The Great GST Exclusion – Status June 2026: Eight years after GST implementation, petroleum crude, petrol, diesel, natural gas, aviation turbine fuel (ATF), alcoholic liquor for human consumption, and electricity remain outside GST. On 8 December 2025, the Government of India clarified in Lok Sabha that petroleum products and alcoholic beverages are “presently not proposed to be brought under GST unless recommended by the GST Council.” Finance Minister Nirmala Sitharaman said in September 2025 – “Not in the immediate future.” Yet – businesses operating in these sectors face significant GST compliance obligations on related activities, and the ITC cascade from petroleum exclusion costs industry an estimated ₹1.5-2 lakh crore annually. This guide explains the complete picture — what’s excluded, how it’s taxed, what GST still applies, and the business impact.
📋 Table of Contents
- Constitutional Basis – Why These Products Are Outside GST
- Complete List – What is Outside GST in 2026
- Petroleum Products – Current Tax Structure
- Alcoholic Liquor – State Excise + VAT Framework
- Electricity – Why It’s Outside GST
- The ITC Cascade Problem – How Exclusions Hurt Business
- What GST DOES Apply – GST on Activities in These Sectors
- GST on Liquor Served in Restaurants and Hotels
- ATF (Aviation Turbine Fuel) – Impact on Airlines
- Natural Gas – Special Considerations
- Industrial Alcohol vs Alcoholic Liquor for Human Consumption
- Arguments For and Against GST Inclusion
- Future Outlook – Will Petroleum and Liquor Come Under GST?
- Business Impact and Compliance Guidance
- Frequently Asked Questions
1. Constitutional Basis – Why These Products Are Outside GST
The critical distinction – Constitutional exclusion vs. Legislative exclusion:
Alcoholic liquor for human consumption: Constitutionally EXCLUDED from GST itself. Article 366(12A) defines “goods and services tax” as a levy on supply of goods and services other than supply of alcoholic liquor for human consumption. To bring liquor under GST requires a Constitutional Amendment – a two-thirds majority in Parliament plus ratification by at least half the states. This is politically very complex.
Five petroleum products: NOT constitutionally excluded. They are temporarily kept outside GST. Article 279A(5) requires the GST Council to recommend the date from which GST shall be levied on petroleum crude, high speed diesel, motor spirit (petrol), natural gas, and aviation turbine fuel. §9(2) CGST Act says GST on these will apply from the date notified by the Government on GST Council’s recommendation. Until such recommendation and notification – they remain outside GST. No constitutional amendment needed – just GST Council consensus.
Electricity: Entry 53 of the State List (Seventh Schedule) gives states exclusive power to levy tax on “consumption or sale of electricity.” GST (a concurrent levy) does not cover electricity supply.
Alcoholic liquor for human consumption: Constitutionally EXCLUDED from GST itself. Article 366(12A) defines “goods and services tax” as a levy on supply of goods and services other than supply of alcoholic liquor for human consumption. To bring liquor under GST requires a Constitutional Amendment – a two-thirds majority in Parliament plus ratification by at least half the states. This is politically very complex.
Five petroleum products: NOT constitutionally excluded. They are temporarily kept outside GST. Article 279A(5) requires the GST Council to recommend the date from which GST shall be levied on petroleum crude, high speed diesel, motor spirit (petrol), natural gas, and aviation turbine fuel. §9(2) CGST Act says GST on these will apply from the date notified by the Government on GST Council’s recommendation. Until such recommendation and notification – they remain outside GST. No constitutional amendment needed – just GST Council consensus.
