Taxmann’s Analysis | 50th GST Council Meeting Recommendations

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GST Council Meeting: Comprehensive Analysis of Recommendations

15th JULY, 2023

BACKGROUND

The 50th GST Council took place on 11th July 2023 in New Delhi. The meeting was chaired by Hon’ble Union Finance Minister Nirmala Sitharaman and attended by Group of Ministers (GoM). This is a landmark meeting, a milestone which indicates the success of cooperative federalism and establishment of Good and Simple Tax. The GST Council has taken some very important decisions on long pending issues to bring more clarity in taxation regime and fostering ease of doing business. These recommendations are largely classified into 6 broad buckets.

A. RECOMMENDATIONS HAVING SIGNIFICANT IMPACT

1. Taxability of online gaming, race courses and casinos at uniform rate of 28% on the full face value

• Recommendation to make amendment in Schedule III of CGST Act to bring online gaming, horse racing, and casino under the ambit of GST Law. It has recommended that all three namely Casino, Horse Racing and Online gaming to be taxed at the uniform rate of 28%

• Recommendation to levy tax on the face value of the chips purchased in the case of casinos; on the full value of the bets placed with bookmaker/totalisator in the case of Horse Racing; and on the full value of the bets placed in case of the Online Gaming.

TAXMANN’s Comments:

The GST council has proposed to levy GST @ 28% on the full value of gaming at par with levy on betting, gambling, and lottery. Regarding the valuation of the same, the council has recommended the transaction value as follows:

S. No. Particulars Transaction Value

1. Online gaming Full value of the bets placed

2. Horse Racing Full value of the bets placed with bookmaker/totalizator

3. Casinos Face value of the chips purchased

India is probably the only Country world-wide to levy GST on full value on all categories of online games.

The blanket proposal to levy GST on full face value on online gaming will possibly put an end to the sub-judice debate of ‘game of skill’ vs ‘game of chance’. This change will bring game of skill at par with wagering contracts which are in the nature of gambling and betting.

Implementation of this change will require a host of amendments under the GST law, especially with respect to the definition and taxability of actionable claims under GST.

What remains to be seen is whether this change is going to apply prospectively or will have a retrospective impact.

2. ISD mechanism for distribution of common input tax credit on third-party invoices is not mandatory

• Recommended to clarify that Input Service Distributor (‘ISD’) mechanism for distribution of common credit on third party invoices is not mandatory as per the present provisions of the GST law. It has been further recommended to make the ISD mechanism mandatory with prospective effect.

• Recommended to clarify issues regarding the taxability of internally generated services provided by one distinct person to another distinct person.

TAXMANN’s Comments:

The GST law provides1 that the entities having multiple places of business registered under a single Permanent Account Number (‘PAN’) are to be treated as distinct entities for the purpose of the GST law. Where supply is made between such entities, it would be considered as ‘supply’ under GST even if the same is made without consideration2.

Also, the law provides for ISD mechanism3 for the distribution of common input tax credit where third-party raises its invoice at one location of a registered taxpayer but the services are consumed at other place/places of the business having the same PAN.

In regard to the above, there was an uncertainty in the industry as to whether ISD mechanism is mandatory for transfer of such common credit or the same can be done by raising a tax invoice to location/locations where the services are consumed (popularly known as cross charge mechanism). The department has issued notices in past where the taxpayers have not complied with ISD mechanism and transferred the credit following cross charge mechanism.

The proposed clarification that the ISD mechanism is not mandatory has come as a sigh of relief to the industry. At the same time, industry would now need to prepare itself for ISD mechanism as the GST council has recommended to make this procedure mandatory henceforth. This amendment, once made, would require system changes and involve additional compliances for the taxpayers.

The clarification relating to internally generated services is also important to assess the implications relating to cross charge of supplies between distinct persons.

3. Classification of supply of food and beverages in cinema hall

• Recommended that the supply of food and beverages in the cinema halls is taxable as restaurant services where it is supplied by way of or as a part of service and supplied independently of the cinema exhibition service.

• Recommended that where the sale of cinema tickets and supply of food and beverages are clubbed together, the entire supply will attract GST at the rate applicable to the service of exhibition of cinema since such bundled supply satisfies the test of composite supply. Service of exhibition of cinema would be the principal supply.

TAXMANN’s Comments:

The GST law provides for the taxability of the composite supply4 of goods and/or services. It states that where a supply comprises of two or more taxable supplies of goods and/or services that are naturally bundled, supplied in conjunction with each other in the ordinary course of business, and one of them is the principal supply, then such supplies are considered as composite supply and are taxed at the rate as applicable to the principal supply.

Taxability of supply of food and beverage in cinema halls, has been a subject matter of dispute as supply of restaurant service or otherwise.

In this regard, the GST Council has recommended to clarify that the supply of food and beverage should be taxed as restaurant services @ 5% without ITC where they are supplied:

(a) by way of or as part of a service, and

(b) supplied independently of the cinema exhibition service

However, where the supply of food and beverage is clubbed with the service of exhibition of cinema, and such bundled supplies satisfy the test of composite supply, it would be taxable as a service of exhibition of cinema. Exhibition of cinema would be the principal supply in this case.

4. No GST is payable in case of warranty period replacement and no ITC reversal in the hands of manufacturer

• Recommended to clarify that no GST is payable on repair services and replacement of parts during warranty period. Also, there is no requirement for ITC reversal by the manufacturer on parts issued to fulfil warranty obligations.

