Chapter I

1.1Introduction
1.1.1 About the topic
The core business of fuel companies is to extract petrol and petroleum products and make
them available through fuel dealers. There are three state-owned fuel companies in India.
They include HPCL, IOCL and BPCL. HPCL is headquartered in Mumbai and has about
25% market share in the country. BPCL is also headquartered in Mumbai. Indian Oil
Company has its registered office in Mumbai but is headquartered in Delhi. Each state has its
own price structure because of Value-added Tax (VAT). The revision of fuel prices will
occur using a mechanism called dynamic fuel pricing. Dynamic fuel pricing is basically a
daily revision system, where it takes into account the exchange rate and crude oil
rates. Although Goods and Services Tax (GST) has not been imposed on petroleum products
produced in Guwahati Refinery but it has been imposed on some of the sub-products. As
GST is not imposed on Petrol or diesel so it does not affect the pricing of petrol and diesel.
But because of the complexity in following both the tax structure, there is some difficulty
faced by the company. Moreover there is some disallowances regarding ITC in case of
Inputs, Input services and Capital goods as a result of which the profitability of the company
is affected negatively.

1.1.2. Company Profile

Indian Oil is India's flagship Maharatna national oil company with business interests
straddling the entire hydrocarbon value chain - from refining, pipeline transportation &
marketing, to exploration & production of crude oil & gas, petrochemicals, gas marketing,
alternative energy sources and globalization of downstream operations. It also has global
aspirations, fulfilled to an extent by the formation of subsidiaries in Sri Lanka, Mauritius, the
UAE, Sweden, USA and The Netherlands. It is pursuing diverse business interests with the
setting up of over 15 joint ventures with reputed business partners from India and abroad to
explore global opportunities. It is India's largest commercial enterprise, with a sales turnover
of Rs. 4,38,710 crores (USD 65,391 million) and profits of Rs. 19,106 crores (USD 2,848
million) for the year 2016-17. The improvement in operational and financial performance for
FY 2016-17 reflected in the market capitalization of the Company, which grew two-fold,
from Rs. 95,564 crores as on 31st March 2016 to Rs. 1,87,948 crores as on 31st March 2017.
In view of its rising share price and market capitalization, Indian Oil was included in the
Nifty50 index (NSE benchmark index of 50 best performing corporates). With a corporate
vision to be 'The Energy of India' and to become 'A globally admired company,' Indian Oil’s
business interests straddle the entire hydrocarbon value-chain – from refining, pipeline
transportation and marketing of petroleum products to exploration & production of crude oil
& gas, marketing of natural gas and petrochemicals, besides forays into alternative energy

1
and globalization of downstream operations. Having set up subsidiaries in Sri Lanka,
Mauritius and the UAE, the Corporation is simultaneously scouting for new business
opportunities in the energy markets of Asia and Africa. It has also formed about 20 joint
ventures with reputed business partners from India and abroad to pursue diverse business
interests. The Corporation has a 65% share of the bulk consumer business, and almost 6,500
dedicated pumps are in operation for the convenience of large-volume consumers like the
defence services, railways and state transport undertakings, ensuring products and inventory
at their doorstep. They are backed for supplies by 129 bulk storage terminals and depots, 101
aviation fuel stations and 91 LPG bottling plants.

Indian Oil continues to lay emphasis on infrastructure development and has been consistently
investing in several projects across the country. The dedicated project teams of IndianOil
ensure that implementation of the projects from the idea stage to commissioning is done
seamlessly. Right from conceptualisation to commissioning, all pipeline projects are being
implemented in-house. The projects are financed through an optimum mix of internal
accruals and borrowings from domestic as well as international markets.

The Indian Oil Board approved some significant refinery projects; these include revamp of
old units and installation of new units for production of superior BS-VI fuels in various
refineries at an expenditure of Rs. 15,400 crores; expansion of Barauni Refinery from 6 to 9
MMTPA; and capacity expansion of the PX/PTA (Paraxylene/Purified Terephthalic Acid)
unit at Panipat Refinery.The total planned capex for major projects in 2018-19 - Rs. 19,800
plus an additional Rs. 3000 crores for small projects.

IndianOil is currently metamorphosing from a pure sectoral company with dominance in

downstream in India to a vertically integrated, transnational energy behemoth. The
Corporation is already on the way to becoming a major player in petrochemicals by
integrating its core refining business with petrochemical activities, besides making large
investments in E&P and import/marketing ventures for oil & gas in India and abroad.

Guwahati Refinery is the first Public Sector Refinery of the country as well as IndianOil’s
first Refinery serving the nation. The Guwahati Refinery, also known as the Gangotri of
Indian Oilwas built with Rumanian assistance, the initial crude processing capacity at the
time of commissioning of this Refinery was 0.75 MMTPA and the Refinery was designed to
process a mix of OIL and ONGC crude.

In October 1981 Assam Oil Company was nationalized and has been amalgamated with
IOCL as Assam Oil Division (AOD). Indian Oil Corporation Limited, with a yearly turnover
of about 2 Lac Crores is the biggest Company in India in terms of sales. It has once again
topped the Indian Companies in the Fortune 500 list of Companies with a rank of 125. Indian
Oil is one of the Maharatna Company with business interests starting from refining, pipeline
transportation & marketing, to exploration & production of crude oil & gas, petrochemicals,
gas marketing, alternative energy sources and globalization of downstream operations. The
Indian Oil Group owns and operates 11 of India's 23 refineries, with a combined refining
capacity of 80.7 million metric tonnes per annum (MMTPA).

2
The products of the Refinery are Quality LPG, Motor Spirit, Aviation Turbine Fuel, Superior
Kerosene Oil, High Speed Diesel, Light Diesel Oil and Raw Petroleum Coke. According to
ISOM Project commissioned in 2010, the MS produced in the refinery ensures compliance to
BS III specifications. The Gangotri of Indian Oil is amongst those Indian Refineries who
have been rewarded with ISO-9001 certification of International Quality Standards as well as
ISO-14001, for Environment Management System and Occupational Health and Safety
Management System (OSHMS). The Integrated Management System (IMS) encompassing
ISO 9001, 14001, OHSAS-18001, ISRS ensures global standards of excellence in Quality
Management Systems.