Electricity: Entry 53 of the State List (Seventh Schedule) gives states exclusive power to levy tax on “consumption or sale of electricity.” GST (a concurrent levy) does not cover electricity supply.
| Product | Exclusion Type | Mechanism to Include in GST | Political Difficulty |
|---|---|---|---|
| Alcoholic liquor for human consumption | Constitutional exclusion (Art.366(12A)) | Constitutional Amendment – two-thirds Parliament + half-state ratification | Very High |
| Petroleum crude, petrol, diesel, natural gas, ATF | Legislative exclusion (Art.279A(5) + §9(2) CGST) | GST Council recommendation → Government notification | High (states’ revenue concerns) |
| Electricity | State List power (Entry 53) | Constitutional Amendment to move to Concurrent List | Very High |
2. Complete List – What is Outside GST in 2026
| Item | Outside GST? | Current Tax | Who Taxes It |
|---|---|---|---|
| Alcoholic liquor for human consumption (beer, wine, IMFL, country liquor) | YES – Constitutional | State Excise Duty + State VAT/Sales Tax | State Government exclusively |
| Petroleum crude | YES – Temporary legislative | Central Excise Duty + Cess | Central Govt (Excise) + State (VAT) |
| Motor spirit (Petrol/MS) | YES | Central Excise ~₹19.90/L + State VAT (12-38%) | Central + State |
| High Speed Diesel (HSD) | YES | Central Excise ~₹15.80/L + State VAT (11-25%) | Central + State |
| Natural Gas | YES | State VAT (varies); some states: no VAT | State Government |
| Aviation Turbine Fuel (ATF) | YES | Central Excise 11% + State VAT (1-30%) | Central + State |
| Electricity (supply and distribution) | YES | Electricity Duty/Tax under Electricity Act; state-specific | State Government |
| Tobacco products (cigarettes, bidis) | Partially – under GST BUT also Central Excise duty continues | GST (40% + compensation cess) + Central Excise (retained) | Both Central Govt |
| Lottery tickets | Under GST at 40% (SC ruling) | 40% GST | Central Govt under GST |
| Crude petroleum products used as feedstock (plastics, chemicals) | The petroleum product itself is outside GST; the manufactured product is taxable | Manufacturer gets no ITC on crude/naphtha used as input; taxes cascade | Mixed cascade |
3. Petroleum Products – Current Tax Structure
| Product | Central Excise Rate | State VAT Range | Total Effective Tax | Impact |
|---|---|---|---|---|
| Petrol | ₹19.90 per litre (Road & Infrastructure Cess + Basic Excise) | 4% (Andaman) to 38%+ (Rajasthan, MP, Maharashtra) | ~40–55% of retail price | Petrol at ₹100/L retail: ₹40–55 is tax |
| Diesel | ₹15.80 per litre | 12% (Himachal) to 25%+ (many states) | ~35–45% of retail price | Backbone of Indian logistics – high diesel tax = higher freight cost |
| ATF | 11% ad valorem | 1% (Gujarat – incentive for aviation) to 29% (UP, others) | ~25–40% of airline fuel cost | Aviation fuel costs = 35–45% of Indian airline operating costs; ATF tax major contributor |
| Natural Gas | No Central Excise (exempted) | Varies widely: 3% to 28% VAT; some states have local levies | 3–28% depending on state | CNG vehicles: price varies by state; city gas distribution costs differ dramatically |
| Petroleum Crude | ₹1,600-2,000 per metric tonne cess + basic excise | Limited state VAT at crude stage | Applied at refinery gate | Refineries: no ITC on crude input costs → built into product prices |
| LPG (cooking gas) | Under GST – 5% GST (domestic; subsidised) / 18% (commercial) | N/A – under GST | 5% or 18% GST | LPG WAS included in GST unlike other petroleum – different classification |
LPG is INSIDE GST – an important distinction: LPG (Liquefied Petroleum Gas) is NOT one of the five excluded petroleum products. LPG is covered under GST at 5% for domestic supply and 18% for commercial supply. The five excluded petroleum products specifically named in Article 279A(5) are: petroleum crude, high-speed diesel, motor spirit (petrol/MS), natural gas, and ATF. LPG, kerosene, furnace oil, naphtha, and other petroleum derivatives are inside GST.
