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CURRENT TAXATION ON LPG
Although the sales tax levied by states on LPG is currently modest (0-3%), that on commercial LPG is much higher at 12.5-14%.Also, domestic LPG is exempt from excise duty while there is an 8% duty on the commercial variant.
POST GST
1) Difference in GST rates for certain domestic players Vs. Others.
LPG supply by SPECIFIED players (Domestic or non domestic)- 5%
LPG supply by others PLAYERS (Domestic or non domestic) – 18%
Hence it can be seen that there is an extra GST rates for new players into LPG business. However this will not make much difference to a Industry who uses such LPG in its production process because the higher duty paid to this new LPG player can be claimed in its all outward supplies to the end customer. However when we sell to end customer with this high RATE GST, then it will eventually increase its cost and might not be feasible for selling to end consumer directly.
2) Tax on Import of Goods/ Supplies
"The Act provides that IGST shall be levied on import of goods in terms of Section 3 of the Customs Tariff Act, 1975. It implies that on such importation of goods IGST will be payable in addition to the Basic Customs Duty (BCD). The proviso to Section 5(1) of the IGST Act also clarifies that the value and point at which IGST would payable will be determined in accordance with Section 12 of the Customs Act, 1962"
"Para -2(11) of IGST act “import of service” means the supply of any service, where
(i) the supplier of service is located outside India;
(ii) the recipient of service is located in India; and
(iii) the place of supply of service is in India;"
It is worth to be noted that LPG are being produced less significant in quantity in India comparing to demand
Overall import duty comes around 31% for importing petroleum gases in India.
The composition of such 31% overall can be broken into two parts -
Basic custom duty
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10%
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Other duties
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21%
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Now, please note that, Basic custom duty will not be allowed to use as tax credit (allowable credit to use while paying outward GST) and rest portion will be allowed to be used as creditable duty. It essentially means that cost of production will be increased by this 10% of duty which is not allowed to be sett off in future outward GST liability. The difference of this 10% will be a comparative cost differentiation between new LPG player Vs. existing in case the existing players procures/ produces its LPG within India only (however the in future Imported LPG would be required significantly )
Under GST regime, the import duty (other than Basic custom duty) will be taxable under IGST. IGST can be used to pay either IGST outward liability or to pay CGST or to pay SGST.
This Act does not enjoy extraterritorial jurisdiction and is limited to imposing tax if the goods are imported into the territory of India.
3) Non- creditable duties on certain components used in production
At present, while products like Kerosene, naphtha and liquefied petroleum gas are part of GST, five items including crude oil, natural gas, aviation fuel, diesel and petrol are not included in GST basket. It means that all such petroleum products if used while doing business processes would not be allowed to take any credit on duties (these item will still be under central excise or other applicable laws) which would certainly make a high cost of production.
4) Separate registration for each place of supplies
It is to be noted that under GST all taxable supply places should get separate registration per state wise in India. Hence all ledgers, credit on duties will be separately maintained and will not be allowed to use as per overall combined entity. Which means if one location gets some credit and do not involve in outward supplies then credit cannot be utilized for other location. This could be one of the areas where management needs to look at its strategy. Overall, each location would need to file 37 returns in a year.
5) Registration for ISD (Integrated Service distributor)
This concept says when services are being received at HO in its name but eventually these are being used/ utilize for its different branches located other than HO then such taxable person (in this case HO) needs to take a registration as ISD and then the distribution of credit availment of such services will be done as per the turnover of the respective locations.
Each such location which receives services in its name and needs to allocate the credit availed to other location then each such location needs to obtain separate ISD. Hence there could be several ISD for one company depending upon its case as discussed.
However, the credit of CGST and SGST should be distributed as IGST credit to all the units located outside the State in which the ISD is located, and as CGST and SGST respectively, in case of distribution of credit to a unit located in the same State as the ISD.
6) Dealing with Unregistered dealer
There is a concept called reverse charge in which receiver of GOODS or SERVICES needs to pay GST. As per the GST act, all inward supplies from any unregistered dealer (not registered under GST) would need to calculate GST liability and then receiver of such GOODS/ SERVICES needs to pay in CASH (only actual payment is allowed, credit balance in GST ledger cannot be used).
7) Place of supply and GST
LPG would initially be imported and hence IGST credit would be available as discussed above, then there would be warehouse or area from where such supplies would be made to customers.
POINT of Tax for GST
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Place of supply where it is provided to the customer
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Example:
If LPG storage plant is in Punjab and company makes supplies within Punjab then, CGST + SGST would be applied. When Company delivers at place outside Punjab then IGST will be levied.
IGST balance can be used to pay
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IGST, CGST, SGST
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CGST balance can be used to pay
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CGST, IGST
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SGST balance can be used to pay
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SGST, IGST
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Hence, Management needs to evaluate the credit balances at each location which can optimally be utilized or the requirement of additional GST liability.
Conclusion
These are some of the areas which should be keep in mind while analyzing any opportunity to enter into the LPG segment POST GST the above factors are major areas which could influence the cost and margins and hence should not be considered it as an exhaustive list.
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