Indian Oil Corporation (Indian Oil) is India's largest commercial enterprise, with a sales
turnover of Rs. 4,38,710 crores (USD 65,391 million) and profits of Rs. 19,106 crores (USD
2,848 million) for the year 2016-17. The improvement in operational and financial
performance for FY 2016-17 reflected in the market capitalization of the Company, which
grew two-fold, from Rs. 95,564 crores as on 31st March 2016 to Rs. 1,87,948 crores as on
31st March 2017. In view of its rising share price and market capitalization, Indian Oil was
included in the Nifty50 index (NSE benchmark index of 50 best performing corporates). With
a corporate vision to be 'The Energy of India' and to become 'A globally admired company,'
Indian Oil’s business interests straddle the entire hydrocarbon value-chain – from refining,
pipeline transportation and marketing of petroleum products to exploration & production of
crude oil & gas, marketing of natural gas and petrochemicals, besides forays into alternative
energy and globalization of downstream operations. Having set up subsidiaries in Sri Lanka,
Mauritius and the UAE, the Corporation is simultaneously scouting for new business
opportunities in the energy markets of Asia and Africa. It has also formed about 20 joint
ventures with reputed business partners from India and abroad to pursue diverse business
interests. The Corporation has a 65% share of the bulk consumer business, and almost 6,500
dedicated pumps are in operation for the convenience of large-volume consumers like the
defence services, railways and state transport undertakings, ensuring products and inventory
at their doorstep. They are backed for supplies by 129 bulk storage terminals and depots, 101
aviation fuel stations and 91 LPG bottling plants.

Vision with Values

Indian Oil’s ‘Vision with Values’ encompasses the Corporation’s new aspirations – to
broaden its horizons, to expand across new vistas, and to infuse new-age dynamism among its
employees. Adopted in the company’s Golden Jubilee year (2009), as a ‘shared vision’ of
Indian Oil People and other stakeholders, it is a matrix of six cornerstones that would
together facilitate the Corporation’s endeavors to be ‘The Energy of India’ and to become ‘A
globally admired company.’ More importantly, the Vision is infused with the core values of
Care, Innovation, Passion and Trust, which embody the collective conscience of the company
and its people, and have helped it to grow and achieve new heights of success year after year.

3
1.1.2. Indian Taxation System
India has got a well-structured and simplified taxation system also called as a three-tier
federal structure where an authoritative segregation has been done among the Central,
State Governments as well as the Local Bodies. According to Article 256 of the
constitution, “No tax shall be levied or collected except by the authority of law”. The
Department of Revenue under the Government of India's Ministry of Finance is
responsible for all matters relating to levy and collection of direct as well as Indirect
Taxes. This department levy taxes on individuals or organizations for income, customs
duties, service tax and central excise. However, the agriculture based income taxes are
levied by the respective State Governments. Local bodies have got the power to compute
and levy taxes on properties and other utility services like drainage, water supply and
many others. The past 15 years have witnessed tremendous reformations of the taxation
system in India. Apart from the rationalization of the rates of tax, simplification of the
different laws of taxation has even been done during this period. However, the process of
tax rationalization is still in progress in the Republic of India.

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 Chapter II

2.1. Literature Review

In a study conducted by Benix Kanjiravila.T, titled ‘A Study on GST and Its Impact on the
Sales Tax Revenue of Kerala’, Goods and Services Tax (GST) is expected to be a historical
movement in Tax reforms. Main objective of that new tax regime is to avoid multiple taxes
on same goods and services. Introduction of this destination based consumption tax will
stimulate Indian industry and ensure its overall economic development and growth. The study
estimated a positively correlated growth in GSDP of Kerala and Sales tax revenue. Impact of
GST regime on GSDP of Kerala is to be significant in coming years.

Pinki, SupriyaKamna, RichaVerma (2014) studied, “Goods and Service Tax- Panacea For
Indirect Tax System in India” and summarized that the BJP govt. is very positive towards
the implementation of GST and it is beneficial to all i.e. central government, state
government and as well as for consumers in long run if it is implemented in a proper manner
with the help of strong Information Technology. Kumar (2014) studied, “Goods and Service
Tax - A way forward” and summarized that after the implementation of new taxation system
of India will subsumed most of the indirect taxes and there will be one tax i.e. GST which
aims to transparency and unbiased tax structure.

Agogo Mawuli (May 2014) studied, “Goods and Service Tax-An Appraisal” and found that
Goods and Services Tax is not good for low-income countries and does not provide broad
based growth to poor countries. If still a country wants to implement GST then the rate of
GST should be less than 10% for growth.

Dr. R. Vasanthagopal (2011) studied,“GST in India: A Big Leap in the Indirect Taxation
System” and concluded that switching to seamless GST from current complicated indirect tax
system in India will be a positive step in booming Indian economy. Success of GST will lead
to its acceptance by more than 130 countries in world and a step to choose the new form of
indirect tax system in Asia also.

Ehtisham Ahmed and Satya Poddar (2009) studied, “Goods and Service Tax Reforms and
Intergovernmental Consideration in India” and found that GST introduction will provide
simpler and transparent tax system with increase in output and productivity of economy in
India. But the benefits of GST are critically dependent on rational design of GST.

Nitin Kumar (2014) studied, “Goods and Service Tax- A Way Forward” and concluded that
implementation of GST in India help in removing economic distortion by current indirect tax
system and expected to encourage unbiased tax structure which is indifferent to geographical
locations.

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2.2. Research Gap
The scope of the study is limited to Refinery Division of Indian Oil Corporation of India,
Guwahati. It will particularly focus on the impact of GST on refinery division for its
implementation and the challenges faced by the company in the process of implementing the
new tax system. There is no research has been taken place in respect of impact of GST on
IOCL. It’s been a year, where the company is following both the current as well as previous
taxation system. There are some advantages and some disadvantages that the company is
getting through this taxation system. So, this study tries to analyze both the situations. The
study also helps in making futuristic view point on the impact of GST on near future on the
Oil and Gas Industry.

