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For discussion purpose only
Petroleum Federationof IndiaImpact of GST on Oil and GassectorJuly 2016
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Contents
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Oil and gas industry - Overview
GST - Legislative framework
GST - Impact for oil and gas sector
Page 3 12 July 2016 Impact of GST on Oil and Gas sector
Oil and gas -industry -Overview
Page 4 12 July 2016 Impact of GST on Oil and Gas sector
Oil and gas industry
Down-stream
Mid-stream
Up-stream
► Searching for potential underground/underwater crude oil and natural gasfields
► Drilling of exploratory wells► Drilling and operating the wells that
recover and bring the crude oil/rawnatural gas to the surface
► Transportation andstorage
► Refining of crude oil andprocessing and purifyingraw natural gas
► Marketing and distributionof products derived fromcrude oil and natural gas
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GST –Legislativeframework
Page 6 12 July 2016 Impact of GST on Oil and Gas sector
Legal framework
IndianGST
► Centre and States to levy GST oncommon base (CGST & SGST)
Dual-GST
► Additional 1% origin based tax oninter-state supplies of goods
► Integrated-GST (IGST) on inter-state supplies / import of goodsand services
► Crude, MS, HSD, ATF and Natural gasto be included at a future date
► However, services (e.g. transportation)related to petroleum products seemsto be included in GST
Additional 1% tax
Inter-state supplies / import ofgoods & services
Petroleum products
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Rates as per report by Committee headed byCEA
Particulars Rates
Exempted goods and services Nil
Precious metals 2% - 6%
Merit goods 12%
“Standard” rate (goods and services) 17% - 18%
Demerit goods 40%
* Notes:1. The rates given are combined CGST + SGST rates
SGST rates may vary within a small band
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GST - Impactfor oil andgas sector
Page 9 12 July 2016 Impact of GST on Oil and Gas sector
Multiple tax laws
Products Oil Cessand NCCD
Exciseduty
VAT / CST SGST /CGST
IGST
Crude ü x ü x xNatural gas x x ü x xHSD, MS, ATF x ü ü x xNaphtha, LPG, SKO etc. x x x ü ü
Page 10 12 July 2016 Impact of GST on Oil and Gas sector
VAT / CST
No tax
NCCD, Oilcess
GST on production and extraction
Excise duty,VAT
Service tax
CGST, SGST
IGST /CGST, SGST
Service Tax(Reverse Charge)
BCD, SAD, CVDBCD, IGST
Local procurementof goods
Procurement ofservices
Import of goodsImport of services
Inter-State procurement ofgoods
IGST+ 1% Origintax
Excise Duty, CST
IGST (ReverseCharge)
Gas
NCCD, Oilcess
VAT / CST
VAT / CST
No tax
Other - such as fertiliserplant
VAT / CST
Creditable taxes
Non creditable taxes
Proportionate credit
Refinery
Crude
Whether currentexcise and customs
exemption wouldcontinue in GST
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GST on midstream sector
Excise duty,VAT
Service tax
CGST, SGST
IGST /CGST, SGST
Service Tax(Reverse Charge)
BCD, SAD, CVDBCD, IGST
Creditable taxes
Non creditable taxes
Local procurementof goods
Procurement ofservices
Import of goodsImport of services
Inter-State procurement ofgoods
IGST + 1% Origintax
Excise Duty, CST
IGST (ReverseCharge)
Service Tax
GST Customer
Page 12 12 July 2016 Impact of GST on Oil and Gas sector
IGST / CGST, SGST
GST on refining and sale
Excise duty,VAT
Service tax
CGST, SGST
CGST, SGST
Service Tax(Reverse Charge)
BCD, SAD, CVDBCD, IGST
Creditable taxes
Non creditable taxes
Local procurementof goods
Intra-stateprocurement ofservices
Import of goodsImport of services
Inter-State procurement ofgoods
IGST + 1% Origintax
Excise Duty, CST
IGST (ReverseCharge)
MS, HSD, ATF
Goods within GSTe.g. LPG, SKO
Excise duty, VAT,CST
Excise duty, VAT,CST
Proportionate credit
Excise duty, VAT,CST
Customer
Industrial Customer
GST impact oncombination of
sectors
Page 13 12 July 2016 Impact of GST on Oil and Gas sector
Additional returns
Present regimeReturn For To be filed by
GSTR 1 Outward supplies(sale, stocktransfer, export)
10 of nextmonth
GSTR 2 Inward supplies(purchases, import)
15th of nextmonth