4. Alcoholic Liquor – State Excise + VAT Framework
Since liquor is constitutionally outside GST, it remains a state subject taxed through: (a) State Excise Duty – the primary levy on production/manufacture of liquor, and (b) State VAT/Sales Tax – on sale to consumers. States also impose various other levies like licence fees, assessment fees, and health cess.
State-wise Liquor Tax Variation (Illustrative – June 2026)
| State | Liquor Tax Approach | Estimated Consumer Tax Incidence |
|---|---|---|
| Delhi | Excise Policy (revised periodically); state retail; MRP-based excise | 60-80% of MRP is tax |
| Maharashtra | State Excise + VAT; highest excise state in India | 50-70% depending on IMFL type |
| Tamil Nadu | TASMAC monopoly; state government sole retailer; no transparency in “tax” portion | Government markup = significant implicit tax |
| Goa | Lower excise rates; attracts tourism; cheaper liquor than most states | 30–40% |
| Bihar, Gujarat, Manipur | Prohibition states – liquor banned (exception for some categories in Gujarat) | N/A (prohibition) |
| Rajasthan, UP | Higher VAT on liquor; state government retail shops | 55–75% |
⚠️ Revenue dependence – why states resist GST inclusion of liquor: Excise duty and VAT on liquor contribute 15-25% of total tax revenue for most Indian states. For some states (Andhra Pradesh, Telangana, Tamil Nadu), liquor revenue is close to 20-25% of state’s own tax revenue. Any inclusion in GST would mean revenue sharing with the Centre and loss of state autonomy to set rates – a non-starter politically.
Liquor Licence Requirements – Business Compliance
- Every stage of liquor supply (manufacturing, warehousing, wholesale, retail) requires State Excise Department licence
- Excise duty is paid at the manufacturing/bonded warehouse stage
- Retailers (wine shops, liquor stores) pay annual licence fees
- Hotels and restaurants require Excise serving licence (Bar licence / Dining Hall licence)
- Import of foreign liquor: Custom duty + Additional duty + State excise import fee
- Export of liquor: State excise export permission; different rates/procedures
5. Electricity – Why It’s Outside GST
Electricity supply is outside GST due to Entry 53 of the State List which gives states exclusive power to tax “consumption or sale of electricity.” This has not been moved to the Concurrent List (where GST operates), making electricity taxation a purely state matter.
| Electricity Activity | GST Position | Tax Applied |
|---|---|---|
| Generation of electricity (power plant output) | Outside GST | State Electricity Duty on generation |
| Transmission services (grid operators) | Outside GST (considered part of electricity supply chain) | State regulatory approved tariffs |
| Distribution services (DISCOMS) | Outside GST | Electricity tariff (state regulated); electricity duty on consumption |
| Solar panels/modules for generation | 5% GST on equipment | 5% GST on panels; but electricity generated is outside GST |
| Wind turbines, generators | 5-18% GST on equipment | GST on purchase; no GST on electricity generated |
| Smart meters, transformers, cables | 18% GST on equipment | GST on procurement of equipment |
| EPC contracts for power projects | 18% GST on works contract | GST on construction/installation services |
| Consulting/engineering services to power companies | 18% GST | GST on services |
The electricity ITC cascade for manufacturers: A factory buys electricity at ₹8/unit + electricity duty. It produces taxable goods and charges 18% GST. The electricity duty paid to the state government is a cost that CANNOT be claimed as ITC under GST – it’s outside the GST chain entirely. This means the tax on electricity is embedded in the cost of production and adds to the final price of manufactured goods – a classic cascading tax effect that GST was designed to eliminate but cannot for electricity.
