Conditional GST ITC on Biofuels: AAR Permits Credit on Renewable Diesel Subject to S.16 Compliance [Read Order]

The Chhattisgarh Authority for Advance Ruling (AAR) clarified that Input Tax Credit (ITC) on biofuels, specifically Hydrotreated Vegetable Oil (HVO) or renewable diesel used for providing taxable transportation services, may be availed under the Goods and Services Tax (GST) Act, but only upon strict adherence to the statutory conditions as prescribed under Section 16 of the Central Goods and Services Tax Act, 2017, making the eligibility conditional.

The applicant, M/s Jai Ambey Roadlines Private Limited, Raipur, a registered Goods Transport Agency (GTA) engaged in land transport of goods under the forward charge mechanism, approached the Authority seeking clarity on the availability of ITC on GST paid on procurement of HVO.

The applicant uses this renewable diesel for operating vehicles deployed in delivering taxable services and pays GST at 12% as per Notification No. 11/2017-Central Tax (Rate) applicable to GTA services, under HSN code 9965.

The suppliers classified the fuel under HSN 2710 and charged GST at 18%. The applicant argued that such fuel is an essential business input, so the credit should not be denied in terms of the CGST Act, 2017.

Represented by Vivek Saraswat, Abhay Tiwari and Princee Dhawna, the applicant argued that the tax paid on procurement of renewable diesel directly relates to outward taxable supplies and thus falls squarely within Section 16(1) of Central Goods and Services Tax Act, 2017, which permits ITC where used in the course or furtherance of business.

The applicant's counsel stated that the restrictions under Section 17(5) of Central Goods and Services Tax Act, 2017, apply only to motor vehicles used for transportation of persons and do not prohibit credit on fuel consumed in goods transportation activities.

Understanding Common Mode of Tax Evasion with Practical Scenarios, Click Here

The counsel also pointed out that denying credit would contradict the objectives of the National Policy on Biofuels, 2018 which were aimed at encouraging clean energy and reducing fossil fuel dependency.

The bench comprising Yachana Tambrey and Dr. Bura Naga Sandeep observed that eligibility for ITC is conditional and not an absolute right. The Authority clarified that ITC on renewable diesel would only be available if the statutory conditions under Section 16 of the Central Goods and Services Tax Act, 2017 read with Section 17 are fully satisfied and subsequently verified by the relevant GST officers.

Subsequently, Compliance with Notification No. 11/2017-Central Tax (Rate) as amended, including Notification No. 15/2025-Central Tax (Rate), would also be required.

It further clarified that ITC on HVO or renewable diesel is permissible in principle when used for taxable GTA services. The benefit will only crystallise when documentary and factual compliance is demonstrated to the satisfaction of jurisdictional officers, making it a conditional rather than an automatic entitlement.

Support our journalism by subscribing to Taxscanpremium. Follow us on Telegram for quick updates