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July 9, 2020

GST Provisions on LPG Gas sold in Bottle to Commercial or Domestic Customer

by Mahesh Mara in Compliance Law, GST

GST Provisions on LPG Gas sold in Bottle to Commercial or Domestic Customer

Input Tax Credit (ITC) basically means reducing the taxes paid on inputs from taxes to be paid on output. When any supply of services or goods is supplied to a taxable person, the GST charged is known as Input Tax. Let us refer to Navbharat LPG Bottling Company (Gujarat AAR) where appeal was appeal was sought pertaining on the issue of admission of ITC.

Facts of the Case

  • The applicant is engaged in the business of purchasing LPG Gas (Bulk) and thereafter, refilling the same in 2 types of bottles (17 kgs and 21 kgs) and selling it to Commercial Customer @ 18% GST.
  • They are also refilling the gas in bottles of 12 kgs and 15 kgs and selling it to Domestic Customers, on which GST rate applicable is @5%.

Ruling is sought for the following questions

  • What is the tax liability on sales of Gas sold in Bottle to Commercial Customer and Gas sold in Bottle to Domestic Customer?
  • Is Entire ITC @ 18% eligible on Purchases of LPG Gas (bulk) through Tanker?

Proceedings of Authority for Advance Ruling (AAR)

In order to determine the tax liability on the sale of Gas sold in bottles by the applicant and sold to the Commercial and Domestic customers, reference was given to Notification No.01/2017-Central Tax (Rate) dated 28.06.2017. Notification No.01/2017-Central Tax (Rate) amended by Notification No.06/2018-Central Tax (Rate) contains the sub-headings as well as the rates of GST applicable to various goods.

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Determining Rate of GST on Commercial Supply

  • Entry No 165 of the above notifications, pertains to supply of Liquefied Propane and Butane mixture, Liquefied Propane, Liquefied Butane and Liquefied Petroleum Gases (LPG) to non-domestic exempted category (NDEC) customers by the Indian Oil Corporation Limited, Hindustan petroleum Corporation Limited or Bharat Petroleum Corporation ltd.
  • However, appellant is not providing LPG to NDEC customers and Entry 165 does not cover the LPG purchased from companies other than Indian Oil Corporation ltd, Hindustan Petroleum Corporation ltd. or Bharat Petroleum Corporation ltd. and supplied to commercial/domestic customers.
  • Hence, the LPG gas received from companies and supplied to Commercial customers would not be covered under the above Schedule-I but will be covered under Sr.No.453 of Schedule-III (Goods which are not specified in Schedule I, II, IV, V or VI) and would attract GST of 18% (9% SGST + 9% CGST)

Determining Rate of GST on Domestic Supply

  • Entry No 165A (inserted by Notification No.06/2018-Central Tax (Rate) 25.01.2018) of the above notifications, pertains to supply of Liquefied Propane and Butane mixture, Liquefied Propane, Liquefied Butane and Liquefied Petroleum Gases (LPG) to household domestic customers.
  • As per the above entry 165A, LPG supplied to household domestic customers would attract GST of 5%(2.5% SGST + 2.5% CGST).
  • Therefore, LPG supplied by the applicant to household domestic customers would attract GST of 5% GST with effect from 25.01.2018

Determining whether ITC is available or not

  • Applicant has stated that they are receiving LPG gas in bulk at 18% through tanker which they are refilling into smaller packs/cylinders and selling it to their commercial/domestic consumers.
  • They have asked whether they are eligible to take credit of the entire input tax credit ITC @ 18% on Purchases of LPG Gas (bulk) through Tanker.
  • Reference is provided to Sections-16, 17 and 18 of the CGST Act, 2017 and Rules 36, 37, 40, 41 and 42 of the CGST Rules, 2017.

Section 16 states the Eligibility and conditions for taking ITC

Every registered person shall be entitled to take ITC on any supply of goods or services or both to him which are used or intended to be used in the furtherance of his business and said amount will be credited to the electronic credit ledger of such person.

A registered person will be eligible to claim ITC on the fulfilment of the following conditions:

  • Possession of a tax invoice or debit note or document evidencing payment
  • Receipt of goods or services
  • Goods delivered by supplier to other person on the direction of a registered person against a document of transfer of title of goods
  • Furnishing of a return
  • Where goods are received in lots or instalments, ITC will be allowed to be availed when the last lot or instalment is received
  • Failure of the supplier towards supply of goods and/or services within 180 days from the date of invoice, ITC already claimed by recipient will be added to output tax liability and interest to paid on such tax involved. On payment to supplier, ITC will be again allowed to be claimed
  • No ITC will be allowed if depreciation has been claimed on the tax component of a capital good
  • Time limit to claim ITC against an Invoice or Debit Note is earlier of the due date of filing GST Return for September of next Financial year or Date of filing the Annual Returns relevant for that Financial year

Section 17 pertains to apportionment of Credit and Blocked Credits

In the below situations full ITC on inward supplies cannot be availed; only proportionate ITC is allowed in this:

