Direct and Indirect Taxation · Charge of Tax including Reverse Charge

GST on Petroleum, Alcohol and Composition Levy

Updated 10 October 2026 · Fact-checked

Under Section 9 CGST and Section 5 IGST, GST is not levied on alcoholic liquor for human consumption, and is levied on five petroleum products only from a date the Government notifies. The composition levy (Section 10 CGST) lets eligible small registered persons pay a small percentage of turnover instead of normal tax.

Understand Tax on Specified Goods and Composition Levy

GST is levied on all supplies of goods or services, but Section 9(1) CGST and Section 5(1) IGST carve out an exception. Alcoholic liquor for human consumption is outside the levy. Since 1 November 2024, un-denatured extra neutral alcohol or rectified spirit used to make such liquor is also outside it. Such supplies are taxed by the States under their own laws, not under GST.

Five petroleum products are treated differently: petroleum crude, high speed diesel, motor spirit (petrol), natural gas and aviation turbine fuel. Section 9(2) CGST and Section 5(2) IGST say tax on these is levied only from a date the Government notifies on the Council's recommendation. Until that date, GST does not apply to them. The Act does not say GST is exempt forever. It says the levy starts on a notified date.

The text supplied to you does not mention tobacco. Do not claim a special levy provision for tobacco from Section 9. If a question mentions tobacco products, answer on the basis of the facts given and the general charging rule: they are taxable like other goods unless the question says otherwise.

The composition levy is a simple alternative to the normal scheme. A registered person whose aggregate turnover in the preceding financial year did not exceed ₹50 lakh may opt to pay tax at a prescribed rate on turnover, instead of normal tax under Section 9(1). The Government may raise the limit by notification, up to ₹1.5 crore. The Act caps the rates at 1% for manufacturers, 2.5% for restaurant-type supplies (para 6(b) of Schedule II) and 0.5% for other suppliers. The actual rates are prescribed in the rules.

The price of this simplicity is restrictions. A composition person cannot collect tax from the buyer and cannot claim input tax credit. Eligibility is also limited: no inter-State outward supplies, no supply through an e-commerce operator who must collect tax at source under Section 52, and so on. Under the normal scheme, you charge tax, claim credit and pay the net amount.

Key rules to remember

Alcohol for human consumption: Outside GST levy (Section 9(1) CGST; Section 5(1) IGST); Includes un-denatured extra neutral alcohol or rectified spirit used to make alcoholic liquor for human consumption (inserted w.e.f. 1-11-2024).
Five petroleum products: GST levied only from a date notified on the Council's recommendation (Section 9(2) CGST; Section 5(2) IGST); Products: petroleum crude, high speed diesel, motor spirit (petrol), natural gas, aviation turbine fuel.
Composition eligibility limit: Aggregate turnover in preceding financial year ≤ ₹50 lakh (Section 10(1)); The Government may notify a higher limit, not exceeding ₹1.5 crore.
Maximum composition rates under the Act: Manufacturer 1%; Schedule II para 6(b) supplies 2.5%; other suppliers 0.5% of turnover in State/Union territory; These are ceilings. The actual rate is prescribed by rules. Section 10(2A) allows up to 3% for some service providers who cannot opt under (1).
Composition person's position: No tax collected from recipient; no input tax credit (Section 10(4)); Applies to persons under Section 10(1) or 10(2A).
Lapse of option: Option lapses from the day aggregate turnover in a financial year exceeds the limit (Section 10(3)); Lapse operates with effect from that day.
Same PAN condition: All registered persons with the same PAN must opt, or none can; Proviso to Section 10(2) and 10(2A).

How to solve Tax on Specified Goods and Composition Levy questions

Use this method for any question on the special levy provisions or the composition scheme.

1Identify the goods or services. Is it alcohol for human consumption, one of the five petroleum products, or an ordinary supply?
2For alcohol for human consumption, state that it is outside the levy under Section 9(1) CGST and Section 5(1) IGST. Industrial alcohol is not covered by this carve-out.
3For the five petroleum products, state that GST applies only from the notified date. Check whether the question says a date has been notified.
4If the question is on composition, test the turnover: aggregate turnover in the preceding financial year against ₹50 lakh (or the notified higher limit).
5Test each eligibility condition: no inter-State outward supply, no taxable-exempt mix as barred, no e-commerce supply under Section 52, not a casual or non-resident taxable person, and same-PAN rule.
6Apply the rate on turnover in the State or Union territory, within the Act's ceilings, using the rate the question gives.
7State the consequences: no tax collected from the recipient, no input tax credit, and lapse of option if turnover crosses the limit.
8Conclude clearly in one line with the section number.

Quickest way: Four-question screen

When to use it: Use for MCQs and short theory questions where you must decide quickly.