6. The ITC Cascade Problem – How Exclusions Hurt Business
The Broken Credit Chain:
GST’s core promise was to eliminate the “tax on tax” problem (cascading taxes) through seamless ITC. But when key inputs are outside GST – the chain breaks:
Airlines: Pay 11% Central Excise + State VAT on ATF (fuel = 35-45% of costs). These taxes are NOT in GST. Airlines charge 18% GST on tickets. Airlines CANNOT claim ITC for ATF taxes → ATF taxes are embedded costs → higher ticket prices.
Transport/Logistics: Trucker pays diesel excise + VAT (18-25% effective). These are NOT ITC-eligible under GST. Trucker charges 12% GST on freight. Diesel cost is pure cash cost with no credit → higher freight rates.
Power-intensive Industries (cement, aluminium, steel): Pay electricity duty + energy costs outside GST. Cannot claim ITC → energy taxes fully cascade into product prices.
GST’s core promise was to eliminate the “tax on tax” problem (cascading taxes) through seamless ITC. But when key inputs are outside GST – the chain breaks:
Airlines: Pay 11% Central Excise + State VAT on ATF (fuel = 35-45% of costs). These taxes are NOT in GST. Airlines charge 18% GST on tickets. Airlines CANNOT claim ITC for ATF taxes → ATF taxes are embedded costs → higher ticket prices.
Transport/Logistics: Trucker pays diesel excise + VAT (18-25% effective). These are NOT ITC-eligible under GST. Trucker charges 12% GST on freight. Diesel cost is pure cash cost with no credit → higher freight rates.
Power-intensive Industries (cement, aluminium, steel): Pay electricity duty + energy costs outside GST. Cannot claim ITC → energy taxes fully cascade into product prices.
| Industry | Excluded Input | Annual ITC Loss (est.) | Consumer Impact |
|---|---|---|---|
| Aviation | ATF (~₹1.5 lakh crore annual spend) | ₹15,000–20,000 crore | Higher airfare; uncompetitive vs global airlines |
| Road transport/logistics | Diesel (~₹7 lakh crore annual consumption) | ₹1.2-1.5 lakh crore | Higher freight rates; inflation in manufactured goods |
| Power/electricity-intensive industry | Electricity duty/tax | ₹30,000-50,000 crore | Higher prices for cement, aluminium, steel, paper |
| Petrochemical/plastic manufacturers | Naphtha, natural gas as feedstock | ₹20,000-30,000 crore | Higher plastic/chemical costs |
| City gas distribution (CNG) | Natural gas | Significant; CNG price includes VAT not creditable | CNG costs embed state taxes; prices vary by city |
7. What GST DOES Apply – GST on Activities in These Sectors
While the core products (petroleum, liquor, electricity supply) are outside GST – a wide range of activities, services, and related products in these sectors DO attract GST:
| Activity/Product | GST Rate | Notes |
|---|---|---|
| Drilling and exploration services for petroleum | 18% | Services provided by drilling companies; GST on contracts with oil companies |
| Pipeline transportation of natural gas / crude | 5-18% | Services of pipeline operators; different from the gas itself |
| Storage of crude oil, petroleum products | 18% | Tank farm and terminal services |
| Refinery EPC / maintenance contracts | 18% | Engineering/construction at refineries |
| Exploration/geological survey services | 18% | Geophysical surveys, seismic testing |
| Insurance on petroleum cargo/assets | 18% | Marine and fire insurance on petroleum assets |
| LPG (liquefied petroleum gas) – domestic | 5% | LPG is NOT one of 5 excluded petroleum products; inside GST |
| LPG – commercial (hotels, restaurants) | 18% | Higher rate for commercial use |
| Industrial alcohol (denatured spirit, rectified spirit) | 18% | NOT “for human consumption” – inside GST |
| Malt, hops, yeast, sugar used in liquor manufacturing | Varies (5–18%) | Inputs to liquor manufacturing are under GST; credit chain broken at final product |
| Liquor manufacturing equipment (bottling machines, fermenters) | 18% | Capital equipment inside GST; but ITC cannot be used against state excise output |
| Restaurant liquor service (when served in restaurant) | Part of restaurant supply rate | See Section 8 – composite supply; 5% or 18% restaurant rate applies on the bill |
| Electricity generation/transmission equipment (turbines, solar panels) | 5% (solar) / 18% (conventional) | Equipment is taxable; electricity itself is not |
| Smart meters | 18% | Meters supplied by DISCOMs under GST |
| Power generation EPC contracts | 18% (works contract for power infra) | Construction and installation |
| Consulting/legal/IT services to petroleum or power companies | 18% | All professional services attract GST regardless of sector |
8. GST on Liquor Served in Restaurants and Hotels
The Restaurant GST on Liquor – Composite Supply:
When a restaurant serves liquor along with food as part of its service – the entire supply (food + liquor) is a composite supply of restaurant services. The GST rate for restaurant services applies to the entire bill including the liquor portion. This is one of the few scenarios where liquor effectively attracts GST – indirectly through the restaurant service.