2.3. Objectives
1. To study the Probable impact of GST on the Tax expenses of Guwahati Refinery
division of IOCL.
2. To study how Input Tax Credit affects the profitability of Guwahati Refinery division
of IOCL.
3. To study the dual taxation system and challenges of Guwahati Refinery division of
IOCL as a result of GST.

2.4. Significance of the problem

GST is an evolutionary step taken by Govt. of India to make a single step to the
simplification of indirect tax system in India. Many states hesitate to adopt and implement the
new tax system because of its confusion regarding revenue sharing among different states and
also the uncertainty about the compensation of revenue loss by the states. Assam is the first
state which had given the first approval in the parliament house.

The research tries to study the probable impact on tax expenses of Indian Oil Corporation
Ltd, Refinery Division and how they try to manage such complexity in Input Tax Credit. The
study focuses on the impact of implementation of GST and its impact on profitability, Tax
Liability and what will be the probable impact if GST includes the petroleum, crude oil and
Aviation Turbine Fuel etc. which are not under the purview of GST now. This study also tries
to focus on the challenges faced by the company as it has to follow both current tax system
i.e. GST and old tax system i.e. Excise Duty and VAT five petroleum products viz crude oil,
natural gas, motor spirit, high-speed diesel and aviation turbine fuel have been excluded from
the GST, while there are some products such as liquefied petroleum gas (LPG), naphtha,
kerosene, fuel oil etc. are included. It will cause an additional cost to the company which can
be termed as compliance cost. More over the proportionate ITC affects the profitability of the
company in an unsatisfactory manner.

6
2.5. Limitation of study
It has been a year since which the new tax system is implemented. So, there will be some
problem that the company might face at the time of implementation but the actual impact can
be clearly observed when it becomes normal. The clear picture can be observed after a period
of time. With the passes of time, it can be observed more appropriately. Moreover, the data
are available for nine months only because of which best result cannot be drawn.

2.6. Research Methodology

2.6.1. Research Design
A research design is conceptual structure within which the research is conducted; it constitute
the blue print for the collection, measurement and analysis of data. To achieve the objective
of the study, a scientific research design has been adopted. All the available information is
collected in a systematic manner and has been analyzed with proper techniques.

2.6.2. Data Collection

The study adopts qualitative, quantitative, exploratory research approaches in achieving the
predetermined objectives. Data are collected from both primary as well as secondary sources.

a. Primary data:

For qualitative data, personal interview has been taken to the senior officials of Finance
Department of the Company. From the official websites, all the data relating to excise duty
are collected. As these are the main tax which the division is concerned about and have
impact on the operation of the business. All the GST related data are collected from Finance
Department of the company.

b. Secondary data:

Secondary data refers to data that was collected by someone other than the user. For
quantitative data, the data are collected directly from Central Board of Excise and Customs,
Ministry of Finance, Department of Revenue. To provide support throughout the project
various journals, newspaper, articles, website of the company etc. Various information like
tax rates, products and also the process has been taken into consideration.

c. Data analysis technique

The study adopts various data analysis techniques namely pie chart, stacked line, clustered
column and tables. Tabulation is used as makes the data brief and when mass data is collected
it will be helpful to present. Tabulation makes complex data simple and as a result of this, it
becomes easy to understand the data.

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 Chapter III

3.1. Discussion:
3.1.1 Goods and Services Tax

Goods and Services Tax (GST) is a type of simplified Value added Tax on goods and
services which is levied at country level. The main objective of this indirect tax is to avoid
multiple taxation on same goods and services i.e. cascading effect. This destination based
indirect tax will stimulate Indian industry and ensure overall economic development and
growth of our country.

Introduction and implementation of GST at the both central and state level has been
considered as a major step for a country like India where center and state govt. used to collect
different indirect tax. However, the main concept of GST is not a new one. At first, GST was
implemented in France. Till now, almost 150 countries have introduced GST in some form.
Some countries like Singapore and New Zealand have GST with a single rate, whereas
Indonesia have a five tier rate system. In China, GST is applicable only to goods and the
provision of repairs, replacement and processing services.

In case of India, the amount of tax will be charged on the value addition amount i.e. GST will
be charged at different stages of production of goods and services. The provision of Input Tax
Credit (ITC) is also there in the system through which one can claim the benefit of the tax
amount which has already been paid by the previous supplier. GST is introduced in the
country through 4 different types-

a) CGST (Central Goods and Services Tax)- collected by the Central Government on
intra state supply.
b) SGST (State Goods and Services Tax)- collected by the respective State Government
where goods and services have been consumed.
c) IGST (Integrated Goods and Services Tax)- applicable on interstate supply of goods
and services and collected by the Central Government.
d) UTGST (Union Territory Goods and Services Tax) – applicable on the transaction
relating to any union territory.

In the previous regime, Central and State Govt. collected different types of indirect tax. At
first when Goods were manufactured, Excise duty was charged which was collected by the
Central Government. After that, if there was interstate transfer of goods, Central Sales Tax
(CST) was levied by the Central Government or if there was intra state transfer, then VAT
was charged by the respective State Government. Different State have different rates of VAT
depending on their need. Service Tax was applicable in case of transfer of services, collected
by the Central Government. Apart from these, there were many other indirect taxes like
entertainment tax, octroi and local tax that was levied by state and center. This leads to

8
overlapping of tax on the same commodity which is also known as cascading effect of
taxation.

Due to the implementation of GST in the country, it has subsumed all these different taxes or
in other words GST has brought all the indirect taxes under one single umbrella.

The following is the list of indirect taxes in the pre-GST regime:

1. Central Excise Duty

2. Duties of Excise
3. Additional Duties of Excise
4. Additional Duties of Customs
5. Special Additional Duty of Customs Cess
6. State VAT
7. Central Sales Tax
8. Purchase Tax
9. Luxury Tax
10. Entertainment Tax
11. Entry Tax
12. Taxes on advertisements
13. Taxes on lotteries, betting, and gambling

Now, we have only GST in the form of CGST, SGST/UTGST or IGST which is charged
depending on the situations. In India, GST is also known as multi tiered system as there are 5
different rates of GST applicable in India. 0% or null rate is charged on essential products,
5% on the mass consumption items, 12% and 18% are standard rates and 28% of tax is levied
on some luxury items and demerit items or sin goods.