GSTR 3 Monthly return 20th of nextmonth
GSTR 7 Tax deducted atsource
10th of nextmonth
GSTR 8 Annual return 31st Decemberof next FY
ITC ledger Continuous
Cash ledger Continuous
Tax ledger Continuous
Return Time period To be filed byExciseER 1 Monthly return 10th of next monthER 4 Annual return 30th November of
next FYVAT return in each stateMonthly / Quarterly return As prescribedAnnual return As prescribedAudit reports As prescribedService TaxST 3 (Half yearly) 25 days from half
year endAnnual return 30th November of
next FY
Additional in GST regime
Current complexities 30 additional SGST laws CGST law IGST law
Additional registrations, compliances, 5 returns and assessments in GST in each state where operationsliable to GST under forward charge / reverse charge / TDS
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Complex credit mechanism
Under GST scenario, Input Tax Credit is to be matched withOutput Tax as given below:
S. No. INPUT TAXCredit against OUTPUT TAX
CGST SGST IGST OT
1 CGST ü X ü X
2 SGST X ü ü X
3 IGST ü ü ü X
First Second Third
Order for credit set-off
Additional 3 credit pools in each state(where business operations are liable to GST)
Creditmechanism
Page 15 12 July 2016 Impact of GST on Oil and Gas sector
Commonissues
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Credit availment
► Input – Goods used for making anoutward supply
► Input service – Service used formaking an outward supply
► Input tax Credit – IGST / CGST /SGST charged on supply of goods /service to him and is used forfurtherance of business
► Input tax credit is linked to anygoods of service used forfurtherance of business
► Input tax is not linked with inputsor input services
Legal provision
Page 17 12 July 2016 Impact of GST on Oil and Gas sector
Reversal of credits
► Section 16 (6) of Model GST Law:► Goods or services used partly
for effecting taxable suppliesand partly for non-taxablesupplies
► The amount of credit shall berestricted to so much of the inputtax as is attributable to thetaxable supplies
► MS, HSD, ATF, Natural gas andCrude constitute majoritysupplies in the downstream andupstream industry
► Exclusion of these productswould result in reversal ofmajority credits of GST
► Advocacy for zero rating / refund
Legal provision
Page 18 12 July 2016 Impact of GST on Oil and Gas sector
Inter-state stock transfers
► Schedule II para 5 of Model GSTLaw:► (Matters to be treated as supply
without consideration)► Supply of goods and / or
services► By a taxable person to another
taxable or non-taxable person inthe course or furtherance ofbusiness
► Provision of services and goodsby one establishment to anotherin different states of the sameentity – Valuation?
► Such taxability would increasethe GST credit pool and cost
► E.g. inward pipeline for crude -running through various states► Provision of services by different
taxable person (state) to refinery
► IGST would be a cost to the extentof non GST goods
Legal position
Page 19 12 July 2016 Impact of GST on Oil and Gas sector
Carry forward of existing credits
► Section 143 of Model GST Law:► Taxable person can take credit
of the amount of CENVAT Credit/ VAT Credit
► Shown in a return furnishedunder the earlier law
► Taxable person shall not beallowed to take credit unlesssuch credit was admissibleunder the earlier law and is alsoadmissible as input tax creditunder this Act
► Is it compulsory to carry forwardthe credit pertaining to GSTproducts as GST credit?
Legal position
Page 20 12 July 2016 Impact of GST on Oil and Gas sector
Credits of stock lying at depots
► Section 162A of Model GST Law:► Goods belonging to the principal
are lying at the premises of theagent on the appointed day
► Agent can take credit of VATpaid on such goods subject toconditions
► Provision for availing credit ofexcise duty paid on such goods?
Legal position
Page 21 12 July 2016 Impact of GST on Oil and Gas sector
Meaning of ‘works contract’
► Definition of ‘works contract’ underModel GST Law:► Means an agreement for
carrying out for cash, deferredpayment or other valuableconsideration
► Building, construction,fabrication, erection, installation,maintenance, fitting out etc.
