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The Central Board of Indirect Taxes and Customs clarifies that Goods and Services Tax applies to the net quantity of petroleum gases retained by manufacturers for petrochemical and chemical products. Oil refineries pay Goods and Services Tax on the net quantity of petroleum gases retained during continuous supply through dedicated pipelines. The refinery pays Goods and Services Tax on the returned quantity of petroleum gases when the refinery supplies that quantity to another person. This clarification applies to other cases involving the supply of goods where the recipient retains feedstock and returns the remaining residual material to the supplier.
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Circular No.53/27/2018-GST
F.No.354/255/2018-TRU (Part-2) Government of India Ministry of Finance Department of Revenue (Tax Research Unit) *****
North Block, New Delhi Dated, 9th August, 2018
To
Principal Chief Commissioners/Principal Directors General, Chief Commissioners/Directors General, Principal Commissioners/Commissioners, All under CBIC.
Madam/Sir,
Subject: Clarification regarding applicability of GST on the petroleum gases retained for the manufacture of petrochemical and chemical products – regarding.
References have been received regarding the applicability of GST on the petroleum gases retained for the manufacture of petrochemical and chemical products during the course of continuous supply, such as Methyl Ethyl Ketone (MEK) feedstock, petroleum gases etc.
In this context, it may be recalled that clarifications on similar issues for specific products have already been issued vide circular Nos. 12/12/2017-GST dated $26^{\text{th}}$ October, 2017 and 29/3/2018-GST dated $25^{\text{th}}$ January, 2018. These circulars apply mutatis mutandis to other cases involving same manner of supply as mentioned in these circulars. However, references have again been received from some of the manufacturers of other petrochemical and chemical products for issue of clarification on applicability of GST on petroleum gases, which are supplied by oil refineries to them on a continuous basis through dedicated pipelines, while a portion of the raw material is retained by these manufacturers (recipient of supply), and the remaining quantity is returned to the oil refineries. In this regard, an issue has arisen as to whether in this transaction GST would be leviable on the whole quantity of the principal raw materials supplied by the oil refinery or on the net quantity retained by the manufacturers of petrochemical and chemical products.
The GST Council in its $28^{\text{th}}$ meeting held on 21.7.2018 discussed this issue and recommended for issuance of a general clarification for petroleum sector that in such transactions, GST will be payable by the refinery on the value of net quantity of petroleum gases retained for the manufacture of petrochemical and chemical products.
Accordingly, it is hereby clarified that, in the aforesaid cases, GST will be payable by the refinery only on the net quantity of petroleum gases retained by the recipient manufacturer for the manufacture of petrochemical and chemical products. Though, the refinery would be liable to pay GST on such returned quantity of petroleum gases, when the same is supplied by it to any other person. It is reiterated that this clarification would be applicable mutatis mutandis on other cases involving supply of goods, where feed stock is retained by the recipient and remaining residual material is returned back to the supplier. The net billing is done on the amount retained by the recipient.
This clarification is issued in the context of the Goods and Service Tax (GST) law only and past issues, if any, will be dealt in accordance with the law prevailing at the material time.
Yours faithfully,
Dr. Ajay K. Chikara Technical Officer (TRU)
