TN not in favour of including petroleum, alcoholic beverages under GST

Says substantial non-VAT revenue is being collected without major leakage due to levy on a limited number of dealers

Government of Tamil Nadu has said that it is not in favour of bringing petroleum products and alcoholic beverages in the ambit of GST.

In his address at the Empowered Committee of State Finance Ministers meet at New Delhi, Tamil Nadu's Minister for Commercial Taxes and Registration B V Ramanaa said that recent media reports have stated that some states have agreed that petroleum products can be kept within GST as long as they are allowed to levy additional charges to protect revenue.

This shift in their stance has been conveyed to the Standing Committee on Finance, which is examining the Constitution (One Hundred and Fifteenth Amendment) Bill, 2011.

“We wish to point out that Government of Tamil Nadu is not in favour of bringing petroleum products and alcoholic beverages in the ambit of GST,” he said.

As in the case of other States, a substantial chunk of the sales tax revenue of the State of Tamil Nadu comes from petroleum products and alcoholic beverages, which have been kept out of VAT chain.

In 2011-12, Tamil Nadu realised Rs 9,384 crore from sale of petrol, diesel, aviation turbine fuel and kerosene (other than those sold through Public Distribution System) and Rs 7,198 crore from alcoholic beverages.

The Minister said this substantial non-VAT revenue is presently being collected without any major leakage due to levy on a limited number of dealers at the first point of sale, second and third point of sale as the case may be.

The Government of Tamil Nadu, therefore, agrees with the provisions of the Constitution Amendment Bill in keeping petroleum products and alcoholic beverages out of the purview of GST.

He added that the reasoning behind GST is to prevent cascading of taxes, but in case of petroleum sector and the alcoholic beverages sector, the supply chain is very small and even now levy of non-VAT tax on petrol, aviation gasoline, aviation turbine fuel, high speed diesel oil and light diesel oil is only at the first point of the sale in the State of Tamil Nadu.

In case of alcoholic beverages, it is at the point of first sale in the State for Foreign liquors; at the point of first and second sale for alcoholic liquors brought from outside the State; and at the point of first, second (excluding the turnover on which tax has already been levied in the first sale) and third sale for the alcoholic liquors manufactured and sold in the State. Hence, in the present arrangement there is no/limited cascading of taxes.

It has been our experience that tax evasion is more rampant in the goods having short supply chain due to collusion between various players in the chain, for example, in gold bullion, jewellery, furniture, etc. Though, as on date, the major players in the petroleum sector and alcoholic beverages sector are Public Sector companies, the situation may change in the future. Even in the current situation, players like truckers, taxi operators, etc. can indulge in practices like bill trading.

With the current rate of taxation on petroleum products and alcoholic beverages, it is expected that if these are brought under GST, the required State levy component outside GST to ensure revenue neutrality will be very high.

Keeping the smaller GST portion in the value chain and keeping the bigger Non-GST portion outside the value chain will complicate the record-keeping without giving any significant relief to the stakeholders.

“Hence, our view is that the provisions suggested for Petroleum products and Alcoholic liquors for human consumption in the Constitution (One Hundred and Fifteenth Amendment) Bill, 2011 need not be interfered with,” said the Minister.