• Notification Date: 27-01-2022
• Notification No: N/A

Natural Gas to come under GST

The government is about to bring natural gas under the Goods and Service Tax (GST) provision. This initiative is being taken to realize Prime Minister Narendra Modi’s attempt at bringing a gas-based economy and increasing environment-friendly fuel in the energy basket of India.

GST is not currently applicable to natural gases. The Federation of Indian Petroleum Industry (FIPI) has also demanded the rationalization of GST on the transportation of natural gas through the pipeline. The FIPI has also demanded the same for the re-gasification of imported LNG. This would help to lower the cost of environment-friendly fuel.

The PM of India has decided to raise the natural gas share in the country from 6.2 per cent to 15 per cent by 2030. The rise in the use of natural gas will eventually lower the fuel cost as well as carbon emissions. This will help the country to meet its target of COP-26 commitments.

In some states in India, the VAT rate is extremely high on natural gas. In Andhra Pradesh the VAT rate is 24.5 per cent, in Uttar Pradesh, it is 14.5 per cent. In Gujarat, the tax is 15 per cent, while in Madhya Pradesh the VAT rate is 14 per cent. The introduction of GST on natural gas will help in creating uniformity in the taxation. Then natural gas will be freely traded across the country. According to FIPI, not including the petroleum products such as crude oil, petrol, diesel, ATF, and natural gas under the GST provision will massively affect the industry.

The industry body appealed for lowering the import duty on Liquid Natural Gas (LNG). LNG is a clean fuel. It is mainly used in the power sector and as a fertilizer. The government has approved of importing more natural gas into the country since there is a shortage of gas. LNG attracts 2.5 per cent of customs duty as well as 10 per cent of SWS.

Import of LNG does not attract customs duty under some critical conditions. These conditions include the importation of LNG for exclusive consumption for electric energy generation that is for public supply. As FIPI has stated, imported LNG needs to be converted into natural gas before it is imported and consumed in India. The regasification of LNG attracts 18 per cent of GST.

The regasification of LNG will be considered as the manufacture of the gas. So, under Section 2(72) of the CGST Act, it should attract 12 per cent of GST instead of 18 per cent. The industry is charging a GST of 18 per cent since there is no clarity in the above-mentioned definition.

FIPI has appealed for the rationalization of GST for the transportation of natural gas through the pipeline and applied GST of 5 per cent with input tax credit benefit in place of the current rate of 12 per cent.