Two officials in the know said the coal ministry has proposed to the finance ministry that it announce the waiver in the union budget for FY24.

The final decision will be taken by the GST Council.

"For any player whether it is Coal India or someone else, ₹400 (per tonne) extra gets added as GST compensation cess. If you gasify, you would make methanol, ammonia that can also be produced from natural gas and petroleum. There is no burden of the ₹400 per tonne in feedstock for natural gas, then why are you putting the burden on this (coal)?" argued one of the officials mentioned above.

Coal gasification, the process by which coal is turned into fuel gas, is considered as a cleaner option than burning coal.

The gas produced through the process can be used to produce gaseous fuels such as hydrogen, methane, methanol and ethanol.

The other official said the coal ministry has received a positive response from the finance ministry.

Queries sent to the ministries of coal and finance remained unanswered till press time.

The development comes on the back of the government's ambitious goals to gasify coal and tap the fossil fuel for cleaner uses. The Centre aims to achieve a target of 100 million tonnes of gasified coal by 2030.

Most of the coal produced in India is utilized in thermal power plants. With the power sector moving toward renewable sources, the use of coal for thermal power generation will come down in long run, intensifying demand for alternative uses of coal.

Last November, the government launched the National Coal Gasification Mission with an aim to map the gasification potential of coalfields, and develop indigenous technologies suitable for various feedstock ranging from low-ash to high-ash coal.

The mission document suggested the waiver of GST of compensation cess.

"It is imperative to note that coal gasification provides a cleaner and alternative approach for utilization of coal. In view of the above, the GST compensation cess of ₹400 per tonne on the quantity of coal consumed and/or sold for coal gasification is proposed to be waived."

If the cess is removed, it could cut the cost of producing methanol by around ₹800-900 per million tonne.

According to the mission document the waiver will not entail any revenue loss as it is proposed only on incremental coal use for gasification.

The Centre has also advised coal companies to appoint a nodal officer and prepare action plans for gasifying at least 10% of their coal production. The government has also made a provision for a 20% rebate in revenue-share for the coal used for gasification provided the quantity used for gasification is at least 10% of total coal production.