Jaitley asks states to reduce VAT on certain petro products

Finance Minister Arun Jaitley has written to states asking them to reduce Value Added Tax (VAT) on petroleum products that are out of Goods and Services Tax (GST) but are used in manufacturing goods that attract GST.

In the letter to chief ministers of states, the finance minister highlighted concerns being raised by the manufacturing sector on the rise in input costs of petroleum products on account of transition to GST regime. 

“In the pre-GST regime, because the petroleum products as well as the final goods produced both attracted VAT, input tax credit of petroleum products being used as inputs by manufacturers was allowed to varying extent by different states,” the letter said.

However, in the post-GST scenario, the manufactured goods attract GST while the inputs of petroleum products used in the manufacturing attract VAT and, therefore, it would lead to cascading of taxes.
 
Certain states had lowered rate of VAT to 5% on compressed natural gas used for manufacturing of goods. Some states also had lower rate of VAT on diesel being used for manufacturing sector.

“Thus Mr Arun Jaitley has requested other states also to explore the possibility of having a lower rate of VAT on petroleum products used for manufacturing of those items on which there is GST, so that there is minimum disruption in the costing of goods,” the letter said.

Crude oil, petrol, diesel, natural gas and aviation turbine fuel have been kept out of GST. But crude oil and natural gas is also used in manufacturing certain items. While natural gas is used for manufacturing fertilizer and petrochemicals among others, crude oil is used for making kerosene, cooking gas (LPG) and certain fuels used by industry.