New Delhi, With states coming on board over GST compensation issue, the Centre is gearing up to get their consent over inclusion of petroleum products under the new indirect tax fold.

Sources privy to the development said that based on Petroleum Ministry's suggestion, the Centre may take up with GST Council the issue of bringing natural gas under the Goods and Services Tax (GST) regime to begin with before entire oil and gas sector is brought under it.

Though the dates for next GST Council meeting is yet to be finalised, finmin sources said its due and may take place anytime after the budget presentation.

With revenue position already strained due to Covid-19 outbreak, states have been reluctant to consider bringing high revenue generating petroleum products under GST fold. But the dual tax treatment is affecting the sector and hampering government's plan to develop a gas-based economy in the country.

Sources said that with this in mind, a phased approach to inclusion of petroleum products under GST may be adopted with natural gas falling first in the queue.

Inclusion of gas would not pose a challenge for the GST Council as it is largely an industrial product where a switchover to the new taxation would not be difficult. The revenue implication for the states is also low in the case of this switchover.

"States are in fairly better position now with GST revenue hitting over Rs 1 lakh crore mark for past few months and Centre has also improved their liquidity position through additional borrowing schemes under Aatmnirbhar Bharat package. This should make phased inclusion of petroleum products under GST easier for the council," said an official source in the oil ministry.

The gross GST collections touched a record high of over Rs 1.15 lakh crore in December - the highest since the implementation of the regime.

As part of its efforts to build concensus with the states on GST launch, the previous Narendra Modi government had decided to exclude five petroleum products -- crude oil, petrol, diesel, ATF and natural gas -- from the list of items placed under GST, but included products such as cooking gas, kerosene and naphtha in the new regime.

This created a messy situation for the companies, as they were required to comply with both the old and new tax regimes. Moreover, tax credits are not transferable between the two systems.

GST levy on natural gas would help state-run oil companies such as ONGC, IOCL, BPCL and HPCL to save tax burden to the tune of Rs 25,000 crore as they would get credit on taxes paid for inputs and services. Tax credits are not transferable between the two different taxation systems.

Last year, Oil Minister Dharmendra Pradhan had also made a strong case for the inclusion of natural gas in GST, saying that if polluting coal can be included, the environment-friendly fuel certainly deserves a place in the new tax regime. He also favoured bringing other petro products under the GST gradually.

Gas sales, including CNG and piped gas supplies, attract VAT ranging from 5-12 per cent.