TAXMANN’s Comments:

This is a welcome clarification in line with the position under the erstwhile indirect tax laws and decisions of various courts. The department has been raising concern on taxability on free of cost replacements and reversal of ITC in the hands of the manufacturer. While, the circular is likely to put to rest the controversy on the issue, we need to wait to read the fine print of the circular to examine the taxability on different commonly followed business models (such as advance replacements, credit note for reimbursement of cost of spares instead of actual replacement, etc.) surrounding warranty repair.

5. Clarification that services by director provided in his personal or private capacity are not taxable under RCM in the hands of company

• Recommended to clarify that RCM is not applicable to the services provided by a director of a company to the company in his personal or private capacity. Only those services provided by a director of a company or body corporate in his capacity as director of that company or body corporate shall be taxable under RCM in the hands of the company or body corporate.

TAXMANN’s Comments:

The GST law provides5 that where the services are provided by a director of a company or a body corporate to the said company or body corporate, such services are subject to GST under reverse charge mechanism.

The director of the company or a body corporate may also provide services in his personal or private capacity such as renting of immovable property. There existed a confusion regarding the applicability of RCM on such services which are provided in personal/private capacity.

Now, the GST Council has recommended to clarify that services given by a director of a company or body corporate in his personal/private capacity are not subject to GST under RCM.

6. Clarification that holding of securities of subsidiary company is not a service

• Recommendation to clarify that mere holding of securities of a subsidiary company by a holding company cannot be treated as a supply of service and therefore, cannot be taxed under GST.

TAXMANN’s Comments:

Notices have been issued by the GST department on the basis of the Scheme of Classification of Services provided in Notification No. 11/2017-Central Tax (Rate), dated 28-06-2017. The service code 997171 specifically provides for ‘services of holding equity of subsidiary companies’. Accordingly, notices were issued in below cases:

(a) When Indian holding company holds share capital in an Indian subsidiary company - Demand of GST under forward charge mechanism

(b) When foreign holding company holds share capital in an Indian subsidiary company - Demand of GST under RCM on account of import of services

To determine the value of supply, authorities have adopted the valuation methods outlined in Rule 28 of the CGST Rules. The Department has valued such supplies either based on a riskfree return, which is equivalent to the interest rate on fixed deposits, or by adopting Earning Per Share as the taxable value of each share.

Recently, the Karnataka High Court6 stayed the adjudication of show cause notices issued by the GST Department proposing the levy of GST in such cases.

The GST Council has now recommended to remove the ambiguity surrounding this issue. It will be clarified that mere holding of securities of a subsidiary company by a holding company cannot be considered as a supply of services and, therefore, cannot be taxed under GST. This is a welcome move which will put the litigations to rest. Also, CBIC may also look at clarifying the issues relating to holding of securities qua group companies.

7. Recovery of tax and interest where tax liability in Form GSTR-1 exceeds the tax liability as per Form GSTR-3B

• Recommendation to insert Rule 142B in the CGST Rules and to introduce Form GST DRC-01D to provide for manner of recovery of tax and interest as per Rule 88C where the tax has not been paid and for which no satisfactory explanation has been furnished by the registered person.

TAXMANN’s Comments:

As per the recommendations made in the 48th GST Council Meeting, a new Rule 88C was introduced with effect from 26-12-2022. This rule provides that if the tax payable as per Form GSTR-1 or IFF exceeds the amount of tax payable as per Form GSTR-3B by the specified amount/ percentage for a particular tax period, an intimation in Part-A of Form GST DRC-01B will be issued. The taxpayer is required to pay the differential amount along with interest or provide a response explaining the reasons for the discrepancy within 7 days of intimation.

It is important to note that Section 75(12) of the CGST Act, read with its Explanation, provide that where the self-assessed tax including the tax payable in respect of details of outward supplies furnished in Form GSTR-1 remains unpaid by a taxpayer in Form GSTR-3B then the same shall be recovered under Section 79 of CGST Act without taking the recourse of Section 73 or Section 74 of the CGST Act. This provision empowers GST authorities to directly initiate recovery proceedings without going through the regular demand procedure.

The GST Council has now recommended to insert Rule 142B in the CGST Rules and to introduce Form GST DRC-01D to provide for manner of recovery of tax and interest as per Rule 88C where the tax has not been paid and for which no satisfactory explanation has been furnished by the registered person.

It remains to be seen whether the taxpayer will be granted any further opportunity of being heard beyond the initial 7-days period before the recovery proceedings are initiated, or if the department can directly commence recovery by way of provisional attachment of bank account.

8. Mechanism to send System-based intimation where ITC availed in Form GSTR-3B exceeds ITC as per Form GSTR-2B

• Recommendation to insert Rule 88D and Form DRC-01C in the CGST Rules along with an amendment in Rule 59(6) of CGST Rules to provide for the mechanism for system-based intimation to the taxpayers in respect of the excess availment of ITC in Form GSTR-3B vis-a-vis Form GSTR-2B above a certain threshold.

• Recommendation to prescribe the procedure of auto-compliance on the part of the taxpayers, to explain the reasons for the said difference or take remedial action in respect of such differences.

TAXMANN’s Comments:

Section 16(2)(aa) of the CGST Act, along with Rule 36(4) of the CGST Rules, provide that input tax credit can be claimed when the supplier has furnished the invoice or debit note details in Form GSTR-1/IFF and those details have been communicated to the recipient in Form GSTR2B. In other words, a registered person cannot avail ITC in Form GSTR-3B in excess of ITC eligible as per Form GSTR-2B.

To address ITC mismatches and prevent misuse of the ITC facility, the GST Council has recommended to amend CGST Rules to introduce a system-based intimation mechanism. Under this mechanism, taxpayers would receive intimation in Form GST DRC-01C if they have availed excess ITC in Form GSTR-3B as compared to the ITC available in Form GSTR-2B beyond a certain threshold. Further, auto-compliance on the part of the taxpayer is prescribed by asking the taxpayer to furnish the reasons for the said difference or take remedial action in respect of such differences.