There are some products which are outside the purview of GST. They are

 Petroleum crude;
 High-speed diesel;
 Motor spirit (commonly known as petrol);
 Natural gas
 Aviation turbine fuel; and
 Alcoholic liquor for human consumption.

9
GST rates of some countries are given below.

Country Rate of GST

Australia 10%
France 19.6%
Canada 5%
Germany 19%
Japan 5%
Singapore 7%
Sweden 25%
New Zealand 15%

World over in almost 150 countries, there is GST or VAT, which means tax on goods and
services. Under the GST scheme, no distinction is made between goods and services for
levying of tax. In other words, goods and services attract the same rate of tax. GST is a
multi-tier tax where ultimate burden of tax fall on the consumer of goods/ services. It is
called as value added tax because at every stage, tax is being paid on the value addition.
Under the GST scheme, a person who was liable to pay tax on his output, whether for
provision of service or sale of goods, is entitled to get input tax credit (ITC) on the tax
paid on its inputs.

Salient features of the GST model Salient features of the proposed model are as follows:

 In India, GST shall have two components: one levied by the Centre (CGST), and the
other levied by the States (SGST).
 The Central GST and the State GST would be applicable to all transactions of goods
and services made for a consideration except the exempted goods and services.
 Since the Central GST and State GST are to be treated individually, cross utilization
of ITC is not permitted. The ITC relating to CGST can be utilized for payment of
CGST only, not for payment of SGST and vice versa. The ITC of IGST first to be
utilized for payment of IGST, then to be used for CGST and at last if remains, to be
used for SGST.
 Ideally, the problem related to credit accumulation on account of refund of GST
should be avoided by both the Centre and the States except in the cases such as
exports, purchase of capital goods, input tax at higher rate than output tax etc.
 The respective legislation for CGST and SGST have prescribed the uniform
procedure for collection of both CGST and SGST
 For the benefit of small taxpayer, there is also a composition scheme under which
suppliers have to pay a fixed rate of tax on their turnover. However, the benefit of ITC
will not be applicable to those taxpayers.
 The periodical returns have to be submitted by the taxpayer, in common format, to
both Central and State authority.
 Each taxpayer is allotted an identification number after registration which is known as
GSTIN and it is based on the PAN of the taxpayer.

10
The main objectives to implement the proposed GST shall be –

1. One of the main objectives of GST would be to eliminate the cascading impact of
taxes on production and distribution cost of goods and services.
2. Ensuring the availability of Input Tax Credit across the supply chain.
3. Reducing the complication of tax administration and compliance.
4. Making a single roof for all indirect taxes, laws and procedures across the country.
5. Reducing unhealthy competition among the states due to difference in sales tax
revenue.
6. Reducing the tax slabs to avoid further clarification issues in the process.

3.1.2. GST Council

GST council is simply a federal body which will take all important decisions relating to GST.
This federal body will have representative from both center and state. The decisions which
are taken at the GST council first go to cabinet then it goes to the parliament for its final
approval.

 It is set up by president under article 279-A. It is chaired by union finance

minister.
 The members of the GST Council is Union Finance Minister( Chairman) and
minister in charge of finance or taxation or of any other field nominated by state
Governments.The votes of the central government shall have the weightage of
1/3rd of the votes cast and the votes of all states taken together shall have a
weightage of 2/3rd of the total votes cast in the meeting.
 Every decision in the GST council shall be taken at a meeting on the basis of
majority which will not be less than 3/4th of the weighted vote of the members
present.
 It will make recommendations on a) The taxes, surcharges and cesses levied by
the center, the states and the local bodies which will be subsumed under GST. b)
Goods and services which will be exempted from GST c) Interstate supply –the
procedure of distribution of IGST between Central and State; d) The threshold
limit of turnover below which goods and services may be exempted from GST; e)
GST floor rates; f) Provision with respect to special category states specially north
east states
 It may also work as Dispute Settlement Authority for GST.

3.1.3. Advantages of GST

It is expected that GST will mainly remove the Cascading effect on the sale of goods and
services. This will directly impact on the cost of goods. As tax on tax which has been charged
earlier, will be removed.

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The entire system of GST is dependent on the GST Portal. Starting from registration to return
filling and submitting application for refund, all the activities is done online on the portal.

Reasons for ineffective fiscal performance of Union government are continuous decline in
indirect tax revenue in GDP. Indirect tax buoyancy of prominent states was improved well
above the level of Union government since 2008-09. Upcoming GST envisaged that central
government will share their indirect tax buoyancy with state governments at predetermined
rate and vice versa. This might be a win- win situation for all the parties of the tax system.

3.2. Overall Impact of GST

There are many instances which depicts the picture of impact of the new indirect tax regime
on common people of our country. For example, before the implementation of the GST, the
rate of tax on package products was just 4-5% but now it is charged at 18% after the
implementation of GST which ultimately depicts the result of increase in the cost which in
return directly affects negatively the common people of our country. But in case of cars, it
will show an opposite picture as before the implementation of GST, tax rate of cars was 30%-
44%, but after the implementation of the GST it is charged at 18% which means there would
be no impact of GST on rich people.

Tax Rate of various Products before and after the implementation of GST.

Products Before GST After GST

Mobile & credit cards 15% 18%

Cars 30-44% 18%

Home appliance 12.5% & 14.5% 18%

(Excise &VAT)
Food 12.5% 5%
Entertainment 30% 28%

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Transportation 15% 18%
Household personal care 28% 18%
Mobile phone services 15% 18%
naphtha, fuel oil 7% for NE and 14% for other 18%
LPG for domestic use 4% 5%
LPG other that domestic 9% 18%
use
Kerosene 2% 5%

The above table reveals that there are some goods and services where the impact of GST is
positive and some goods and services it is negative. Particularly for the oil and gas industry,
for the goods and services which has already been included under the purview of GST, there
is an increase in the rate of taxes under GST. Although the rate of increment is not that
significant but it will definitely cost to the general public.

