No GST Council Recommendation for inclusion of Aviation Fuel under GST: State Civil Aviation Minister [Read Order]

The Minister of State for Civil Aviation, Shri Muridhar Mohol, informed that Aviation Turbine Fuel (ATF) is yet to be brought under GST, as no recommendation has been made by the GST Council. ATF continues to attract central excise duty and varied state VAT rates. The Ministry’s efforts have led to several states/UTs reducing VAT on ATF to ease costs. ATF pricing remains market-based, with airfares influenced by multiple commercial factors.

The Questions raised in the Rajya Sabha by Shri Raghav Chadha, were:

(a) whether it is a fact that India levies some of the highest taxes on Aviation Turbine Fuel (ATF) globally, despite its critical role in civil aviation viability, and if so, the reasons

(b) whether Government has taken any step to bring ATF under the ambit of GST to ensure uniform taxation across States, and if so, the details

(c) details on the ATF pricing in India comparing to neighbouring aviation markets

(d) whether Government has analysed the impact of ATF taxation on passenger traffic in Tier 2/ 3 cities, and if so, the details

In response to an unstarred question raised in the Rajya Sabha by Shri Raghav Chadha, the Ministry of Civil Aviation addressed concerns regarding the high taxation on Aviation Turbine Fuel (ATF) in India.

The Ministry clarified that ATF currently attracts an 11% central excise duty, which is reduced to 2% for Regional Connectivity Scheme (RCS) flights. Additionally, Value Added Tax (VAT) levied by States and Union Territories varies significantly, ranging from 0% to 29%. The Ministry of Civil Aviation has actively engaged with States and UTs, resulting in a reduction of VAT by 21 entities.

Regarding the inclusion of ATF under the Goods and Services Tax (GST) regime, the Ministry stated that Article 279 A (5) of the Constitution of India and Section 9(2) of the Central Goods and Services Tax (CGST) Act, 2017 mandate a recommendation from the GST Council for such a move. So far, the GST Council, which includes state representatives, has not made any recommendation to bring ATF under GST.

The Article 279 A (5) of the Constitution of India explained that: Goods and Services Tax Council.

“The Goods and Services Tax Council shall recommend the date on which the goods and services tax be levied on petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel.”

On the other hand, Section 9(2) of the Central Goods and Services Tax (CGST) Act, 2017 explained that: Levy and collection

“The central tax on the supply of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel shall be levied with effect from such date as may be notified by the Government on the recommendations of the Council.”

On the matter of ATF pricing, the government liberalized it to be market-determined effective April 1, 2001. Public Sector Oil Marketing Companies (OMCs) now decide ATF prices based on international product prices and market conditions. The adoption of Mean of Platts Arab Gulf (MOPAG) pricing has been facilitated to enhance transparency and parity with global jet fuel prices.

While ATF costs are a significant component of airline operating expenses, airfares are ultimately determined by a multitude of factors including real-time demand, competitive forces, seasonality, and operational considerations, rather than solely by ATF taxation. The government has also facilitated consultations between airlines and OMCs for rationalization of ATF pricing.

Despite the Ministry's efforts, the varying VAT rates across different States and Union Territories lead to inconsistencies in ATF pricing, creating an uneven playing field for airlines operating across the country.

Thus, this also adds to the administrative burden of compliance for airlines, further increasing their operational overheads.