It is important to note that the intimation in Form GST DRC-01C relates to the excess availment of ITC. The adjudication procedure in such case should be in terms of the provisions of Section 73 or Section 74 of the CGST Act, as the case may be.

Additionally, the GST Council has recommended to amend Rule 59(6) of the CGST Rules. This amendment would introduce a restriction on filing Form GSTR-1 if the taxpayer fails to respond to the intimation in Form GST DRC-01C.

This procedure seems to be in line with the system-based intimation mechanism in the case of Form GST DRC-01B i.e. where tax liability in Form GSTR-1 exceeds the liability in Form GSTR-3B. Such type of system-based intimation mechanism reflects the proactive approach of the Government in addressing the non-compliance with the GST provisions. By utilizing technology and automation, while the government is effectively addressing various issues such as mismatches, misuse of credits, fake registrations, and non-compliance with GST

regulations, at the same time it requires taxpayers to be proactive to regularly monitor such notices and take timely actions to avoid any business disruptions.

9. Recommendation on manner of computing interest in case of wrong availment and utilisation of ITC

• It has been recommended to clarify that the interest on amount of wrongly availment and utilisation of IGST credit is to be calculated after considering the ITC balance in the electronic credit ledger under all the heads (i.e. IGST, CGST and SGST) under section 50(3) of the CGST Act, 2017 read with Rule 88 B of the CGST Rules, 2017.

TAXMANN’s Comments:

The GST law provides for order and manner of utilisation of credit wherein the IGST credit balance is to be utilised and exhausted before utilising the credit balances under CGST and SGST head. Therefore, in case where IGST credit is wrongly availed and utilised, the department may proceed to demand interest on such wrong availment and utilisation even though the taxpayer may have sufficient credit balance under CGST and SGST head. In order to take care of such eventuality, the GST Council has proposed to issue a circular to clarify that interest in case of wrong availment and utilisation of IGST credit is to be computed after taking into consideration the ITC balances under all the heads i.e. IGST, CGST, and SGST. Hence, no interest is payable till a taxpayer has sufficient credit balance under any of credit heads where the IGST credit was wrongly utilised.

10. Clarification on refund related issues

10.1. Clarification on refund of accumulated ITC to inward supplies reflected in GSTR-2B

• Recommendation to provide clarification that, effective 01-01-2022, for the calculation of refund of accumulated ITC, the ITC would be restricted to the supplies reflected in Form GSTR-2B of the said tax period or any previous tax period.

TAXMANN’s Comments:

After the amendment made on 01-01-2022, the ITC is allowed to the extent of supplies reflected in Form GSTR-2B. Hence, to align the refund provisions with the same, the Council has recommended to clarify that the ITC reflected in Form GSTR-2B would be eligible for refund w.e.f 01-01-2022. Prior to 01-01-2022, the refund was allowed on the supplies reflected in Form GSTR-2A.

10.2. Clarification on the calculation of adjusted total turnover for calculation of refund

• Recommendation to clarify that, effective 05-07-2022, for calculation of refund on zero rated supply under LUT, the adjusted total turnover should include the value of export of goods as per the explanation inserted via notification no 14/2022Central Tax, Dated 05-07-2022.

TAXMANN’s Comments:

Rule 89(4) of the CGST Rules, 2017 provides for the calculation of refund in case of export under LUT as under:

Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services)

× Net ITC ÷ Adjusted Total Turnover

An explanation was added in Rule 89, pertaining to the calculation of turnover of zero-rated supply of goods. The Rule states that the value of export goods is to be taken as lower of :

(a) the Free on Board (FOB) value declared in the Shipping Bill or Bill of Export form, as the case may be, as per the Shipping Bill and Bill of Export (Forms) Regulations, 2017; or

(b) the value declared in tax invoice or bill of supply

Based on the above, in the case of CIF contracts, the FOB value as declared in the shipping bill will be lower than the invoice value and the FOB value will be taken as the value of exported goods.

However, the adjusted total turnover still includes the value declared in the tax invoice which is the CIF value. This decreases the numerator and increases the denominator resulting in reduction in value of refund which is unjust for an exporter. So, to regularize this, it has been recommended to clarify that the value of adjusted total turnover is to be taken as the value of exported goods adopted in the calculation of refund and not the actual value.

10.3. Admissibility of refund even where export of goods made and/or payment received after the time prescribed in Rule 96A

• Recommendation to provide clarification that refund may be admissible to the exporter even if the export is made or payment is received after the expiry of time limit provided in Rule 96A of the CGST Rules.

TAXMANN’s Comments:

Rule 96A of the CGST Rules provides that the exporter who opts for export without payment of tax has to pay the tax along with applicable interest where:

(a) the exports are not made within three months of the issuance of the invoice, or

(b) the payment is not received within one year or such further period as allowed by the Commissioner from the date of issuance of invoice

However, no mechanism for refund is provided where the export is ultimately made or payment has been received after the expiry of time provided in the provision. Hence, it has been recommended to clarify the manner of refund in such cases. This is a welcome move as it would ease out the hardship in genuine cases.

11. Manner of verification of differences in ITC in Form GSTR3B and GSTR-2A for the period 01-04-2019 to 31-12-2021

• Recommendations of 48th Council meeting, a circular7 was issued to outline the process for verifying ITC in situations where there is a mismatch of the ITC as per Form GSTR-3B and Form GSTR-2A for the Financial Years (‘FY’) 2017–18 and FY 2018–19

• The Council has recommended to issue a circular to extend the similar procedure for verification of differences in ITC balances in form GSTR 3B and GSTR 2A for the period 01-04-2019 to 31-12-2021.