3.4. Impact of GST on Various Sectors

The GST is said to have a positive impact on the economy as a whole. But when it comes to
sectoral-wise classification, the GST have both positive as well as negative impact on each of
the sectors. Here are some sectors given and its GST is given below.

a. Technology (Information technology and ITeS):

The new indirect tax system has made the duty on the manufacturing goods
from 14% to 18-20%. As a result, the prices of the software products has gone
up which will give either a neutral or slightly negative impact on the
Technology Sector as a whole. But the sector will be benefited through the
reduction of tax and benefits of other industries and can somewhat mitigate it.

b. Telecommunications:

The telecommunications sector was paying the tax at the rate of 14% which
has been increased during the GST regime. Present rate of under new tax
regime is 18% which is to be passed over to the customers and this gives a
picture that GST will adversely affect this sector.

c. Pharmaceuticals:

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 Earlier, the Pharma companies are paying taxes at 5% and 12%.
Pharmaceutical products will be charged 12 per cent GST as against earlier
rate. Most of the drugs mentioned under the bracket of 5% are used to cure
malaria, HIV-AIDS, tuberculosis, and diabetes which were previously charged
VAT around 4%.

d. Automobiles:

The Automobile industry is currently paying a tax rate of a range between 30-
45%. And after GST the rate will be around 18% which will be a huge positive
for the automobile industry and which will be protable to both the
Manufacturers/dealers and the ultimate consumers. The standard and the social
status of the consumers get uplifted. There will be a huge boom in the
Automobile Industry as a result of implementation of Goods and Services Tax.

e. Financial Services:

The Financial services such as banking, Stock Trading firms are currently
paying 14.5% as VAT which is likely to be increased to 18 to 22% in the near
future under the GST regime. And the services are likely to be costlier.

f. Textiles:

Currently, the Textile industry is paying the tax at the rate of nearly 12.5%
plus surcharges and which varies upon the MRP of the products. But after the
GST, the rates of 15% which will be having a moderate impact on the
industry. This moderate impact may either be neutral or slightly negative when
compared to the other present system of taxation. But they will be benefited
through the reduction of cost in transportation, savings etc.

g. Real estate:

Real estate contributes about nearly 7.3% of India’s GDP and it is the largest
generator of employment immediately after IT. Real estate is said to get a
positive impact under the GST regime immediately after its implementation. It
is expected that since there is a single system of Taxation under GST, all other
forms of indirect taxation will be removed which results on reduction of
property prices and the cost of construction. Thus, we can have a positive
impact of GST on the Real estate sector.

h. Consumer durables: The current of tax rate of this industry is around the
range between 23-25%. And under the GST regime it is considered to be
lower around 15- 18% which will be positive impact to this industry.

14
3.5. Impact on Input Tax credit of Oil and Gas Industry
GST has a direct impact on the input tax credit of the company. The company has to follow
both the tax system i.e. current tax system GST for those products which are included in the
purview of GST and old tax system i.e. Excise duty. According to Federation of Indian
Petroleum Industry (Petro Fed), Oil and gas companies are expected to take Rs 15,000-crore
hit by the new Indirect Tax regime. It also added that GST will negatively impact
downstream sector by Rs 8,000 crore. The outputs of Indian Oil , Refinery division i.e.,
petrol, diesel, Aviation Turbine Fuel and High Speed Diesel, Light Diesel Oil and Raw
Petroleum Coke are not under the Goods and Services Tax (GST) and continue to attract
excise duty, central sales tax and state VAT. In the GST system, firms pay their output taxes
not just in cash, but also by utilizing the input tax credits (ITC). But if outputs are outside
GST, the entire ITC can’t be utilized in this process which has direct negative impact on the
profitability of the company. The company is not able to get full ITC on the equipment, store
items, capital goods, and office expenses, administrative expenses that is purchased or
consumed by it. The company is allowed ITC on proportionate basis only and not the full
ITC. The company cannot utilize 100% ITC by and only proportionate ITC can be utilized,
which has a cumulative large impact on the financial performance of the business.

As per the Rule 42 of CGST rules, if a person is engaged in supply of taxable as well as non-
taxable good and services then the credit of input taxes would be available proportionately.
Sec 17(2) of the CGST Act, 2017 provides that where the goods or services are used partly
for effecting taxable supplies (including zero rated) and partly for exempt/ non-business use
then the amount of credit as attributable to exempt supplies or non-business use shall be
reversed as per Rule 42/43 of the CGST Rules, 2017. Rule 42 also specify the manner under
which the input tax credit should be claimed.

3.6. Input Tax Credit of Guwahati Refinery of IOCL

As GST has negatively impacted the Oil and Gas industry, so IOCL also has the same in case
of ITC. The refinery is purchasing a lot of goods and also involve in getting the services, as a
result of which they have to pay the taxes. But because of the complexity of the ITC, full ITC
cannot be claimed as a result it will directly affect the profitability of the business. From the
following table and graphs it can be easily understood.

Amount in Crores

Months Sum of Integrated Tax Sum of Central Tax Sum of State Tax Total
August 0.66 0.074 0.074 0.81
September 1.32 0.30 0.30 1.94
October 0.47 0.34 0.34 1.16
November 3.19 0. 40 1. 40 3.99

15
December 3.42 1.49 1.49 6.42
January 2.60 0.80 0.80 4.21
February 2.82 0.82 0.82 4.46
March 5.48 1.68 1.68 8.86
Grand Total 20.01 5.93 5.93 31.88
Fig: ITC on IGST, CGST, SGST to be claimed before disallowance

The above table shows the total amount of ITC to be getting through the transaction whether
Inter or Intra state transactions starting from August, 2017 to March 2018 as GST has been
implemented in July, 2017. As GST tries to consolidate multiple taxes under one roof, it is
very essential to have transitional provisions to ensure that the transition from old system to
the GST regime is very smooth and hassle-free and no ITC (Input Tax Credit)/benefits earned
in the existing regime are lost. There was a systematic process followed by the division.

