Foreign ships have begun turning to Sri Lanka and Bangladesh for refueling, prompting the petroleum ministry to seek an exemption from integrated goods and services tax (IGST) on bunker fuel.
The ministry’s view is that no IGST should be levied on these foreign vessels as they only stop to refuel and move on, a government official aware of the development said.
“The ministry is concerned… It could in the long run impact the overall business itself,” the official said.
The migration to neighbouring ports that have lower taxes would dent the country’s exports of petroleum products.
The issue could be taken up by the GST Council, which is the apex decision making body for the new tax regime that was implemented on July 1. GST has replaced multiple state and central taxes.
Bunker sales to these ships were treated as exports under the previous regime and not taxed. Some states imposed tax, but this only went up to 5%. Such sales now face IGST of 18%, making bunkering at Indian ports unviable. This comes at a time when the government wants to encourage the practice.
Bunker fuel is the generic term given to any fuel poured into a ship’s bunkers to power its engines. Typically, deep-sea cargo ships use what’s left after gasoline, diesel and other light hydrocarbons are extracted from crude during the refining process.
What has worried petroleum refiners as also the shipping ministry is that foreign ships have begun to avoid refueling in India, hurting their business. As against 64,801 MT sold in April-June, bunker fuel sales in July-August stood at 35,886 MT.
The GST Council has constituted a committee to look into issues concerning the export sector, which has large refund claims pending, leading to cash flow issues. It is likely that the bunker fuel issue may be taken up along with these broader export concerns. Read more
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