TAXMANN’s Comments:

Based on the recommendation of the 48th GST Council meeting, the CBIC issued a clarification prescribing the manner of verification process in case of mismatch in ITC balances as per Form GSTR 3B and GSTR 2A. The difference in ITC balance in the two forms are to be divided into following buckets:

(a) GSTR-3B is filed but GSTR-1 is not filed

(b) Both GSTR-3B and Form GSTR-1 are filed but supplies are not reported in Form GSTR-1

(c) Supplies made to a registered taxpayer (B2B supply) is wrongly reported as supplies to a unregistered person (B2C supply) in Form GSTR-1

(d) Both GSTR-1 and GSTR-3B is filed but the supply is declared with the wrong GSTIN of the recipient in Form GSTR-1

In order to deal with above issues of mismatch in ITC balances for the FY 2017-18 and FY 201819, it was provided as under:

S. No. Particulars Requirements

1. Difference in ITC pertaining to a supplier is more than Rs. 5 lakhs

A certificate from a Chartered Accountant (CA) or the Cost Accountant (CMA) is required, certifying that supplies in respect of the said invoices of the supplier have actually been made by the supplier to the said registered person and the tax on such supplies has been paid by the said supplier in his return in Form GSTR-3B. Certificate issued by CA or CMA shall contain UDIN.

S. No. Particulars Requirements

2. Difference in ITC pertaining to a supplier is upto Rs. 5 lakhs

A certificate from the concerned supplier is required to be obtained, certifying that the supplies in respect of the said invoices of supplier have actually been made by the supplier to the said registered person and the tax on such supplies has been paid by the said supplier in his return in FORM GSTR 3B

The GST Council in its 50th Council Meeting has recommended to issue a circular to provide a similar procedure for verification of ITC in cases involving differences in ITC availed in Form GSTR-3B and Form GSTR-2A during the period of 01-04-2019 to 31-12-2021 in order to provide further relief to the taxpayers.

12. Separate provision for place of supply of goods to unregistered person

• Recommendation to insert clause (ca) in section 10(1) of the IGST Act to clarify the place of supply in respect of supply of goods to unregistered persons.

TAXMANN’s Comments:

This appears to be an important amendment. However, we need to await for the notification to understand the implications of this recommendation.

B. CHANGES RELATED TO DISPUTE RESOLUTION MECHANISM

13. Amendment to Rule 108 and 109 to provide for manual filing of appeal under certain specified circumstances

• Recommendation to amend Rule 108(1) and Rule 109(1) of CGST Rules to allow manual filing of appeal in certain special circumstances.

TAXMANN’s Comments:

The GST law provides for the online filing of appeals through the common portal in Form GST APL-01. However, the law does not contain any provision for manual filing of appeals.

In case of Ali Cotton Mill8, the online appeal filed by the taxpayer was not received on the department website due to technical glitches. Hence the taxpayer filed a manual appeal. The department rejected the appeal on the ground that the provisions of GST law do not allow manual filing of appeal. The High Court of Andhra Pradesh held that the rejection of appeal merely on the ground that a manual appeal is filed due to technical glitches is not justified.

In order to take care of such eventualities, the GST Council has recommended to make necessary amendments in Rule 108(1) and Rule 109(1) of the CGST Rule to allow manual filing of appeal in certain specified cases.

This is a welcome move both from revenue and taxpayer’s point of view as it will resolve lot of procedural challenges in electronic filing of appeals.

14. Special procedure for filing manual appeal against orders in respect of Tran-1 and Tran-2

• Recommended to provide special procedure under Section 148 of the CGST Act to enable manual filing of appeal against the orders passed by the proper officer in respect of TRAN-1/ TRAN-2 claims of the registered persons, filed in pursuance of the directions of the Hon’ble Supreme Court in case of Union of India vs Filco Trade Centre Pvt. Ltd.

TAXMANN’s Comments:

The Hon’ble Supreme Court in the case of Filco Trade Centre Pvt. Ltd. (Supra) disposed off the special leave petition directing:

(a) The GSTIN portal to open the common portal for filing or revising the previously filed transitional credit forms for two months w.e.f. 01-09-2022 to 31-10-2022.

(b) A time period of 90 days was given to the department thereafter to verify the veracity of the claims and to pass appropriate order after granting reasonable opportunity of being heard.

Now, the GST Council has recommended to prescribe a special procedure9 for manual filing of appeal against the orders passed by the proper officer against the claims made in the specified time in Tran-1 and Tran-2 pursuant to the Supreme Court directions in Filco Trade Centre Pvt. Ltd. (Supra).

15. Recommendation to make the provisions relating to GST Appellate Tribunal effective

• Recommendation to issue the Rules governing appointment and conditions of President and Members of the proposed GST Appellate Tribunal for enabling smooth constitution and functioning of GST Appellate Tribunal (‘GSTAT’).

• Recommendation that provisions of Finance Act, 2023 pertaining to GSTAT may be notified by the Centre with effect from 01-08-2023, so that the same can be brought into operation at the earliest.

• Chief Secretary of Maharashtra to be nominated as one of the members of the Search cum selection committee as per Section 110(4)(b)(iii) of CGST Act 2017. The constitution of State-wise bench would be done in a phased manner.

TAXMANN’s Comments:

The GST law provides for a mechanism for filing an appeal to the Appellate Authority against the orders issued by the authorities. However, the Appellate Authorities have not been set up even after 6 years of GST implementation. The GST Council has recommended to make the provisions pertaining to GSTAT that were proposed in Finance Act, 2023 effective from 01-082023.

