Council Meet Outcome: States Reject Proposal To Bring ATF Under GST

In a recent GST Council meeting on December 21, 2024, states have once again rejected the proposal to include Aviation Turbine Fuel (ATF) under the Goods and Services Tax (GST) regime. This decision comes despite repeated requests from the Civil Aviation Ministry and industry stakeholders, who argue that including ATF under GST could lower costs and reduce the financial burden on airlines and customers alike.

Why Was the ATF Proposal Rejected?

Finance Minister Nirmala Sitharaman confirmed that states did not feel comfortable with the idea of including ATF in the GST system. According to Sitharaman, states view ATF as part of the broader petroleum product category, which includes crude oil, diesel, and petrol, and believe that it should not be treated separately. As a result, ATF will remain outside of the GST framework for now.

“States are clear that ATF should remain outside the GST, just like petroleum and diesel. They see it as part of the crude and petroleum basket,” said Sitharaman in her post-meeting briefing.

The Current Tax Structure on ATF

At present, ATF is not covered under GST and is subject to a dual tax regime. It is taxed with both a central excise duty and a state-specific Value Added Tax (VAT). The central excise duty on ATF is 11%, with a 2% reduction available under the Regional Connectivity Scheme (RCS). However, VAT rates can vary significantly by state, reaching as high as 30% in some areas.

This complex tax structure has led to concerns within the aviation industry, which argues that the current taxation system raises fuel costs for airlines. Since input taxes cannot be credited against the sale of ATF, the additional tax burden eventually inflates the cost of airline operations, which can ultimately affect airfares.

The Industry’s Push for ATF to Be Included in GST

The aviation sector has long advocated for the inclusion of ATF under GST, as it would streamline the tax system and reduce costs. Since fuel expenses are one of the largest components of an airline’s operational costs, lower jet fuel prices could make air travel more affordable for passengers.

Higher jet fuel costs often lead to increased airfares, which affects the travel industry and its customers. The aviation ministry has voiced concerns that excluding ATF from the GST system contributes to rising fuel prices, which indirectly raises the cost of flying for consumers.

What Does This Mean for the Future?

Currently, five petroleum products—petrol, diesel, crude oil, natural gas, and ATF—are excluded from the GST framework. These products continue to be taxed under the pre-GST regime, which leaves room for debate about whether this status will change in the future. While the GST Council has yet to bring these products under GST, the government will likely continue exploring ways to reduce the financial pressure on industries like aviation that are affected by high fuel costs.

While the inclusion of ATF under GST remains a topic of debate, the rejection of this proposal highlights the complexities involved in balancing state interests with the broader economic impact. As the aviation sector continues to push for change, it remains to be seen if future discussions will lead to a more favorable tax structure that could benefit both airlines and passengers.

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