Whether GST is payable on diesel cost component used in passenger transport service?

Yes GST payable if diesel is used as a component as some service, though diesel as an independent supply is out of GST.

We all agree that AC bus fares attract GST @5% as per Notification 11/2017- CTR.

Assuming that X booked a bus ticket in sleeper class from Hyderabad to Bangalore for Rs 1800 plus 5% gst.

Total Rs 1890 including gst. This is fine.

Let us take another example, if X bargains with a bus operator to let him pay Rs 1500 plus 5% GST and also let him pay remaing Rs 300 towards diesel refilling at fuel station to save 5% GST on diesel cost which is a cost component of passenger transport service in AC bus.

Assuming that bus operator agreed to X's proposal, can the department not demand GST on Rs 300 saying that GST is out of GST?. No.

Such artificial splitting of service costs are not allowed and if someone does like what X has done to split Rs 1800 into Rs (1500+300) , then Rs 300 is to be added to taxable value as per Section 15(2)(b) of CGST Act 2017.