It is further recommended to prescribe the Rules regarding the appointment and conditions of the President and the Members of the proposed GSTAT. As discussed in 48th and 49th GST Council meeting, the Rules would include conditions regarding the educational qualification of the President and members, required experience etc.

Regarding the establishment of State Benches, it has been recommended to do it in a phasewise manner. In its press appearance, the Council stated that in the first phase, the focus would be on establishing benches in the State capitals and the place of High Court benches. In the first phase, the target would be of establishing around 50 Tribunals in a time span of 5-6 months.

This is a welcome change both from the judiciary and industry perspective. Presently, the litigations are moving to High Courts after the first appellate levels which is not only increasing the work-load at Courts but is also rendering the litigations expensive. Once the GSTAT is operational, we expect faster resolution to pending disputes.

9 Section 148 of the CGST Act

16. Compounding amount to be prescribed for various offences

• Recommendation to insert Rule 162 of the CGST Rules to prescribe the compounding amount for various offences under Section 132 of CGST Act

TAXMANN’s Comments:

Section 138 of the CGST Act grants taxpayers an option to compound offences under the GST law. The Finance Act 2023 has recently reduced the compounding amount to a minimum of 25% and a maximum of 100% of the tax involved. However, the specific compounding amounts are yet to be determined through rules. To facilitate this, the GST Council has recommended insertion of Rule 162, which will prescribe the compounding amounts for different offences. The aim of reducing the compounding amount is to encourage them to opt for compounding procedure. This would ultimately lead to a reduction in litigations.

C. MEASURES FOR STREMLINING COMPLIANCES IN GST

17. Goods Transport Agency (GTA) not required to file declaration in Annexure V on yearly basis

• Recommended that GTAs will not be required to file declaration on annual basis for paying GST under forward charge mechanism. If they have exercised this option for a particular financial year, it shall be deemed that they have exercised the option for the next and future financial years unless they file a declaration that they want to revert to payment of GST under Reverse Charge Mechanism (RCM).

• Further recommendation to provide that the last date of exercising the option by GTAs to pay GST under forward charge mechanism shall be 31st March of preceding Financial Year instead of 15th March. Further, 1st January of preceding Financial Year shall be the start date for exercise of option.

TAXMANN’s Comments:

With effect from July 18, 2022, a new mechanism was introduced for services by GTAs. Under this mechanism, if a GTA chooses to pay GST under the forward charge mechanism, they need to exercise this option before the start of the financial year. If the option is not exercised, the recipient of such service is required to pay GST under the reverse charge mechanism. To avail this option, a declaration in a specified format (Annexure V) needs to be filed with the GST authorities by 15th March of the preceding financial year.

To bring ease of compliances, the GST Council has recommended a change in the said mechanism. It is recommended that once an option is exercised, it will be considered as opted for the next year and subsequent years as well. If a GTA wishes to switch to the reverse charge mechanism, the same can be done by filing a declaration within the prescribed time frame.

In this regard, the Council has recommended a revised time limit of 31st March (as opposed to current time limit of 15th March) of the preceding FY for exercising the option by GTAs. Further, 1st January of preceding Financial Year shall be the start date for exercise of option. Just to reiterate, the declaration is required only once and subsequently when GTA intends to switch out from the payment structure of forward charge.

18. More IT System Reforms expected to curb frauds under GST

• Recommendation of various measures to curb frauds in GST by way of systembased measures for strengthening registration process in GST, more use of thirdparty data for risk management and controlling flow of fake input tax credit down the supply chain.

TAXMANN’s Comments:

The GST Council, in its 45th meeting, appointed a Group of Ministers to analyze, study and come up with ways and means to make IT system efficient, minimize tax evasion and offer other suggestions relating to improving coordination among tax administration. Various measures have been suggested by the GoM in their reports. Recently, many of these measures have been implemented by way of instructions and advisories on various aspects such as guidelines have been issued for processing of application for registration and Special All-India Drive against fake registrations.

As per the report of GoM, these measures may include online address verification of new and existing taxpayers with the help of Geo-coding, capturing electricity bill meta data (CA No.) during the registration process, validation of Bank Accounts of taxpayers through NPCI, etc.

In times to come, we expect more such advisories or instructions making use of artificial intelligence to plug areas of tax evasion and revenue leakages.

19. Implementation of E-way bill requirement for intra-state movement of Gold/ Precious stones

• Recommendation to insert Rule 138F in CGST Rules as well as in SGST Rules to mandate the requirement of generation of e-way bills for intra-state movement of gold and precious stones under Chapter 71.

TAXMANN’s Comments:

An e-way bill is required to be generated for movement of goods exceeding Rs. 50,000. However, certain strategic sectors are exempt from the requirement to generate the e-way bill which includes jewellery, goldsmiths’ and silversmiths’ wares and other articles (Chapter 71) except imitation jewellery.

However, certain States complaint about tax evasion and illegal movement of goods leading to revenue leakages. To safeguard the revenue, the Group of Ministers (‘GoM’) suggested that States should be allowed to decide to impose the requirement of e-way bill for intra-state movement of gold and precious stones within their States. The main reason for suggesting e-way bill was to enable the officials of field formation to identify whether the gold being transported was inter-state or intra-state.

Earlier, in the 47th GST council meeting, following recommendations were made by the GoM:

(a) Prescribe a minimum threshold of Rs. 2 lakhs and the States can decide any amount including or above this amount as minimum threshold for generation of e-way bill for intra-state movement of gold/precious stones.

(b) Only part ‘A’ of the e-way bill to be filled in such cases, without any need for filling Part ‘B’ of the e-way bill for security reasons.

