GST and IGST Rate Clarifications from the 25th GST Council Meeting on 18 January 2018
The GST Council's 25th meeting addressed the tax treatment of polybutylene feedstock and LPG, supplies to Indian Railways, and coal rejects. The resulting clarifications help explain the correct classification, taxable quantity and compensation cess treatment.
Summary of the 18 January 2018 clarifications
| Item / HSN | Rate described in 2018 | Clarification |
|---|---|---|
| Polybutylene feedstock and liquefied petroleum gas (Chapter 27) | 18% GST in the 2018 Council statement | In the specified refinery-to-manufacturer arrangements, GST is payable on the net quantity retained for manufacture, rather than the entire quantity sent through the pipeline and partly returned. |
| Supplies to Indian Railways (Chapter 86 and other chapters) | 5% for qualifying Chapter 86 goods at that time | The historical Chapter 86 rate did not automatically extend to goods classified in other chapters merely because Indian Railways was the customer. |
| Coal rejects (heading 2701) | 5% GST plus Rs. 400 per metric tonne compensation cess, subject to applicable exemptions | Coal rejects classified under heading 2701 were covered by the specified GST and compensation cess entries. |
1. Polybutylene feedstock and LPG: GST on net retained quantity
Circular No. 29/3/2018-GST dated 25 January 2018 clarified a specific industrial supply arrangement. Refineries continuously supplied polybutylene feedstock or LPG through dedicated pipelines for manufacture of polyisobutylene, propylene or di-butyl para cresol. The manufacturer retained part of the material and returned the balance to the refinery.
Under this clarification, the refinery pays GST on the value of the net quantity retained by the manufacturer. The returned portion is not taxed as part of that retained supply; however, the refinery becomes liable to GST when it subsequently supplies the returned material to another person. The circular expressly addresses GST and does not retrospectively settle disputes under earlier tax laws.
Relevant provisions include section 9 of the Central Goods and Services Tax Act, 2017, governing the levy of central tax, and section 15, governing valuation of taxable supplies. For inter-State supplies, section 5 of the Integrated Goods and Services Tax Act, 2017 governs the IGST levy. The circular determines the treatment of the specified transaction; it does not create a universal net-quantity rule for every returned material.
Read official Circular No. 29/3/2018-GST (PDF).
2. Indian Railways: classification determines the GST rate
Circular No. 30/4/2018-GST dated 25 January 2018 addressed suppliers who applied the then 5% rate to goods supplied to Indian Railways even when those goods fell outside Chapter 86 of the tariff.
The circular clarified that the 5% rate and the restriction on refund of unutilised input tax credit applied to goods classified under Chapter 86 in the specified 2018 entries. Goods classifiable elsewhere attracted the rates prescribed for their own tariff headings, notwithstanding their supply to the railways. It referred to Notifications No. 1/2017, 2/2017 and 5/2017-Central Tax (Rate), dated 28 June 2017.
Section 54(3) of the CGST Act concerns refunds of unutilised input tax credit, subject to statutory restrictions and notified exclusions. Rates and refund restrictions may have changed since 2018; classification and the notification applicable on the supply date must be verified independently.
Read official Circular No. 30/4/2018-GST (PDF).
3. Coal rejects under HSN 2701 and compensation cess
The 25th Council meeting recorded that coal rejects falling under heading 2701 attracted 5% GST and Rs. 400 per metric tonne compensation cess under the relevant 2018 schedules. Compensation cess is a distinct levy under section 8 of the Goods and Services Tax (Compensation to States) Act, 2017, read with its schedule and the applicable rate notification.
Subsequent relief must also be considered. Notification No. 2/2018-Compensation Cess (Rate), dated 26 July 2018 provided a nil cess entry for qualifying coal rejects supplied by a coal washery, arising from coal on which compensation cess had been paid and where the stipulated non-availment of input tax credit condition was met. The exemption is conditional, not a general exemption for all coal rejects.
In practice, identify whether the goods are correctly classifiable under heading 2701, whether a conditional exemption applies and which rate notification was in force on the date of supply. The GST Council's official advance ruling collection also contains disputes on coal rejects, although rulings must be read within their statutory scope.
4. Statutory framework and meaning of the provisions
- Article 279A of the Constitution: establishes the GST Council and its role in making recommendations.
- Section 9, CGST Act: provides for levy and collection of central GST on taxable intra-State supplies.
- Section 5, IGST Act: provides for levy and collection of integrated GST on taxable inter-State supplies.
- Section 15, CGST Act: sets out the framework for determining the value of a taxable supply.
- Section 54, CGST Act: regulates refunds, including specified refunds of unutilised input tax credit.
- Section 8, GST (Compensation to States) Act: provides for the levy and collection of compensation cess on notified supplies.
These provisions must be read with the applicable rules, schedules, rate notifications and subsequent amendments. A Council press release is explanatory evidence of recommendations; the enacted statute and legally operative notifications control the tax outcome.
5. Official documents and further reading
- Government press release on decisions of the 25th GST Council meeting (18 January 2018)
- Official signed minutes of the 25th GST Council meeting
- Circular 29/3/2018-GST: LPG and polybutylene feedstock
- Circular 30/4/2018-GST: supplies to Indian Railways
- GST Council official circular archive
- CBIC GST portal: Acts, rules and notifications
Frequently asked questions
Did the 18 January 2018 Council meeting itself change GST rates?
No. Council recommendations require implementation through the applicable legal instruments. The relevant clarifications were issued on 25 January 2018.
Does every supply to Indian Railways qualify for the Chapter 86 rate?
No. The goods must be classified under the appropriate tariff heading. The purchaser's identity does not by itself change the classification.
Are all coal rejects exempt from compensation cess?
No. Any exemption must satisfy the precise conditions of the relevant notification. The historical 2018 rate and later conditional relief should not be treated as universally applicable today.
Editorial note: This article explains historical clarifications and later relevant relief. Confirm the latest consolidated notifications and transaction-specific facts before relying on a rate or exemption.