GST

Impact of GST Rate on Coal

The world’s largest source of electricity is coal. In the past four years, India’s commercial fundamental energy consumption has increased by nearly 700%. India currently consumes roughly 350 kg/year of commercial primary energy per person, which is far less than that of wealthy nations. Energy consumption in India is anticipated to increase as a result of the country’s expanding economy, growing population, and desire for a higher standard of living. Coal will continue to play a major role in India’s energy picture due to the low reserve potentiality of petroleum and natural gas, eco-conservation restrictions on hydropower projects, and the geopolitical perspective of nuclear power. With the implementation of goods and service tax in India, many goods and services face both positive and negative impacts, one of them being coal.

What is coal?

Brownish black or black-coloured sedimentary rock is known as coal. Coal can be brined to produce power. It mostly consists of hydrocarbons and carbons, which can release energy during the burning, which is called combustion.

The Economic Importance of Coal

In India, coal serves as one of the key energy sources. As a result, the objective of maintaining India’s energy security is intrinsically connected to the availability of affordable and sustainable coal. The total amount of domestic supplies of coal up to February 2023 was 794.96 MT, whereas the total importing up to December 2022 was 186.06 MT for the 2022-2023 fiscal years. Australia, Indonesia, South Africa, the United States, and Russia are the top 5 countries that export coal to other countries.

Coke is crucial to the iron and steel industries. In the past, the location of iron and steel factories was determined by the accessibility of coal mines because the mills required enormous volumes of coal. Thermal energy is produced by coal in developing nations. Coal gas is also frequently used to produce energy. The production of thermal electricity is the most essential of the several uses for coal, making up around 65% of the global coal use.

Pre-GST scenario for taxes on Coal

Coal is subject to an excise duty under the VAT and Central Excise Act under state regulations. Coal transportation inside a state or across state lines comes with a lot of unanticipated costs. Coal and other items made from coal are subject to a standard VAT rate of 5 to 6%. There is a concealed excise duty on coal that the GST does not cover. Coal has an average excise duty rate of 6.8% after abatement. At the moment, coal is subject to a tax with a total average rate of about 12%. The expense of logistics makes it costly for the end user because there are many hidden taxes and costs involved in getting coal to its final location.

GST rates on Coal and its related products

HSN Code	Product	GST rate
2705	Coal Gas	5%
2701	Coal	5%
2701	Ovoid Briquettes and other solid fuels which are similarly produced from coal	5%
2704	Semi coke and coke of coal	5%
2706	Tar distilled from coal	5%
2708	Pitch coke and pitch, which is obtained from coal	18%

Impact of GST on Coal

• The GST has altered the overall tax burden, which has also changed the cost of generating energy.
• Variable costs at current coal-fired thermal power stations are probably going to go down with the GST.
• It is impossible to determine the effect of the GST on the overall cost of new coal plants because there is a dearth of information on the fixed expenses of these facilities. Numerous industries in India use coal in large quantities.
• Due to the 15% service tax levied on transportation services, transporting coal from coal mines to factories or construction sites is expensive.
• In accordance with the GST, a 5% tax has been levied on rail transport services.

• The GST would not be a replacement for the clean environment tax.
• A more controlled tax structure and a decrease in the tax rate on both commodities and services would result in lower logistics costs for the coal industry.

Conclusion

In conclusion, while imported coal will continue to be subject to basic customs duty (BCD), the GST Council¹ has placed domestic coal under the Goods and Services Tax (GST)‘s 5% tax band. It will have a good effect on domestic coal users and a negative effect on imported coal users because the tax slab for coal ranged from 11 to 12 per cent in the past. The Indian economy is probably going to benefit from the lower coal tax rate. Coal is a crucial component in a wide range of businesses. It will, therefore, be advantageous to the building, iron, and power-generating businesses.

1. https://gstcouncil.gov.in/