When a restaurant serves liquor along with food as part of its service – the entire supply (food + liquor) is a composite supply of restaurant services. The GST rate for restaurant services applies to the entire bill including the liquor portion. This is one of the few scenarios where liquor effectively attracts GST – indirectly through the restaurant service.
| Scenario | GST Treatment | Rate |
|---|---|---|
| Restaurant not in a hotel (AC or non-AC) | Composite supply of food and beverages (including liquor) = restaurant service | 5% GST (no ITC) |
| Restaurant in a hotel with room tariff ≥ ₹7,500/night | Composite restaurant service; higher rate since it’s a premium establishment | 18% GST (with ITC) |
| Bar (serving liquor without food) | This is the contentious area – if serving ONLY liquor with no food component, it may not be a “restaurant service” | Complex – state-specific; some states treat bar service as outside GST; courts differ |
| Hotel minibar / room service with liquor | Part of accommodation service or restaurant service; composite supply | 18% GST (part of hotel bill) |
| Outdoor catering with alcohol | Composite catering service; liquor as part of catering composite supply | 18% GST (outdoor catering rate) |
| Retail sale of packaged liquor (off-licence) | Outside GST – state excise and VAT apply; no GST on bottle sold at shop | 0% GST; State excise + VAT |
⚠️ The bar-only establishment dilemma: Many states have litigated whether a standalone bar (serving only liquor, no food) is a “restaurant” for GST purposes. CBIC has issued several clarifications maintaining that restaurants serving liquor should charge GST on the composite supply. However, in some states, standalone bars argue they are outside GST as the primary supply is liquor (outside GST). This remains an area of litigation – consult a GST professional for your specific establishment type.
9. ATF and Aviation – Impact on Airlines
Aviation Turbine Fuel (ATF) represents 35–45% of Indian airline operating costs. With no GST on ATF – airlines face a significant unrecoverable tax burden:
| Tax on ATF | Rate | ITC Claimable? |
|---|---|---|
| Central Excise Duty on ATF | 11% ad valorem | NO – outside GST chain |
| State VAT on ATF (varies by state) | 1% (Gujarat – incentive for hub) to 29% (UP, Kerala) | NO – outside GST chain |
| GST charged on airline tickets | 5% (economy class) / 18% (business class) | Yes – passengers pay GST on ticket; airlines collect but cannot offset ATF taxes |
State VAT variation on ATF creates hub competition: Gujarat charges only 1% VAT on ATF – making Ahmedabad and Surat significantly cheaper fuelling points. Maharashtra charges ~26% VAT on ATF. This variation has driven airlines to refuel in Gujarat when possible. If ATF were under GST at a uniform rate (say 18%), this distortion would disappear – uniform ATF costs nationwide. This is a strong argument for bringing ATF under GST first, before other petroleum products.
