majoritysupplies in the downstream andupstream industry

► Exclusion of these productswould result in reversal ofmajority credits of GST

► Advocacy for zero rating / refund

Legal provision


Inter-state stock transfers

► Schedule II para 5 of Model GSTLaw:► (Matters to be treated as supply

without consideration)► Supply of goods and / or

services► By a taxable person to another

taxable or non-taxable person inthe course or furtherance ofbusiness

► Provision of services and goodsby one establishment to anotherin different states of the sameentity – Valuation?

► Such taxability would increasethe GST credit pool and cost

► E.g. inward pipeline for crude -running through various states► Provision of services by different

taxable person (state) to refinery

► IGST would be a cost to the extentof non GST goods

Legal position


Carry forward of existing credits

► Section 143 of Model GST Law:► Taxable person can take credit

of the amount of CENVAT Credit/ VAT Credit

► Shown in a return furnishedunder the earlier law

► Taxable person shall not beallowed to take credit unlesssuch credit was admissibleunder the earlier law and is alsoadmissible as input tax creditunder this Act

► Is it compulsory to carry forwardthe credit pertaining to GSTproducts as GST credit?

Legal position


Credits of stock lying at depots

► Section 162A of Model GST Law:► Goods belonging to the principal

are lying at the premises of theagent on the appointed day

► Agent can take credit of VATpaid on such goods subject toconditions

► Provision for availing credit ofexcise duty paid on such goods?

Legal position


Meaning of ‘works contract’

► Definition of ‘works contract’ underModel GST Law:► Means an agreement for

carrying out for cash, deferredpayment or other valuableconsideration

► Building, construction,fabrication, erection, installation,maintenance, fitting out etc.

► Works contract would be taxable asservice in the GST regime

► Whether separate contractshaving cross fall breach contractto be considered as workscontract

Legal position


Upstreamsector


Taxability of offshore supplies

► IGST to be levied on supplies in thecourse of inter-state trade orcommerce

► CGST/SGST to be levied on allsupplies within a state

► Principles to determine supply ofgoods/ services in the course ofinter-state trade or commerce

► Definition of India includes CS, EEZ

► CS, EEZ or any other maritimezone not a State

► Offshore supplies will be subjectto SGST/CGST or IGST ?

► Credit available in which state?

Legal provision


Ambit of the term ‘natural gas’

► Vide 115 Constitution AmendmentBill, natural gas has been keptoutside the ambit of GST

► Accordingly, provisions under theGST regime will not apply to naturalgas

► Current taxation regime to continue

► Whether natural gas wouldinclude the following:► Compressed natural gas

(CNG)► Liquefied natural gas (LNG)► Piped natural gas► Rich natural gas / lean natural

gas

Legal provision


Continuity of existing litigation

► Schedule II clause 6 of Model GSTLaw:

► Supply of goods by anyunincorporated association orbody of persons to a memberto be treated as supplies

► Schedule IV – Activities in respect ofwhich Government would beregarded as taxable person

► Assignment of right to usenatural resources except:► When provided to farmers

or before 1 April 2016

► Taxability of cash calls?► Taxability of charges (such as

license fee) paid to Government?

Legal provision


Midstreamsector


Taxability on transportation through pipeline

► Fixed establishment means a placewhich is characterised by asufficient degree of permanenceand suitable structures

► in terms of human and technicalresources to supply service

► Taxability may be in all the stateswhere pipeline is located ?

► Credits need to be availed in allthe states where pipeline islocated ?

Legal provision

Pipeline

Pumpingstation


Eligibility of credits

► Section 16(9)(c) of Model GST Law:► Input tax credit shall not be

available for:► Goods or services acquired

by the principal in theexecution of a works contract

► When such contracts resultsin construction of immovableproperty

► Except for plant andmachinery

► Whether storage tanks wouldqualify as plant and machinery?

► Whether pipeline would qualifyas plant and machinery?

► Plant and machinery not defined

Legal provision


Downstreamsector


Inclusion of subsidy in the value of supply

► Section 15(2)(f) of Model GST Law:► Transaction value shall include

subsidies provided in any formor manner, linked to the supply

► At the time of stock transfer,whether GST to be paid on thevalue inclusive of subsidy (e.g.for LPG supplied under PDS)?

► Inclusion of subsidy for GSTwould increase the subsidy to beclaimed and hence, workingcapital issues

Legal position


Issuance of Form C by companies other thanoil marketing companies / resellers

► Natural gas is an input for otherindustries such as fertilizer

► Interstate sale of natural gas issubject to CST @ 2%

► During GST regime, whetherconcept of Form C would applyfor companies in other industry inthe GST regime?

► VAT credits on local sale wouldnot be available to companies inother industry in the GST regime

Factual position


Treatment of post sale discounts

► Section 15(h) of Model GST Law► Transaction value shall not

include any discount or incentivethat may be allowed after thesupply has been effected

► Such discount should beestablished as per theagreement and is known at orbefore the time of supply andspecially linked to relevantinvoices

► If an intimation for post-salediscounts is given before thesale is effected then whether anagreement is still needed?

► One to one co-relation with eachinvoice may be a challenge?

Legal position


Treatment of natural losses

► Section 11 of Model GST Law► Central or State Government

may, by Rules under this sub-section, provide for remission oftax

► On such supplies which arefound to be deficient in quantitydue to natural causes

► Rules may specify the limitbeyond which remission may notbe available

► Whether losses duringmanufacturing would constituteself consumption / supply?

► Whether losses during storage(factory / warehouse) wouldconstitute self consumption /supply?

► Remission to be applied forlosses during transit?

► Each State and Centre mayspecify a remission limit

Legal position


Questions

Thank you

Documents

Petroleum Federation of India - · PDF file · 2016-07-15Petroleum Federation of India Impact of GST on Oil and Gas sector July 2016. 1 2 ... Indian GST Centre and States ... Return