Impact of Goods and Services Tax on Indian Energy Sector

Abstract Goods and Services Tax (GST) is a major reform in the indirect tax system in India. And the law was implemented in India with the motto of ‘One Nation, One Tax’. Due to the cascading effect of the old indirect tax system which was a major cause of concern. The GST regime, as brought, has given much relief to such constraints. With GST the whole Indian market will be brought together markets which may convert into bring down business costs. It can encourage consistent development of products crosswise over states and diminish the exchange expenses of organizations. After the implementation of the GST structure, though petroleum products were intended to be brought under the GST regime, its implementation did not take place. Passing through more than eight years of emergence of GST, the non-inclusion of petroleum products is a cause of major concern. Firstly, the Oil industry has a strong international character as well as local influences. Secondly, the Strategic Petroleum Reserves and oil import tariffs amongst others have also been considered as the most important instruments for energy security and have been proved effective in the experience of developing countries. And also the relationship between the government and the oil industry is a very important aspect in the way of taxation on petroleum products. In the relationship between the government and the oil industry, two kinds of arrangements are seen to be operative. One is the concessionary system and the other is the contractual system. Concessionary system is a system of licensing, where a company is given right to explore, develop, produce, transport etc. of petroleum products at its own risk within a fixed area. This article is an attempt to analyse the different forms of taxes imposed by the Centre and the States on the petroleum products, debates at the Parliament and the GST Council with imposition of GST on such products and reasons for the States’ reluctance in bringing such products under GST and its impact on the Indian economy. The study also explores and demonstrates the effect of GST on the Indian energy sector. Keywords: Value Added Tax (VAT), Goods and Services Tax (GST), Indian Energy Sector, Renewable Energy 1.Introduction Goods and Services Tax (GST) supplants all circuitous charges demanded on Goods and Services by the Indian Central and State governments. France was the principal nation to present this framework in 1954. Right around 150 nations have presented GST in some frame. While nations, for example, Singapore and New Zealand charge basically everything at a solitary rate, Indonesia has five positive rates, a zero rate furthermore, more than 30 classifications of exclusions. Even in China, GST applies just to products and the arrangement World over in right around 150 nations either GST or Value Added Tax, which implies impose on products furthermore, administrations. Under the GST plot, no refinement is made amongst merchandise and ventures for exacting of assessment. Introduction of GST on July 1st, 2017 was the biggest tax reform in India. GST is applicable on almost all goods and services. The Central Goods and Services Tax Act, 2017, Section 9(2) keeps above goods out of purview of GST regime and provides that, tax on the supply of the said goods shall be levied with effect from such date as may be notified by the Government with consultation of GST Council. Goods have been outside the purview of GST; Petroleum Crude; High Speed Diesel Oil; Motor Spirit; Natural gas; Aviation Turbine Fuel. Even though the major petroleum products (including crude oil, white petroleum, motor spirit, aviation turbine fuel, diesel and natural gas) have been kept out of GST cover, some other products such as LPG, fuel oil, kerosene, naphtha are included. The industry has to follow Hybrid System for both previous VAT as well as GST regime. The excluded petroleum products will continue to be taxed under the value added tax (VAT) and excise duty. There are few direct and indirect impacts of the GST on oil and gas sector. Natural gas has emerged as the most benign fuel and it plays an important role in driving the economic growth of a country. Being cleanest of all fossil fuels, efficient, and relatively economical, it fulfills the requirements for fuel in today’s industrial society. The sector has however, been facing enormous challenges over the last few years in India on the indirect tax fronts in terms of levy of multiple taxes, interpretation issues, unfavorable credit structure adding to the overall tax cost. This analysis encapsulates the key indirect tax issues including the possible issues that are likely to arise under the proposed inclusion of certain petroleum products under the GST regime. 