by him as an input tax credit when he has to meet his tax liability,” said an official source.
IGST is not a tax per se, but a T+2 clearing system. Eventually, the iGST pool will have nothing but the unpaid input tax credit, the source explained.
"We will allow states to levy a narrow band on the state component of GST on petroleum products to make up for loss of revenue from removal of CST,” said another person familiar with the matter. States now levy sales tax on sale of petroleum products in two stages that yield them nearly 30% of their overall tax revenues. For example, Indian Oil Corporation has to pay sales tax to a state when its products enter its depot in that state and dealers subsequently pay sales tax when they get the fuel from the refiner.
Besides, the central government will give an assurance to states that their CST revenue from products like petroleum (on which the ITC facility is currently not available and hence has a high tax incidence) will be protected. States, however, have been demanding a constitutional mechanism for compensation of loss of revenue, which has not been favoured by the Centre.
According to David Raistrick, global managing director, indirect taxes, Deloitte, a nation need not necessarily tax inter-state transactions under GST, although it can be done. “You could look at the EU model. If you really want to simplify GST, inter-state tax can be zero,” Raistrick told FE recently.
Sources also said that if states agree to the new proposal, GST could be introduced inclusive of petroleum products from day one, which would benefit industry.