Total ITC before disallowance

100000000.00

Sum of Integrated Tax Sum of Central Tax Sum of State Tax #REF!
90000000.00

80000000.00

70000000.00

60000000.00

50000000.00

40000000.00

30000000.00

20000000.00

10000000.00

0.00
Aug Total Sep Total October total November December January total February total March total
total total

Fig 1:Total ITC before dis allowance

The above graph depicts the flow of ITC of the division from August 2017 to March 2018.
The graph reveals that there is gradual increment in the amount of Input Tax Credit of the
division. Input tax credit is highest in the month of March amounting to Rs. 88663212.79 and
lowest in the month of August 2017 as it was an initial month. But the above figures are not
the actual ITC that the Refinery division is getting. As there is a provision of proportionate

16
ITC under GST for Oil and Gas industry which is discussed above will be applicable in this
case. As a result of which the total amount ITC is reduced and it directly affects the financial
position of the business. The following table shows the actual Input Tax Credit that the
company is getting.

350000000

300000000

250000000
Sum of ITC to be claimed
Sum of disallowed ITC
200000000

150000000

100000000

50000000

0
Aug Total Sep Total October November December January February March Total
total total total total total total

Fig 2: Total ITC with disallowance

The above graph shows the total actual ITC along with the disallowance because of the
proportionate as per Rule 42 of CGST rules. The months are shown on the X axis and amount
in Rs. on Y axis. There is a huge amount of disallowance because of which the profit of the
company is affected negatively. The following table shows the disallowance percentages for
each month.

Months TotalITC(Rs in Crores) Disallowance(Rs in Crores) Percentage

August 0.81 0.40 49.92%
September 1.94 1.27 65.85%
October 1.16 0.90 77.89%
November 3.99 1.40 70.09%
December 6.42 3.28 61.15%
January 4.21 2.25 53.63%
February 4.46 2.33 54.31%
March 8.86 5.93 66.96%
Total ITC, Disallowance and Percentage

17
On an average, out of the total Input Tax credit 64.37% will be disallowed because of the
proportionate rule. The actual percentage is around 75% as the total ITC of above tables
includes all types of ITC like Full ITC, Proportionate ITC and Nil ITC as a result of which
the actual impact is reduced to 64.37%. Moreover because of the limitation of the availability
of the data regarding the rest of the month, it cannot be shown actual picture of the actual
disallowance. In the month of October, the disallowance percentage was the highest i.e.
77.89%. It indicates that in this month most of the goods or services that the company has
purchase/received did not attract much proportionate of ITC. From the above table it can be
concluded that the new tax regime has impacted negatively.

NET INPUT TAX CREDIT

Sum of Net IGST Sum of Net CGST Sum of Net SGST
30000000.00

25000000.00

20000000.00

15000000.00

10000000.00

5000000.00

0.00

Fig 3: Net Input Tax credit received

The above diagram depicts the scenario of net ITC received by the Guwahati Refinery. The
interstate transactions provide highest Input Tax Credit in comparison to CGST and SGST.
The CGST and SGST show the similar trend which means there is no such significant
difference between the Input Tax Credit of CGST and SGST. It signifies that there is more
interstate transaction taken place in comparison to Intra State transactions.

There are different types of transactions where different rate of GST rate has been applied as
a result of which the proportion is changing. There are rates like 3%, 5%, 12%, 18%, 28% etc
under which some of them are for full ITC and some of them for proportionate and Nil ITC.
The following table shows the number of transactions related to above tax rates and also the
respective no of transaction where the Full/Proportionate/ Nil ITC have been received.

18
Tax Type of ITC Transacti Total Total ITC Total Rever
Rate ons Taxable Disallowance se
Ratio
3% ITC(PROPORTION 1 42500.00 0.00 956.25 75%
ATE )
ITC (100%) 147 1137704667. 1205440.58 0.00 0%
49
5% ITC(NIL%) 356 35246033.35 0.00 0.00 100%
ITC(PROPORTIONATE 261 136057941.7 692152.32 4865665.44 71.62
) 3 %71.9
8%73.
10%73
.25%7
5%
77.58
%
77.89
%
ITC (NIL%) 130 2230601.13 0.00 0.00 100%
ITC(PROPORTIONATE 200 18807957.01 1668998.10 13537221.57 71.62
) %71.9
8%73.
10%73
12% .25%7
5%
77.58
%
77.89
%
ITC (100%) 1 70476.30 8457.16 0.00 0%
ITC (100%) 55 24243607.35 0.00 0.00 0%
ITC (NIL%) 341 200574355.8 0.00 0.00 100%
5
ITC(PROPORTIONATE 4309 1154399421. 112174483. 144476928.6 71.62
) 69 02 4 %71.9
18% 8%73.
10%73
.25%7
5%
77.58
%
77.89
%

19
 ITC (100%) 3 30746.09 1449.00 0.00 0%
ITC (NIL%) 82 1460103.82 0.00 0.00 100%
ITC(PROPORTIONATE 791 74929133.85 2016004.26 14919995.42 71.62
) %71.9
28% 8%73.
10%73
.25%7
5%
77.58
%
77.89
%
Total 6675 2785837474 178122061.5
Full/Proportionate/ Nil ITC along with total transactions

The above table depicts the overall scenario of ITC of Guwahati Refinery where there are
different types of tax rate are given and for each tax rates there are various kinds of Input Tax
Credit Mechanism. There are more than 6000 transaction (accurate is not available) where
there is Rs. 178122061.51 disallowance of Input Tax Credit. There are more than 5000
transactions where there is proportionate ITC is available and disallowance of Rs.
116552593.95 directly impact on the profitability. Moreover, there are 912 transactions
where the ITC is NIL so from the whole amount of net tax nothing will be deducted.

3.7. Impact of Disallowance on the Profitability

The amount of disallowance has directly impact on the profitability of the company. The last
two years profit figures are

2016-17 473.90 crores

2017-18 623.96 crores

There is increment in the profitability of the company. But the profit for the year 2017-18
could be more if there is no disallowance in the GST. The total amount of disallowance is Rs.
178122061.51. If there is no disallowance the total profit for 2017-18 would be Rs.
6239778122061.51

20
3.7. Categories of Transaction (Intra State, Inter State, Import)

As per the data available on listing of Invoices there are total 4917 transactions divided in 3
categories i.e. Interstate, Intrastate and Import. The following table shows the details of the
same.

