Victory for gas consumers in Gujarat VAT row

Vol 20, PW 24 (24 Aug 17) Midstream & Downstream

With state elections looming by the end of this year (2017) the Gujarat government has shrewdly cut the VAT on gas to please local factories.

On August 10 the information department announced in an official Gujarati statement that the VAT on gas was effectively cut from 15% to 6% by refunding 9%. Gujarat's deputy chief minister Nitin Patel, who doubles up as state energy minister, announced the cut after upset factory owners complained to the government following the introduction of the Goods and Service Tax (GST) from July 1 which effectively scrapped the 11% VAT refund they received before.

"Gas is not covered under GST," explains a source. "With no input tax credit (tax credits for raw materials used in manufacturing) available on gas usage, many ceramics, glass and sodium silicate factories were forced to switch from gas to liquid fuels, coal and coal tar." As a result, gas retailers reported a dramatic drop in gas sales.

Worst hit was ceramics producing hub Morbi where unconfirmed reports say Gujarat Gas saw gas sales fall from 2.5m cm/d to 1.5m cm/d in July. "In the ceramics industry gas is the most important cost component," says a source.

"With 15% VAT added nobody will buy Morbi ceramics." Still unclear is when the VAT refund will take effect. "We've decided to give a refund," says a Gujarat energy department source, "but still need to set up a proper system."