In this regard, the GST Council has recommended to insert Rule 138F in the CGST Rules as well as respective SGST Rules to mandate the requirement of generation of e-way bills for intra-state movement of gold and precious stones under Chapter 71. This decision may cause hardships for the job-workers involved in the treatment or processing of gold and precious metals.

20. Special procedure to be prescribed for manufacturers of tobacco, pan masala and other similar items

• Recommendation for issuance of notification under Section 148 of CGST Act prescribing a special procedure to be followed by the manufacturers of tobacco, pan masala & other similar items inter alia for registration of machines and for filing of special monthly returns.

• Recommendation to insert Section 122A in the CGST Act for levy of penalty for non-registration of machines by such manufacturer.

• Recommendation to notify suitable amendment to the provisions of Section 16 of IGST Act to provide for restriction of IGST refund route in respect of exports of tobacco, pan masala and other similar items as well as mentha oil.

TAXMANN’s Comments:

In the 49th meeting, the GST Council had approved the measures suggested by the GoM in respect of tobacco, pan masala and other similar items. In this regard, one of the measures was implemented by the recommendations of the 49th meeting i.e. compensation cess on such products was changed from ad valorem to specific tax based levy to be collected from the manufacturer so as to protect revenue leakages in supply chain.

In order to plug revenue leakage on these products, certain additional compliance measures were identified by the GoM in its report10. These measures are summarized below:

(a) Registration and details of machines: The manufacturers of pan masala, chewing tobacco and such other tobacco products would be required to take registration of the machines used in manufacturing of such goods in addition to obtaining normal registration under GST. Details of machines such as make and model of each machine, number of tracks, packing capacity of each track, total packing capacity of each machine, total number of machines installed in the factory, etc. Needs to be furnished at the time of registration.

(b) Special monthly return: The manufacturer would be required to file a special monthly return to report various details such as machine-wise production, shift-wise production, inputs procured and utilized in quantity and value terms, product-wise and brand-wise details of clearance in quantity and value terms, shift-wise records of reading of electricity meters and DG set meters, waste generation stock, etc.

(c) Certification of production capacity: Production capacity and quantity in unit per pouch/container to be certified by a registered Chartered Engineer.

(d) Disclosure of details of non-working/partially working machines, etc.

(e) Penalty for non-registration of working machines: Heavy penalty to be proposed for running any unregistered machine.

(f) Allowing exports only against LUT with the consequential refund of accumulated input tax credit.

In this regard, the GST Council has recommended for issuance of notification to implement some of the above measures. These measures would help the Department to identify the potential revenue leakage.

21. Extension of specified Amnesty Schemes till 31-08-2023

• Recommendation to extend the amnesty scheme which expired on 30-06-2023 till 31-08-2023. The amnesty scheme was introduced to provide relaxation in case of specified defaults and regularisation of orders such as non-filing of Form GSTR-4, Form GSTR-9, and Form GSTR-10 returns, for the revocation of cancelled registration etc.

TAXMANN’s Comments:

Based on the recommendation of the 49th GST Council meeting, the Government has introduced amnesty schemes to provide relaxation to taxpayers in following scenarios: S.

1. Form GSTR-4 Late fee is applicable on failure to furnish Form GSTR-4 by the due date for the quarters from July, 2017 to March 2019 or for the Financial years from 2019-20 to 2021-22

2. Best Assessment Order12 Failure to furnish a valid return within a period of 30 days from the service of best judgment assessment order issued on or before 28-02-2023

If the said return is furnished between the period 01-04-2023 to 3006-202311, the late fee in excess of Rs. 500 (Rs. 250 CGST and Rs. 250 SGST) would be waived and in case of Nil return, the late fee would be completely waived.

Assessment order issued on or before 28-02-2023 shall be deemed to be withdrawn13 where:

(a) The registered person furnishes the said return on or before 30-062023

(b) The return is accompanied by payment of interest due and the late fee payable

S. No Particulars Description Relaxation

3 Revocation of cancelled registration Applicable to registered person whose registration is cancelled on or before 31-12-2022 due to the non-filing of GST returns

Registered person may apply for revocation of cancellation of registration up to 30-06-202314 after furnishing all the returns due upto the effective date of cancellation of registration and after the payment of any amount due as tax along with interest, penalty, and late fees in respect of such pending returns.

4 Form GSTR-10 Reduction in late fee in respect of the late filing of final return

Late fee in excess of Rs. 1,000 (Rs. 500 under CGST and Rs. 500 under SGST) would be waived15 where the return is furnished from 01-042023 to 30-06-2023

5 Form GSTR-9 & Form GSTR-9C Late fees where the registered person fails to furnish Form GSTR-9 and Form GSTR-9C for financial years upto 2021-22

Late fee in excess of Rs. 10,000 would be waived16 if the pending return is filed from 01-04-2023 to 30-06-2023

The GST Council has now recommended to extend the aforementioned amnesty schemes until 31-08-2023.

22. Amendment to strengthen registration process under GST

• Recommendation to amend Rule 10A, Rule 21A and Rule 59 of the CGST Rules to strengthen the registration process and to effectively deal with the menace of fake and fraudulent registrations.

• Recommendation to provide the details of bank account (linked with name and PAN of the registered person) to be furnished within 30 days of the grant of registration or before filing the statement of outwards supply under section 37 of CGST Act in Form GSTR-1/ IFF, whichever is earlier. In the absence to do so, the registration would be suspended and the person would not be allowed to file GSTR-1. Revocation of registration would be allowed only upon furnishing the bank account details.

• Recommendation to amend Rule 9 and Rule 25 of the CGST Rules to do away with the requirement that the physical verification of business premises is to be conducted in the presence of the applicant. Also to provide that physical verification will be done in high risk cases even where Aadhaar has been authenticated.