  • When the goods or services or both are used by the Registered Person for the purpose of Business and partly for other purposes – Then only ITC attributable to Business purpose can be taken.
  • When the goods or services or both are used by the Registered Person for making Taxable supplies including Zero Rated Supplies and partly for making exempt supplies – Then only ITC attributable to Taxable Supplies and Zero Rate Supply can be taken.
  • Special option of ITC to Banking and Financial institutions – A banking company or a financial institutions including a non-banking financial company, can at their option avail of, every month, an amount equal to 50% of the eligible input tax credit on inputs, capital goods and input services in that month and the rest shall lapse.
  • ITC of tax paid on Input Goods, Input Services used for supply of taxable goods or services or both is allowed under GST except a small list of items provided u/s 17(5).

Cases where ITC will not be available as per Section 17(5)

  • Motor vehicles used to transport persons, having a seating capacity of less than or equal to 13 persons (including the driver). Further, ITC is not available on vessels and aircraft.
  • Supply of food and beverages, outdoor catering, Beauty treatment, Health services and Cosmetic and plastic surgery
  • Services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft
  • Any membership fees for gyms, clubs etc.
  • Rent-a-cab, health insurance and life insurance services
  • Travel benefits extended to employees on vacation such as leave or home travel concession.
  • Works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service
  • Goods, services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business
  • Goods, services or both on which tax has been paid under section 10
  • Goods, services or both received by a non-resident taxable person except on goods imported by him
  • Goods, services or both used for personal consumption
  • Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples
  • Any tax paid in accordance with the provisions of sections 74, 129 and 130

Section 18 provides for Entitlement and Reversal of ITC

  • At the time of Registration or Voluntary Registration

The Person who has applied for registration within 30 days from the date on which he becomes liable for registration or the person who is not require to register but obtains voluntary registration and has been granted registration, shall be entitled to take ITC on the day immediately preceding the date from which he becomes liable to pay tax in case of normal registration or the day immediately preceding the date of registration in case of voluntary registration.

  • Switching to regular tax paying structure from existing composition levy

In this, goods will be entitled to ITC on the day immediately preceding the date from which he becomes liable to pay tax under regular scheme.

  • On coming into tax paying status on account of exempt supply becoming taxable supply

In this, goods will be entitled to ITC on the day immediately preceding the date from which such supply becomes taxable. 

  • On Switching to Composition levy or exit from tax- paying status:

ITC on inputs held in stock, inputs contained in semi finished goods or in finished goods and capital goods should be reversed proptionately on the basis of corresponding invoices on which credit has been availed. If invoice are not available, then the prevailing market price of such goods on the date of switch over/exemption.

  • On Cancellation of Registration:

The amount to be reversed as ITC on inputs should be reversed proptionately on the basis of corresponding invoices on which credit has been availed. If invoice are not available, then the prevailing market price of such goods on the date of switch over/exemption.

  • Amount payable on supply of Capital Goods or Plant & Machinery on which ITC has been taken:

The registered person shall pay an amount that is the higher of ITC pertaining to remaining useful life of the Capital Goods (in quarters) or Tax on Transaction Value

  • Transfer of ITC on account of Change in Constitution of registered person

In case of sale, merger, demerger, amalgamation, transfer or change in ownership of business etc., the ITC that remains unutilized in the electronic credit ledger of the registered person can be transferred to the new entity, provided there is a specific provision for transfer of liabilities in such change of constitution.

Reference to the below relevant Rules under CGST Rules was provided:-

RuleParticulars
36Documentary requirements and conditions for claiming input tax credit
37Reversal of input tax credit in the case of non-payment of consideration.-
40Manner of claiming credit in special circumstances
41Transfer of credit on sale, merger, amalgamation, lease or transfer of a business
42Manner of determination of input tax credit in respect of inputs or input services and reversal thereof

AAR concluded that the appellant was eligible to take the entire input cenvat credit @ 18% on purchases of LPG Gas in bulk through Tanker subject to the fulfilment of the conditions/provisions (wherever applicable) for taking input tax credit as envisaged in Sections-16, 17 and 18 of the CGST Act, 2017 and Rules-36, 37, 40, 41 and 42 of the CGST Rules, 2017

Ruling by AAR

  • The appellant would be liable to pay 18% GST (9% SGST + 9% CGST) on the LPG sold by them to their Commercial Customers.
  • They would be liable to pay 18%(9% SGST + 9% CGST) on the LPG sold to their Domestic Customers for the period upto 24.01.2018 and 5% (2.5% SGST + 2.5% CGST) on the LPG sold to their Domestic Customers with effect from 25.01.2018 onwards.
  • The applicant is eligible to take the entire ITC @ 18% on purchases of LPG Gas in bulk through Tanker subject to the fulfilment of the conditions/provisions (wherever applicable) for taking input tax credit as envisaged in Sections-16, 17 and 18 of the CGST Act, 2017 and Rules-36, 37, 40, 41 and 42 of the CGST Rules, 2017.

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