10. Natural Gas – Special Considerations
Natural gas is one of the five excluded petroleum products despite its clean energy credentials and widespread industrial use. Natural gas taxes vary dramatically by state:
- City Gas Distribution (CGD): Natural gas distributed as piped natural gas (PNG) for homes and CNG for vehicles is outside GST; state VAT applies. But the distribution infrastructure (pipes, compressors, meters) procured by CGD companies IS under GST – creating a partial ITC mismatch.
- Industrial gas use: Factories using natural gas as fuel or feedstock (petrochemicals, fertilisers, glass, ceramics) pay state VAT on gas input but charge GST on their output – the gas VAT cannot be offset against GST → cascading tax
- Fertiliser industry: Natural gas is the primary feedstock for urea. High gas taxes increase fertiliser production costs → subsidies needed → government fiscal burden
- Power generation: Gas-based power plants pay state VAT on gas; electricity they produce is outside GST – double exclusion with no credit chain
🆕 The case for Natural Gas first: Within the five excluded petroleum products, natural gas is considered the most “GST-ready” by industry and economists. It has a clean supply chain, limited number of industrial buyers, and its inclusion would benefit fertiliser, power, and manufacturing sectors significantly. Several industry bodies have petitioned the GST Council to include natural gas in GST on priority. The 56th GST Council (September 2025) discussed but did not recommend inclusion – the issue remains on future agendas.
11. Industrial Alcohol vs Alcoholic Liquor for Human Consumption
Critical Distinction: “Alcoholic liquor for human consumption” is outside GST. But “industrial alcohol” (denatured spirit, rectified spirit used as feedstock, solvent, for fuel blending) IS inside GST.
| Product | GST Status | Rate | Notes |
|---|---|---|---|
| Beer, wine, whisky, rum, vodka, gin (sold for drinking) | OUTSIDE GST | State Excise + VAT | Constitutional exclusion |
| Extra Neutral Alcohol (ENA) – used as liquor base | OUTSIDE GST | State Excise | Courts have held ENA used for liquor manufacture is “for human consumption” – state excise |
| Denatured spirit / Rectified spirit (industrial use) | INSIDE GST | 18% GST | Cannot be consumed; used in pharma, perfumes, industrial cleaning |
| Ethanol for fuel blending (petrol-ethanol blend) | INSIDE GST | 5% GST (Notification 1/2017) | Used for E10/E20 fuel blending; GST applies on supply of ethanol |
| Ethanol for pharma/chemical use | INSIDE GST | 18% GST | Industrial use = inside GST |
| Molasses (byproduct; used in distilleries) | INSIDE GST | 5% GST | GST applies on supply of molasses by sugar mills |
⚠️ ENA classification controversy: Whether Extra Neutral Alcohol (the base spirit used to make IMFL) is “alcoholic liquor for human consumption” or “industrial alcohol” has been litigated extensively. The Supreme Court in multiple cases has held that ENA intended to be used in liquor manufacture is governed by state excise – not GST. However, ENA sold for non-liquor industrial use (pharma, chemicals) is inside GST at 18%. Distilleries must carefully classify their ENA supply based on the buyer’s end-use to determine correct tax treatment.
12. Arguments For and Against GST Inclusion
| For GST Inclusion | Against GST Inclusion |
|---|---|
| Eliminate cascading taxes – ITC chain seamless from crude to consumer goods | States lose major revenue source (30-40% of state tax revenue for petroleum and liquor) |
| Uniform prices across India – no inter-state price arbitrage for petrol/diesel | Revenue neutrality is extremely complex – states with high VAT (Maharashtra, Rajasthan) would need high compensation |
| Lower input costs for aviation, logistics, manufacturing – lower prices for consumers | Central government also loses significant excise revenue (13% of Central tax revenue from petroleum) |
| ATF under GST would make Indian aviation more competitive globally | Political sensitivity – petrol prices directly affect voters; any mismanagement of rate-setting = political cost |
| GST rate-setting could be more transparent than current discretionary excise adjustments | For liquor – Constitutional amendment required; practically impossible in near term |
| India’s WTO commitments and trade competitiveness improve with seamless credit | GST Council consensus is very hard – all states must agree; single dissenting state can block |
