A seven-member expert panel constituted by the Petroleum and Natural Gas Regulatory Board (PNGRB) has recommended bringing petrol, diesel and aviation turbine fuel (ATF) under the Goods and Services Tax (GST) regime, arguing that the change could make inter-state fuel movement more efficient and encourage the use of pipelines over roads.
The panel also proposed that the 2% central sales tax (CST) on inter-state sales of these fuels be abolished or reduced to zero until they are brought under GST. In its report, submitted in July, the committee said the existing tax increased the cost of moving fuel between states and limited the ability of surplus fuel from one state to be absorbed efficiently elsewhere.
According to the report cited by Hindustan Times, the 2% CST translates into an estimated tax incidence of approximately ₹1,400 per kilolitre. The panel said this tax burden “distorts inter-state movement economics” and constrains the efficient distribution of petroleum products.
Petrol, diesel and ATF were kept outside the GST regime when the nationwide tax system was introduced on July 1, 2017, following opposition from states. These fuels currently attract state-level value-added tax (VAT), with rates varying significantly across jurisdictions. The report cited VAT rates of 1% for petrol and diesel in the Andaman and Nicobar Islands, compared with 35.20% for petrol and 27% for diesel in Telangana.
The panel linked the tax structure to the way fuel is transported across the country. It said bringing the fuels under GST could facilitate inter-state movement through pipelines instead of roads, potentially reducing logistics costs and carbon emissions. The recommendation is therefore not limited to tax administration; it also concerns the infrastructure and environmental consequences of how fuel is distributed between production, storage and consumption centres.
The committee referred to the Union Budget speech delivered on February 28, 2007, when then finance minister P Chidambaram said the Central Sales Tax would be phased out after an agreement with state governments. The panel noted that the 2007 Budget had proposed reducing CST from 4% to zero over four years, but inter-state sales of non-GST items such as petrol, diesel and ATF currently continue to attract the 2% levy.
The recommendation does not amount to an immediate policy change. Union government officials cited in the report said petrol, diesel and ATF had not been brought under GST because of opposition from states, which would be affected by changes to their existing tax revenues and structures.
The GST Council, which is chaired by the Union finance minister and includes finance ministers from states and Union Territories, is responsible for decisions on the tax regime. Officials said the 57th GST Council meeting in New Delhi was unlikely to consider tax-rate changes and was expected to focus on process reforms.
ATF has also faced resistance within the council. In a Lok Sabha reply on August 6, Minister of State for Civil Aviation Murlidhar Mohol said an agenda item on bringing ATF under GST had been discussed at the 55th GST Council meeting on December 21, 2024. Several states expressed opposition, he said, and the existing arrangement of keeping ATF outside GST was retained.
The PNGRB panel’s recommendation now places the question of fuel taxation alongside the operational issue of inter-state pipeline movement. Any change would require consideration by the GST Council and agreement among the Centre and states.