Alcohol for human consumption? Not under GST levy.
One of the five petroleum products? Levy only from notified date.
Composition? Check turnover limit of ₹50 lakh first.
Then check inter-State supply and e-commerce supply. Either one rules out composition.
Composition person: no tax from buyer, no ITC.

Common mistakes in Tax on Specified Goods and Composition Levy

Saying alcohol is completely outside GST in every form.
Students remember only 'alcohol is outside GST'.
Fix: Say alcoholic liquor for human consumption, plus un-denatured extra neutral alcohol or rectified spirit used to make it. Other alcohol uses are not covered by this carve-out.
Writing that petroleum products are exempt from GST permanently.
Confusing deferred levy with exemption.
Fix: Write that tax is levied from a date to be notified on the Council's recommendation.
Adding tobacco to the list of excluded goods under Section 9.
Tobacco is often grouped with alcohol and petrol in notes.
Fix: Section 9(1) and 9(2) name only alcohol and the five petroleum products. Do not cite Section 9 for tobacco.
Testing composition eligibility on current-year turnover.
Reading 'turnover' loosely.
Fix: The entry test is aggregate turnover in the preceding financial year. The current year matters for lapse under Section 10(3).
Letting a composition person claim ITC or show tax on the invoice.
Treating composition as a lower rate on the normal scheme.
Fix: Section 10(4) bars collecting tax from the recipient and claiming input tax credit.
Applying composition to a person who makes inter-State outward supplies.
Focusing only on turnover.
Fix: Section 10(2)(c) and 10(2A)(b) bar anyone making inter-State outward supplies.

Worked examples

Example 1

Sunrise Traders in Pune has an aggregate turnover of ₹40 lakh in the preceding financial year. It sells only goods, all within Maharashtra and not through an e-commerce operator. It is not a manufacturer. Its turnover in the State this year is ₹30,00,000. Assuming a composition rate of 0.5% for other suppliers, is it eligible, and what is its composition tax?

Show the solution

Turnover test: ₹40 lakh does not exceed ₹50 lakh, so the limit is met.
Conditions: it supplies only goods, no inter-State outward supply, no e-commerce supply under Section 52, and is not a casual or non-resident taxable person.
It is a supplier of goods other than a manufacturer or restaurant-type supplier, so the 'other suppliers' ceiling of 0.5% applies.
Tax = 0.5% × ₹30,00,000 = ₹15,000.
Under Section 10(4), it cannot collect this tax from customers and cannot claim input tax credit.

Answer: Yes, it is eligible. Composition tax is ₹15,000, with no ITC and no tax collected from buyers.

Example 2

Ganga Spirits Ltd supplies alcoholic liquor for human consumption within Uttar Pradesh. It also supplies high speed diesel to a transporter. No date has been notified for levying GST on high speed diesel. Is GST leviable on either supply?

Show the solution

Alcohol: Section 9(1) CGST excludes supply of alcoholic liquor for human consumption from the levy. No CGST applies.
Diesel: high speed diesel is among the five products in Section 9(2). Tax is levied only from a date notified on the Council's recommendation.
The question says no date has been notified, so the levy has not yet started for diesel.
Conclusion: neither supply attracts CGST at present.

Answer: GST is not leviable on either supply. Alcohol for human consumption is outside the levy, and the levy on high speed diesel starts only from a notified date.

Exam tips

MCQs often test the exact list of five petroleum products. Memorise it as: crude, diesel, petrol, natural gas, ATF.
For composition, always state the turnover limit and its basis (preceding financial year) first.
In theory answers, quote the section number: Section 9(1), 9(2) and 10 CGST; Section 5 IGST.
For 14-mark questions, give a short comparison of composition versus normal scheme on tax collection, ITC, and eligibility.

Practice questions from Charge of Tax including Reverse Charge

Tax on Specified Goods and Composition Levy in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Tax on Specified Goods and Composition Levy: frequently asked questions

Is alcohol for human consumption under GST?

No. Section 9(1) CGST and Section 5(1) IGST exclude alcoholic liquor for human consumption from the levy. Since 1 November 2024 the exclusion also covers un-denatured extra neutral alcohol or rectified spirit used to make it.

Is GST charged on petrol and diesel?

Tax on petroleum crude, high speed diesel, petrol, natural gas and aviation turbine fuel is levied only from a date notified by the Government on the Council's recommendation. Check the question for whether a date is given.

What is the difference between the composition scheme and the normal scheme?

Under composition, you pay a small percentage of turnover, cannot collect tax from the buyer and cannot claim input tax credit. Under the normal scheme, you charge tax, claim ITC and pay the net amount.

Who can opt for the composition levy?

A registered person with aggregate turnover up to ₹50 lakh in the preceding financial year (or a notified higher limit up to ₹1.5 crore) who meets the conditions in Section 10. For example, no inter-State outward supplies and no supply through an e-commerce operator who must collect tax at source.