► Works contract would be taxable asservice in the GST regime
► Whether separate contractshaving cross fall breach contractto be considered as workscontract
Legal position
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Upstreamsector
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Taxability of offshore supplies
► IGST to be levied on supplies in thecourse of inter-state trade orcommerce
► CGST/SGST to be levied on allsupplies within a state
► Principles to determine supply ofgoods/ services in the course ofinter-state trade or commerce
► Definition of India includes CS, EEZ
► CS, EEZ or any other maritimezone not a State
► Offshore supplies will be subjectto SGST/CGST or IGST ?
► Credit available in which state?
Legal provision
Page 24 12 July 2016 Impact of GST on Oil and Gas sector
Ambit of the term ‘natural gas’
► Vide 115 Constitution AmendmentBill, natural gas has been keptoutside the ambit of GST
► Accordingly, provisions under theGST regime will not apply to naturalgas
► Current taxation regime to continue
► Whether natural gas wouldinclude the following:► Compressed natural gas
(CNG)► Liquefied natural gas (LNG)► Piped natural gas► Rich natural gas / lean natural
gas
Legal provision
Page 25 12 July 2016 Impact of GST on Oil and Gas sector
Continuity of existing litigation
► Schedule II clause 6 of Model GSTLaw:
► Supply of goods by anyunincorporated association orbody of persons to a memberto be treated as supplies
► Schedule IV – Activities in respect ofwhich Government would beregarded as taxable person
► Assignment of right to usenatural resources except:► When provided to farmers
or before 1 April 2016
► Taxability of cash calls?► Taxability of charges (such as
license fee) paid to Government?
Legal provision
Page 26 12 July 2016 Impact of GST on Oil and Gas sector
Midstreamsector
Page 27 12 July 2016 Impact of GST on Oil and Gas sector
Taxability on transportation through pipeline
► Fixed establishment means a placewhich is characterised by asufficient degree of permanenceand suitable structures
► in terms of human and technicalresources to supply service
► Taxability may be in all the stateswhere pipeline is located ?
► Credits need to be availed in allthe states where pipeline islocated ?
Legal provision
Pipeline
Pumpingstation
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Eligibility of credits
► Section 16(9)(c) of Model GST Law:► Input tax credit shall not be
available for:► Goods or services acquired
by the principal in theexecution of a works contract
► When such contracts resultsin construction of immovableproperty
► Except for plant andmachinery
► Whether storage tanks wouldqualify as plant and machinery?
► Whether pipeline would qualifyas plant and machinery?
► Plant and machinery not defined
Legal provision
Page 29 12 July 2016 Impact of GST on Oil and Gas sector
Downstreamsector
Page 30 12 July 2016 Impact of GST on Oil and Gas sector
Inclusion of subsidy in the value of supply
► Section 15(2)(f) of Model GST Law:► Transaction value shall include
subsidies provided in any formor manner, linked to the supply
► At the time of stock transfer,whether GST to be paid on thevalue inclusive of subsidy (e.g.for LPG supplied under PDS)?
► Inclusion of subsidy for GSTwould increase the subsidy to beclaimed and hence, workingcapital issues
Legal position
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Issuance of Form C by companies other thanoil marketing companies / resellers
► Natural gas is an input for otherindustries such as fertilizer
► Interstate sale of natural gas issubject to CST @ 2%
► During GST regime, whetherconcept of Form C would applyfor companies in other industry inthe GST regime?
► VAT credits on local sale wouldnot be available to companies inother industry in the GST regime
Factual position
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Treatment of post sale discounts
► Section 15(h) of Model GST Law► Transaction value shall not
include any discount or incentivethat may be allowed after thesupply has been effected
► Such discount should beestablished as per theagreement and is known at orbefore the time of supply andspecially linked to relevantinvoices
► If an intimation for post-salediscounts is given before thesale is effected then whether anagreement is still needed?
► One to one co-relation with eachinvoice may be a challenge?
Legal position
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Treatment of natural losses
► Section 11 of Model GST Law► Central or State Government
may, by Rules under this sub-section, provide for remission oftax
► On such supplies which arefound to be deficient in quantitydue to natural causes
► Rules may specify the limitbeyond which remission may notbe available
► Whether losses duringmanufacturing would constituteself consumption / supply?
► Whether losses during storage(factory / warehouse) wouldconstitute self consumption /supply?
► Remission to be applied forlosses during transit?
► Each State and Centre mayspecify a remission limit
Legal position
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Questions
Thank you
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