Oil and Gas Sector – HELP, Open Acreage Policy, etc.

State Taxes on Fuels

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Taxes on fuels

Mains level : Fuel price hikes and related inflation

PM has said that fuel prices were too high in some States ruled by other parties and they were not passing on the benefits of the Centre’s excise duty cut to the people.

Why are states reluctant?

  • The reluctance to reduce excise duty and VAT on fuel stems from the fact that it constitutes an important source of revenue for both the Union government and the states.
  • Excise duty on fuel makes up about 18.4 per cent of Centre’s gross tax revenues.
  • Petroleum and alcohol, on an average, account for 25-35 per cent of the own tax revenue of states

Present taxation of Fuels

What is Excise Duty?

  • Excise duty is a form of tax imposed on goods for their production, licensing and sale.
  • It is the opposite of Customs duty in sense that it applies to goods manufactured domestically in the country, while Customs is levied on those coming from outside of the country.
  • At the central level, excise duty earlier used to be levied as Central Excise Duty, Additional Excise Duty, etc.
  • Excise duty was levied on manufactured goods and levied at the time of removal of goods, while GST is levied on the supply of goods and services.

Purview of excise duty

  • The GST introduction in July 2017 subsumed many types of excise duty.
  • Today, excise duty applies only on petroleum and liquor.
  • Alcohol does not come under the purview of GST as exclusion mandated by constitutional provision.
  • States levy taxes on alcohol according to the same practice as was prevalent before the rollout of GST.
  • After GST was introduced, excise duty was replaced by central GST because excise was levied by the central government.
  • The revenue generated from CGST goes to the central government.

Types of excise duty in India

Before GST, there were three kinds of excise duties in India.

(1) Basic Excise Duty

  • Basic excise duty is also known as the Central Value Added Tax (CENVAT).
  • This category of excise duty was levied on goods that were classified under the first schedule of the Central Excise Tariff Act, 1985.
  • This duty applied on all goods except salt.

(2) Additional Excise Duty

  • Additional excise duty was levied on goods of high importance, under the Additional Excise under Additional Duties of Excise (Goods of Special Importance) Act, 1957.
  • This duty was levied on some special category of goods.

(3) Special Excise Duty

  • This type of excise duty was levied on special goods classified under the Second Schedule to the Central Excise Tariff Act, 1985.
  • Presently the central excise duty comprises of a Basic Excise Duty, Special Additional Excise Duty and Additional Excise Duty (Road and Infrastructure Cess) on auto fuels.

Present taxation of Fuels

  • Currently, taxes on petroleum products are levied by both the Centre and the states.
  • While the Centre levies excise duty, states levy value-added tax (VAT).
  • For instance, VAT on petroleum products is as high as 40% in Maharashtra, contributing over ₹25,000 crores annually.
  • By being able to levy VAT on these products, the state governments have control over their revenues.
  • When a national GST subsumed central taxes such as excise duty and state levies like VAT on July 1, 2017, five petroleum goods – petrol, diesel, ATF, natural gas and crude oil – were kept out of its purview.

 

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