TAXMANN’s Comments:

In order to strengthen the registration process and to effectively deal with the menace of fake and fraudulent registrations, the GST Council has recommended suitable amendments in the CGST Rules in the following manner:

Sl. No. Recommendation

1. Amendment in Rule 10A:

Registered persons will be required to furnish details of their bank account (in the name and PAN of the registered person) within 30 days of grant of registration or before filing the statement of outward supply in Form GSTR-1/IFF under Section 37 of the CGST Act, whichever is earlier.

2. Amendment in Rule 21A(2A):

Registered persons who fail to furnish the details of a valid bank account within the prescribed time period will be subject to system-based suspension of registration.

3. Insertion of 3rd proviso in rule 21A(4): System-based suspensions will be automatically revoked upon necessary compliance as provided in Rule 10A of the CGST Rules.

4. Amendment in Rule 59(6):

Registered person who fails to provide valid bank details under Rule 10A may not be allowed to furnish the details of outward supplies in Form GSTR-1 or use the Invoice Furnishing Facility (IFF).

5. Amendment in Rule 9 and Rule 25:

The amendment in these rules eliminates the requirement for physical verification of business premises in the presence of the applicant to complete the registration process. Additionally, physical verification may be conducted in high-risk cases, even if Aadhaar authentication has been successfully complete.

Taxmann’s Comments

Under the current provisions of Rule 10A, a registered person is required to furnish details of its bank account (in the name and PAN of the registered person) within 45 days of grant of registration or before the due date of filing the return under Section 39, such as Form GSTR-3B, whichever is earlier.

The Council has proposed to declare bank details even before filing of Form GSTR-1. This change will help Government to safeguard its revenue.

The Council has proposed system-based suspension of GST registration which can hinder the continuity of business, restrict issuing valid tax invoices and ability to transfer credit to the recipient.

The revival of GST registration for taxpayers is dependent on the declaration of bank account details. Once the suspension is lifted, taxpayers will be liable to ensure full compliance such as timely filing of returns, issuance of proper GST documents, payment of tax, and fulfilling other conditions as prescribed in the GST law.

Inability to furnish Form GSTR-1 for a newly registered person can pose business continuity challenges. Additionally, the non-filing of Form GSTR-1 will lead to a restriction on filing Form GSTR-3B and this would affect the credit eligibility of the recipient.

Further, these taxpayers will incur an additional burden of late fee and interest liability for the period in default.

The CBIC vide Instruction No. 03/2023-GST, dated 1406-2023, has laid down a comprehensive guideline for verifying GST registration applications. The guidelines emphasize the department’s rigorous approach to physically verify the business premises, even if Aadhaar authentication is successfully done. To align the provisions with these instructions, suitable amendments have been proposed by the GST council.

Further, the existing Rule 25 of the CGST Rules mandates the presence of the applicant during the physical verification of premises. However, recognizing the practical challenges being faced by taxpayers and field formations, it is recommended to ease the process by conducting such verification in the absence of registered person.

23. Pilot for Risk-based biometric-based Aadhaar authentication to be conducted in Puducherry

• Recommendation for risk-based biometric based Aadhar authentication to conduct the pilot in Gujarat and Puducherry. Further, the State of Andhra Pradesh has also expressed its intent to join this pilot after the system’s readiness is tested in the State of Gujarat and U.T. of Puducherry.

TAXMANN’s Comments:

In tackling the menace of fake and fraudulent registrations, the GST Council vide its 48th meeting recommended to conduct a pilot in the State of Gujarat for Biometric-based Aadhaar authentication and risk-based physical verification of registration applicants.

Suitable, amendments were made in Rule 8 and Rule 9 of the CGST Rules vide Central Goods and Services Tax (Fifth Amendment) Rules, 2022, w.e.f. 26-12-2022 to facilitate the same.

The pilot test of Risk-based biometric-based Aadhaar authentication signifies the rigorous use of IT system reforms under the GST law.

24. Issuance of Notices under Section 46 in Form GSTR-3A for non-filing of Form GSTR-9 and GSTR-9A

• Recommendation to amend Form GSTR-3A to provide for the issuance of notice to the registered taxpayers for their failure to furnish Annual Return in Form GSTR-9 or Form GSTR-9A by the due date.

TAXMANN’s Comments:

According to Section 46 of the CGST Act, if a registered person fails to submit the returns in Form GSTR-3B, Form GSTR-9, Form GSTR-9A, etc., a notice in Form GSTR-3A is served requiring them to furnish the said returns within 15 days.

In order to improve the discipline in filing of annual return, the GST Council has recommended to amend Form GSTR-3A to provide for the issuance of notice to the registered taxpayers for their failure to furnish Annual Return in Form GSTR-9 or Form GSTR-9A by due date.

It is important to note that specific procedure has been laid down in Circular 129/48/2019GST dated 24-12-2019 in case of failure to furnish Form GSTR-3B. It appears that a similar procedure will be implemented for taxpayers who do not file their annual return in a timely manner.

25. New requirement for OIDAR service provider to furnish details of registered recipients in India in Form GSTR-5A

• Recommendation to amend Rule 64 and Form GSTR-5A of the CGST Rules to require OIDAR service providers to provide the details of supplies made to registered persons in India in return in Form GSTR-5A.

• This will help in tracking due payment of tax on reverse charge basis by such registered persons in India in respect of supplies received from OIDAR service providers.

TAXMANN’s Comments:

The GST Council has recommended to amend Rule 64 and Form GSTR-5A of the CGST Rules. The amendment would require OIDAR service providers to furnish details of supplies made to registered persons in India through Form GSTR-5A. This measure would enable the government to track registered persons who are obligated to pay IGST under the reverse charge mechanism for the import of OIDAR services.

