This circular provides clarification on the levy of GST on petroleum gases supplied by oil refineries to manufacturers of petrochemical and chemical products through continuous supply arrangements, where a part of the supplied feedstock is retained and the balance is returned to the refinery.

The circular explains that in such transactions, petroleum gases such as feedstock supplied through dedicated pipelines are often partly consumed by the recipient manufacturer in the production process, while the remaining quantity is returned to the refinery. A doubt had arisen whether GST is payable on the entire quantity initially supplied by the refinery or only on the quantity actually retained by the recipient.

Based on the recommendations of the GST Council in its 28th meeting, the circular clarifies that GST is payable by the refinery only on the net quantity of petroleum gases retained by the recipient manufacturer for the manufacture of petrochemical and chemical products. The returned quantity is not liable to GST at that stage. However, when the refinery subsequently supplies such returned petroleum gases to any other person, GST will be payable on that subsequent supply.

The clarification is stated to apply, on a similar basis, to other cases involving continuous supply of goods where part of the feedstock is retained by the recipient and the remaining quantity is returned, with billing done on a net retention basis. The clarification is applicable prospectively under the GST law.