13. Future Outlook – Will Petroleum and Liquor Come Under GST?
Official Position – June 2026:
- 8 December 2025, Lok Sabha: Government confirmed petroleum and alcoholic beverages “presently not proposed to be brought under GST unless recommended by the GST Council”
- September 2025, FM Nirmala Sitharaman: “The current proposal does not include it… Not in the immediate future”
- 56th GST Council (September 2025): Discussed but did not recommend petroleum inclusion
- GST 2.0 reforms: Focus on 3-slab rationalisation and rate simplification – petroleum/liquor not in immediate scope
| Scenario | Likelihood (2026-2030) | What Could Change It |
|---|---|---|
| ATF under GST (aviation fuel) | Moderate – most likely first step | Strong aviation industry lobbying; airline sector pressures |
| Natural Gas under GST | Moderate-Low | Industry + fertiliser sector pressure; clean energy transition incentives |
| Petrol/Diesel under GST | Very Low near-term | Requires multiple state consensus; post-election timing; major revenue restructuring needed |
| Alcoholic liquor under GST | Near-impossible (Constitutional) | Constitutional amendment; practically no political will |
| Electricity under GST | Very Low | Constitutional amendment to move Entry 53 to Concurrent List; states strongly oppose |
14. Business Impact and Compliance Guidance
For Businesses Using Petroleum/Electricity as Inputs
- Cascade cost accepted as reality: Petroleum/electricity taxes are a true cost of production – book as expense (deductible for income tax under §34 ITA 2025 (§37 ITA 1961); not ITC eligible
- State VAT input tax credit: Under old VAT laws (before GST), some states allowed VAT credit on petroleum used as input for manufacturing. These transitional credits may still be in dispute — resolve with state VAT authorities
- Cost modelling: Build petroleum/electricity taxes into product pricing; conduct break-even analysis to check competitiveness. Bring ATF/diesel costs as direct costs in management accounts
- Location decisions: For energy-intensive businesses, state-level electricity duty and state VAT on natural gas should factor into location decisions (states like Gujarat actively reduce energy taxes for industrial investment)
For Liquor Businesses
- Maintain separate accounts for state excise and GST obligations – they are entirely separate compliance streams
- GST registration mandatory if making any taxable supplies (including restaurant food + liquor composite; industrial alcohol supply; equipment purchase/sale)
- ITC on inputs (sugar, malt, packaging, equipment) used in liquor manufacturing: blocked – cannot offset against state excise output; claim as expense in income tax
- Restaurant operators: 5% GST on food + liquor composite (no ITC); or 18% with ITC for large hotel restaurants
- Export of liquor: State excise process + Customs; GST on related services (shipping, insurance, freight)
15. Frequently Asked Questions
Q1. Why is petrol not under GST when all other goods are?
Petrol (motor spirit) is temporarily excluded from GST under Article 279A(5) of the Constitution. It can be brought under GST through a GST Council recommendation followed by government notification – no constitutional amendment needed. However, the GST Council has not made this recommendation as of June 2026. The reason: petrol is a massive revenue source for both Central Government (Central Excise Duty) and State Governments (State VAT). Central excise on petroleum = ~13% of Centre’s tax revenue. State VAT on petroleum = ~20-30% of many states’ total tax revenue. Any rational GST rate on petrol (say 40% – the highest slab for “demerit” goods) would reduce revenues for most states currently taxing at 40-55% combined rates. Revenue neutrality would require states to receive compensation, triggering complex fiscal negotiations. The Finance Minister confirmed in September 2025 that inclusion is “not in the immediate future.”
Q2. My restaurant serves food and alcohol. How do I charge GST?