Total Number of Months Interstate Intrastate Import

transactions Transaction Transaction
35 August 7 28
325 September 147 178
212 October 54 159
567 November 303 263
787 December 401 387
635 January 387 248
665 February 317 348
1693 March 1018 587 88
4917 2632 2197 88
Month wise Intra State, Inter State, Import

The above table shows the transaction taken place between the state, within the state and
from outside the country. From the above table it can be easily said that the import has been
taken place only in the month of March. There is more interstate transaction than the
intrastate transaction. In the month of March, there are highest numbers of transaction taken
place. The following diagram shows the overall picture of the transaction.

Transactions
2%

Interstate
45% Intrastate
53% Import

Fig 4: Intra State, Inter State, Import

It can be also shown month wise in the following manner.

21
 100%
88
90%
80% 248
263 387 587
178 348
70%
60% 159
28
50%
40%
30% 387 1018
303 401
147 317
20%
10% 54
7
0%
August September October November December January February March

Interstate Transaction Intrastate Transaction Import

Fig 5: Month wise Intra State, Inter State, Import

3.8. Double compliance cost

The Guwahati Refinery falls under such industry which has to adopt both current as well as
old tax system. It has to comply both the tax system. As five petroleum products viz crude
oil, natural gas, motor spirit, high-speed diesel and aviation turbine fuel have been excluded
from the GST, while other products such as liquefied petroleum gas (LPG), naphtha,
kerosene, fuel oil etc. are included. As a result of which the operating cost will increase.
According to Jigar Doshi, Partner, SKP Business Consulting, and a GST expert “For smooth
transition to GST, the government should aim at reducing compliance cost for business. Then
only, GST will actually bring ease of doing business.” A joint report of ICRA and
ASSOCHAM mentioned that the oil and gas sector will have to follow both current tax
scheme and GST tax scheme which will increase the compliance cost almost double for the
sector.The compliance cost by way filing returns, audit, reconciliation of input tax credit etc.
is more in GST. However, this cannot be quantified in monitory terms.

22
 Products of the Rates under Applicability of GST
refinery GST
LPG Dom 5% Goods and Service tax is
(Liquefied applicable
Petroleum Gas
Domestic)
LPG Non-Dom 18% Goods and Service tax is
(liquefied Petroleum applicable
Gas Non-Domestic)
Kerosene PDS 5% Goods and Service tax is
applicable
Kerosene Non-PDS 18% Goods and Service tax is
applicable
High Speed Diesel - Goods and Service tax is not
applicable
MS (Motor Spirit) - Goods and Service tax is not
applicable
ATF (Aviation - Goods and Service tax is not
Turbine Fuel) applicable
Raw Petroleum 18% Goods and Service tax is
Coke applicable
Sulphur 18% Goods and Service tax is
applicable
Naphtha 18% Goods and Service tax is
applicable
List of Products of Guwahati Refinery along with GST rates

The above table shows the complexity of the entire taxation system of the company as there
are products where GST is applicable and there are some products where GST is not
applicable. The Refinery has to follow both taxation system as a result of which the
compliance cost goes up.

3.9. Continuation of C Form

GST has subsumed a number of tax among which Central Sales Tax Act 1956 is also one of
them. The main feature of CST Act is that it allows concessional sale @2% (as of now)
through the issue of C Form. C Form of Central Sales Tax Act can be issued under section 8
of CST Act 1956. Section 8(1) allows goods to be sold at concessional rate of 2% if such
goods satisfies the condition as mentioned in section 8(3). Section 8(3)(b) and 8(3)(c)
provides that goods can be sold at concessional rate of 2% if it fulfills conditions stated
below:

1) Goods of the class or classes specified in the Certificate of Registration of the registered
dealer purchasing the goods

2) Goods are intended for

 re-sale by him

23
  use by him in the manufacture or processing of goods for sale
 in the telecommunications network
 in mining
 in the generation or distribution of electricity
 in the generation or distribution of any other form of power
 being used for the packing of goods for sale

Section 2(d) defined goods as “goods” includes all materials, articles, commodities and all
other kinds of movable property, but does not include Newspapers, actionable claims, stocks,
shares and securities.

Recently, TheTaxation Laws (Amendment) Act, 2017 was published on 05.05.2017, in which
following changes has been made as far as CST Act 1956 is concerned. The definition of
Goods under section 2(d) has been amended and redefined as below.

 Goods means—
 Petroleum crude;
 High speed diesel;
 Motor spirit (commonly known as petrol);
 Natural gas;
 Aviation turbine fuel; and
 Alcoholic liquor for human consumption.

So, if the Refinery purchase or sell any one of the above-mentioned goods from or to any
other states then it can issue C form of CST act to get the concession. Following are the two
real life cases relating to C form.
Hindustan Petroleum Corporation Limited has purchased HSD (diesel) from Indian oil
(IOCL) on CST basis for resale. The question will be whether HPCL can purchase diesel at
concessional rate of 2%.
Under the existing as well as revised definition of goods u/s 2(d), diesel is well covered under
the definition of Goods and since such purchase is made for resale so it satisfies the
requirement conditions of section 8 as well.
Hence now as well as after the Taxation Laws (Amendment) Act, 2017 is brought into force,
HPCL can purchase diesel (i.e HSD) on CST basis @2% against C form.
United Beverages Ltd, Alcoholic liquor for human consumption manufacturing company
purchases HSD i.e Diesel from IOCL (Indian Oil) to be used for generation of power in the
manufacturing plant. Here again question arises that whether the company can purchase
Diesel (i.e HSD) on CST basis against C form or not!
Under the existing as well as revised definition, Alcoholic liquor for human consumption is
well covered under the definition of Goods u/s 2(d).