2.Indian Energy Sector Power is a standout amongst the most basic segments of foundation significant for the monetary development and welfare of countries. The presence and advancement of satisfactory foundation is basic for managed development of the Indian economy. India's energy segment is a standout amongst the most enhanced on the planet. Wellsprings of energy age extend from regular sources, for example, coal, lignite, petroleum gas, oil, hydro and atomic energy to reasonable non-customary sources, for example, wind, sun oriented, and agrarian and household squander. Power request in the nation has expanded quickly and is required to rise promote in the years to come. Keeping in mind the end goal to take care of the expanding demand for power in the nation, monstrous expansion to the introduced creating limit is required. India positions third among 40 nations in EY's Renewable Energy Country Attractiveness Index, on back of solid spotlight by the legislature on advancing sustainable power source and execution of ventures in a period bound way. With the aggressive "Power for all" by 2012, an objective formally reported by the Indian Power service in 2003, the Indian power division appeared to be set for a gigantic lift upheld by incremental ventures both by the Government and private players. In spite of the fact that there was much hubbub at the outset, everything grew dim gradually. Presently, India positions fifth on the planet in power age and are put at sixth with regards to net power utilization. A fascinating certainty is that the per capita yearly utilization of power in India is one of the least on the planet at roughly 818.9 kwh when contrasted with the world normal of 2600 kwh and 6200 kwh in European Union, which can significantly be credited to the populace development and the failure of the area to accomplish its objective limit expansion. India at present has an introduced limit of 205 GW. This misses the mark by far when we consider the present vitality prerequisite not to mention the regularly developing interest for power because of mass urbanization and expanding populace. The middle had focused on limit expansion of 100,000 MW each in the twelfth arrangement and thirteenth arrangement, in spite of the fact that the twelfth 5 year design's objective has now been diminished to 75000 MW attributable to deficiency of fuel supply. Energy Sector is one of the essential enterprises in any economy since control is a key essential for every single business movement. Any assessment twisting depravity by this part by excellence of energy being outside the scope of GST will failingly affect the rest of the economy, defaming a segment of the very focal points hoped to be accomplished by the presentation of GST. Therefore it is felt that the Government has missed a possibility by not connecting power age and power appropriation with various supplies which connect with it, under the domain of GST. Hence the reasonableness of the energy sector portion, under the current GST standards, would depend on the prohibitions and concessionary force which may be set up to counter the impact of different expense administrations on the data and yield side. Rejections in inexhaustible ought to be grandfathered for this sub-portion to remain reasonable. In the whole deal, the GST's impact is most likely going to be leveled out by falling costs. The Renewable Energy industry in India will similarly benefit by a speedier advancement in the Indian economy which will construct the general enthusiasm for the Renewable imperativeness condition. 3.Indirect Tax issues on Indian Energy Sector A) Blockage of Service Tax paid on Services Consumed in Exploration and Production Activities In order to boost the natural gas sector in India, the Government of India has provided for exemptions from customs or excise duty to specified goods, used for Exploration and Production (E&P) activities, when imported or purchased from indigenous manufacturers. Therefore, services consumed by such E&P entities are subjected to service tax. Production of natural gas is not liable to Excise duty under the Central Excise Act, 1944. Thus, service tax paid on services consumed by E&P entities is not allowed to be claimed as credit or refund. Hence, tax so paid becomes a cost adding to the overall tax cost. Introduction of a refund mechanism in respect of such taxes can bring parity and make the E&P tax chain neutral. B) Customs Exemption on Import of Liquefied Natural Gas (LNG) NG is a clean fuel used in many sectors other than power such as fertilizer, city gas distribution (for transport and domestic use), petrochemical, LPG, steel industry etc. Recognizing the shortage of natural gas, the Government has encouraged the import of LNG. Generally, at the time of importation of LNG, end use of the gas so imported is not known by the importers and thus, availing exemption under the aforesaid notification basis end use becomes a difficulty. C) Setting up of infrastructure – CENVAT Credit denial Infrastructural set up i.e. construction of storage tanks, lying of pipelines, etc. is vital for the companies engaged in regasification or transportation of gas. T