Your restaurant supply (food + liquor served) is a composite supply where restaurant service is the principal supply. GST applies to the entire bill – food and liquor together – at the restaurant service rate: (a) 5% GST (without ITC) for standalone restaurants and restaurants in hotels with tariff below ₹7,500/night; (b) 18% GST (with ITC) for restaurants in hotels with room tariff ≥₹7,500/night. The liquor portion does NOT separately attract state excise when served in a restaurant – state excise has already been paid at the manufacturing/wholesale stage. Your restaurant pays state excise/licence fees for the Bar licence; the consumer-facing charge is covered by GST on the composite restaurant supply. Ensure you have: valid GST registration, valid Bar/Serving Licence from State Excise, and correctly structured invoices showing GST on the total food+beverage bill.
Q3. Can airlines claim ITC on ATF (Aviation Turbine Fuel)?
No – Airlines CANNOT claim ITC on ATF. ATF is one of the five excluded petroleum products outside GST. Airlines pay Central Excise (11%) + State VAT (1-29% depending on state) on ATF – these are outside the GST chain entirely. Airlines charge 5% GST on economy tickets and 18% on business class. The ATF tax is a pure cash cost embedded in airline operating costs with no credit available. This is the “broken credit chain” problem. On a ₹10,000 ticket: airline pays ~₹3,500-4,500 on ATF (of which ~₹700-1,200 is ATF tax); passenger pays ₹500 GST; the airline can use the ₹500 GST for input procurement, but the ₹700-1,200 ATF tax is a completely unrecoverable dead cost. India’s airlines have collectively petitioned for ATF under GST for years – it would significantly reduce ticket prices and improve competitiveness with foreign carriers who face GST-equivalent credits in their home countries.
Q4. Is extra neutral alcohol (ENA) used to make whisky covered under GST?
This is a heavily litigated question. The Supreme Court and various High Courts have held that ENA (Extra Neutral Alcohol) that is specifically manufactured/procured for use in the production of IMFL (Indian Made Foreign Liquor – whisky, rum, vodka) is effectively “alcoholic liquor for human consumption” even though it needs further processing. As such, it falls under state excise jurisdiction – not GST. However, ENA sold to pharma companies for use as solvent/reagent (not for human consumption) is inside GST at 18%. The key test: end-use. ENA → liquor manufacture = state excise. ENA → industrial/pharma use = 18% GST. Distilleries must carefully invoice based on the buyer’s stated end-use. Misclassification creates risk from either state excise authorities (if GST-invoiced for liquor use) or GST authorities (if ENA charged as non-GST for industrial buyer).
GST & Excise Compliance for Petroleum, Liquor & Energy Sectors – GCA
GCA provides compliance advisory for businesses in petroleum, liquor, and energy sectors – GST compliance on taxable activities within these sectors, State Excise audit support for liquor businesses, restaurant GST on food+liquor composite supply, ITC maximization on allowable inputs, income tax treatment of non-creditable energy taxes, and strategic advice on location/structuring decisions considering state-level energy tax variations. Pan-India, 100% digital.
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Disclaimer: Educational purposes only. Based on CGST Act 2017, Constitution of India (Article 366(12A), Article 279A, Entry 51/53/54 of State List), Central Excise Act 1944, as available up to June 2026. Government position on petroleum/alcohol inclusion: Lok Sabha clarification 8 December 2025 (Shri Pankaj Chaudhary, MoS Finance); FM Nirmala Sitharaman statement September 6, 2025; 56th GST Council deliberations (September 2025). Central Excise rates on petrol (~₹19.90/L) and diesel (~₹15.80/L) as per last formal revision; subject to change by government notification. State VAT rates illustrative and subject to state-level revisions. Restaurant GST on liquor as composite supply confirmed from CBIC FAQs and circulars. ENA classification controversy: SC positions through 2025. ATF state VAT variation from IATA India data (2025). ITC cascade loss estimates from industry bodies (CII, FICCI) and ICRIER research. Consult a qualified GST/Excise practitioner for specific industry/transaction advice.