24
If diesel is purchased for generation of power in the manufacturing plant then it satisfies the
requirement of section 2(d) as well as section 8 of the CST Act 1956 and ideally the company
is eligible to purchase HSD (diesel) against C form @ 2%.
However, if diesel is purchased for use by company itself in the manufacture or processing of
goods for sale, (and not for generation of power in the manufacturing plant) then even such
manufactured or processed good (i.e Alcoholic liquor for human consumption) meet the
requirement of revised definition of goods u/s 2(d) and hence the company would be able to
purchase diesel (i.e HSD) on CST basis @2% against C form.
Hence, we can conclude that if HSD (i.e diesel) is purchased after The Taxation Laws
(Amendment) Act, 2017 is brought into force, then C form can be issued when HSD (diesel)
is going to be used for following purposes only.
a. re-sale by him
b. use by him in the manufacture or processing of goods for sale (Here such manufactured or
processed goods has to be either Petroleum crude or High-speed diesel or Motor spirit
(commonly known as petrol) or Natural gas or Aviation turbine fuel or Alcoholic liquor for
human consumption)
c. in the telecommunications network
d. in mining
e. in the generation or distribution of electricity
f. in the generation or distribution of any other form of power

3.10 Reason for not inclusion of Petroleum products under GST

One of the tough situations for Government is to whether it should include the petroleum
product under the purview of GST or not to include it at all. Because from both side, the
government has to suffer from the criticism. The problem is that the effective sales tax on
fuel varies wildly from state to state. For instance, Maharashtra charges 40% on petrol while
Andaman and Nicobar charges just 6% ad valorem. The effective sales tax on diesel ranges
from 6% to 29%. This means that each and every hike in crude oil price brings more revenue
to the respective states. The Central Government charges a fixed amount of Rs 19.48 on per
litre of petrol and Rs 15.33 on diesel across the country. The total levies imposed together are
nearly 60% (Business Today in New Delhi, April 2, 2018,10:37 IST). It also added that if the
central levy and dealers commission is added, the amount goes up to nearly 100% over the
real cost of fuel. Now, if petroleum is included under the GST regime, then the Revenue
Neutral Rate (RNR) could be as high as 100%.Such a high GST on fuel will not be
acceptable. Because once subsumed in GST, fuel will cost the same across the country. The
consequence of the same is that all the states with lower sales tax at present will see a sharp
rise in prices, which will be political suicide for the ruling parties. States are also unlikely to

25
agree to reduce their state levies on fuel since most of them are facing revenue deficit since
the launch of the new tax regime.

Most interestingly, the recent article on livemint told about the non-inclusion of Petroleum
products under GST. According to the article Petrol and diesel will not come under the
purview of Goods and Services Tax (GST) in the immediate future as neither the central
government nor any of the states is in favour on fears of heavy revenue loss. If the two fuels
are put under GST, the Centre will have to let go ₹ 20,000 crore input tax credit it currently
pockets by keeping petrol, diesel, natural gas, jet fuel and crude oil out of GST. States, on the
other hand, want to keep a revenue tool in their hand to meet any contingency like the floods
in Kerala.

3.11 Consequences for Guwahati Refinery if Petroleum products are included

in GST
There is a negative impact of GST on Guwahati as they has to comply with both the taxation
system. Presently, the company has followed excise duty for those products which are not
included in the GST i.e.crude oil, ATF, HSD. And also GST for capital, inputs and input
services. But most interestingly the Guwahti Refinery need not to pay 50% of the excise duty
as per the finance bill 2002 as a result of which cost is reduced and it helps in making profit
for the company. Following are the excise duty payment and duty exempted by the Guwahati
Refinery in the last two years i.e. 2016-17 and 2017-18

Year Excise duty paid Excise duty exempted

(Rs in Crore) (Rs in Crore)
2016-17 65. 29 Crore 66. 29 Crore
2017-18 80. 97 Crore 80.97 Crore

In case of GST also they are suffering loses as the total ITC for the product included under
the GST is not getting by the company which in return affects the profitability of the
business. The amount of dis allowance for nine month is Rs. 178122061.51. Taking the
average for 12 months, it will be around Rs. 23,74,96,081.

Assuming a situation, where Government is going to include all petroleum products under
GST, then the company will have to forego the excise duty benefit that they were getting. It
will be a major impact on Guwahati Refinery. Although they will be able to settle all the ITC
in full but the amount of excise duty benefit they are availing is much higher than the Input
Tax Credit. From the point point of view of Management of the Company, the petroleum
product should be excluded from GST and if possible the proportionate ITC should be
withdrawn from the CGST Act and help the company to get the same level of profitability as
earlier

Chapter IV
4.1 Findings
26
1. The refinery has to comply with both the current tax regime as well as the GST
regime as some of its products are outside the purview of GST.

2. The compliance of the dual taxation system is leading to double compliance cost
because five petroleum products viz crude oil, natural gas, motor spirit, high-speed
diesel and aviation turbine fuel have been excluded from the GST, while other
products such as liquefied petroleum gas (LPG), naphtha, kerosene, fuel oil etc are
included.

3. Around 75% of the total ITC is disallowed because of the proportionate rule.

4. Highest ITC has been received in the month of November 2017.

5. There are more interstate transactions in comparison to intrastate transaction.

6. Interstate transaction provides higher Input tax Credit than the intrastate transaction.

7. Highest percentage of disallowance was in the month of October (77.88%)

8. There are more than 5000 transactions where there is proportionate ITC is available
and more over there are 912 transactions where the ITC is NIL.

9. The non-inclusion of petroleum products under GST also leads to the continuation of
C form of CST.

10. Because of the various complexity, the Central as well as State Government do not
take the risk of inclusion of petroleum products under GST as both Government has to
face heavy loss of revenue as well as has o face the criticism from the different
entities if not implemented properly.

11. If petroleum products are included in the GST, it will again negatively impact the
Refinery are the have to forego the excise duty benefits.

Bibliography

27
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INDIRECT TAXES, (Income Tax, Excise, Customs, CST, VAT, Service Tax, & Wealth
Tax )

2. Kanjiravil. Benix (May 2016) A Study On GST And Its Impact On The Sales Tax
Revenue Of Kerala.

3. Sehrawat. Monika and Dhand Upasana (December, 2015) GST IN INDIA: A KEY
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4. Sanusi et. al Goods and Services Tax Governance in Malaysiyan New Tax
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5. Retrieved on 30 June 2018 fromhttps://cleartax.in/s/itc-rules-capital-goods-gst

6. Retrieved on 30 June 2018 fromhttps://taxguru.in/goods-and-service-tax/reversal-itc-

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https://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=7373&k
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14. Goswami, Arindam (September 2017) Overview Of Input Tax Credit

29