New Delhi [India], September 22 : The Ministry of Coal has welcomed the decisions taken at the 56th meeting of the GST Council held in New Delhi, which have brought significant changes to the taxation structure of the coal sector.
The ministry hailed these reforms as a step towards 'Aatm Nirbharta' in coal and a balanced approach that benefits both coal producers and consumers alike.
Key decisions of the 56th GST Council Meeting on coal include: removal of the Rs. 400 per tonne GST compensation cess previously levied on coal, and an increase in GST rate on coal from 5 per cent to 18 per cent.
"The impact of the new reform on coal pricing and the power sector is a substantial reduction in overall tax burden, with coal grades G6 to G17 seeing decreases in the range of Rs 13.40 per tonne to Rs 329.61 per tonne. For the power sector, the average reduction is around Rs 260 per tonne, translating into a cut of 17-18 paise per kWh in the cost of generation," the Ministry of Coal said in a statement.
The rationalisation of tax burden across coal grades ensures equitable treatment, replacing the earlier flat rate of Rs 400 per tonne compensation cess, which disproportionately affected low-quality and low-priced coal.
For instance, G-11 non-coking coal produced in the largest quantity by Coal India Limited had a tax incidence of 65.85 per cent compared to 35.64 per cent for G2 coal. With the cess removed, tax incidence across all categories has now been aligned to a uniform 39.81 per cent.
"The boost to Aatmanirbhar Bharat and import substitution is evident as the removal of the cess levels the playing field, eliminating the earlier scenario where the flat rate of GST Compensation Cess at Rs 400 per tonne resulted in the landing cost of high gross calorific value imported coal being lower than that of Indian low-grade coal. This reform strengthens India's self-reliance and curbs unnecessary coal imports," the ministry noted.
The reforms have also removed the Inverted Duty Anomaly by raising the GST rate on coal to 18 per cent. Earlier, coal attracted 5 per cent GST while input services used by coal companies attracted higher GST rates, normally at 18 per cent. This disparity led to a huge accumulation of unutilized tax credit in the books of coal companies due to their lower output GST liability.
"The overall effect of the reforms, despite the increase in GST rates from 5 per cent to 18 per cent, is a lower tax incidence for final consumers, combined with a correction of the inverted duty structure that releases liquidity, eliminates distortions, and prevents large accounting losses for coal producers. The decisions of the GST Council are expected to positively impact the coal sector by strengthening India's self-reliance, supporting producers, benefiting consumers and aligning with the vision of Aatmanirbhar Bharat, making this a truly balanced reform," the Ministry of Coal concluded.
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