This circular provides clarification on the applicability of GST on superior kerosene oil (SKO) supplied by refineries to manufacturers of Linear Alkyl Benzene (LAB), where SKO is partially retained and the balance is returned to the refinery.

It explains that LAB manufacturers receive SKO from refineries and extract n-paraffin, which is used in the manufacture of LAB. In this process, only a portion of the SKO (generally about 15–17%) is retained by the LAB manufacturer, while the remaining quantity is returned to the refinery. Consideration is paid only for the quantity of SKO retained for extraction of n-paraffin.

The circular clarifies, based on the GST Council’s recommendation, that GST is payable by the refinery only on the net quantity of SKO retained by the LAB manufacturer for manufacture of LAB. The quantity of SKO returned to the refinery does not attract GST at the time of return. However, if the refinery subsequently supplies the returned SKO to any other person, such supply will be liable to GST in the normal course.

This clarification ensures clarity on valuation and tax liability in SKO–LAB transactions and avoids unintended taxation on returned quantities of SKO.