26. Relaxation in respect of Form GSTR-9, GSTR-9A, and GSTR9C

26.1. Exemption from filing of annual return in FORM GSTR-9/9A

• A notification has been issued17 that exempts the registered person whose aggregate turnover in the FY 2021-22 is up to two crore rupees, from filing annual return for the said financial year. It has been recommended that the same exemption to be continued for FY 2022–23.

26.2. Relaxation in respect of various tables of Form GSTR-9 and Form GSTR-9C

• Recommendation has been made that the relaxations granted in FY 2021–2022 with regard to various tables of Form GSTR-9 and Form GSTR-9C should be continued for FY 2022–2023.

TAXMANN’s Comments:

The CBIC has issued a notification18 that provides some relaxations in order to simplify the reporting requirements in GSTR-9 and GSTR-9C for FY 2021-22. The same are given below:

In respect of Form GSTR-9

Table Particulars Relaxations

5A to 5F Details of Outward supplies made during the financial year on which tax is not payable

5H, 5I, 5J & 5K CN, DN, amendments

6B Inward supplies (other than imports and inward supplies liable to reverse charge but includes services received from SEZs)

6C & 6D Inward supplies received from unregistered/registered persons liable to reverse charge

This table can be filled net of credit notes, debit notes, amendments respectively, in case there is any difficulty in reporting such details separately

These can be netted off in Table 5A to 5F

Taxpayers shall report the breakup of ITC as capital goods and have an option to either report the breakup of the remaining amount as inputs and input services or report the entire remaining amount under the ‘inputs’ row only

Taxpayers shall report the breakup of input tax credit as capital goods and have an option to either report the breakup of the remaining amount as inputs and input services or report the entire remaining amount under the “inputs” row only. 2. Taxpayers have an option to either report Table 6C and Table 6D separately or report the consolidated details of Table 6C and 6D in Table 6D only

6E Import of goods (including supplies from SEZs)

Taxpayers shall report the breakup of ITC as capital goods and have an option to either report the breakup of the remaining amount as inputs and input services or report the entire remaining amount under the “inputs” row only.

7A to 7E Details of ITC reversed

Taxpayers have an option to either fill this information on reversals separately in Table 7A to 7E or report the entire amount of reversal under Table 7H only.

13 ITC availed for the previous financial year

15A, 15B, 15C, 15D, 15E, 15F, 15G

Particulars of Refunds & demands

16A, 16B & 16C Information on supplies received from composition taxpayers, deemed supply under section 143 and goods sent on approval basis

18 HSN Wise Summary of Inward supplies Optional

In respect of Form GSTR-9C

Table Particulars Relaxations

5B Unbilled revenue at the beginning of Financial Year

5C Unadjusted advances at the end of the Financial Year

5D Deemed Supply under Schedule I (+)

5E Credit Notes issued after the end of the financial year but reflected in the annual return

5F Trade Discounts accounted for in the audited Annual Financial Statement but are not permissible under GST

5G Turnover from April 2017 to June 2017

5H Unbilled revenue at the end of Financial Year

5I Unadjusted Advances at the beginning of the Financial Year

5J Credit notes accounted for in the audited Annual Financial Statement but are not permissible under GST

5K Adjustments on account of supply of goods by SEZ units to DTA Units

5L Turnover for the period under composition scheme

5M Adjustments in turnover under section 15 and rules thereunder

5N Adjustments in turnover due to foreign exchange fluctuations

14 Reconciliation of ITC declared in Annual Return (GSTR-9) with ITC availed on expenses as per audited Annual Financial Statement or books of accounts

While preparing Reconciliation of Gross Turnover in Table 5, it would be optional to not fill unbilled revenue, unadjusted advances and other few entries. If there are any adjustments required to be reported then the same may be reported in ‘Table 5O – Adjustments in turnover due to reasons not listed above

There will be an option to not fill ‘Table 14-Reconciliation of ITC declared in Annual Return (GSTR-9) with ITC availed on expenses as per audited Annual Financial Statement or books of account’.

The GST Council has recommended that the relaxation provided above in Form GSTR9 and Form GSTR-9C to be continued for FY 2022–23.

D. OTHER ADMINISTRATIVE CHANGES

27. Insertion of new Rule 162 to provide manner and conditions for consent-based sharing of information

• Recommendation to insert Rule 163 in the CGST Rules to provide for manner and conditions of consent-based sharing of information of registered persons available on the common portal with other systems.

• Further recommendation is made to issue notification under Section 158A of CGST Act for notifying ‘Account Aggregators’ as the systems with which information is to be shared by the common portal.

TAXMANN’s Comments:

The Reserve Bank of India (RBI) has included the Goods and Services Tax Network (GSTN) as a Financial Information Provider (FIP) on the Account Aggregator (AA) platform. This step has been taken to facilitate easy access to credit facilities for Micro, Small, and Medium Enterprises (MSMEs).

The AA platform is a non-banking financial company (NBFC) that specializes in retrieving and collecting financial information related to customers. AA securely transfers data from one financial institution to another based on the individual’s explicit instruction and consent. It is important to note that AA does not retrieve, share, or transfer any financial information of the customer without their explicit consent.

To facilitate this process, a new Section 158A has been introduced in the CGST Act vide the Finance Act, 2023. This section enables the consent-based sharing of information provided by a taxable person. It allows the common portal to share specific details furnished by a registered person with other systems as notified by the government, subject to fulfillment of prescribed conditions. In this regard, the GST Council has recommended to notify Accounts Aggregator as the system with which information is to be shared by the common portal.

Additionally, a recommendation has been made to introduce Rule 163, which will outline the manner and conditions for consent-based sharing of information of registered persons. The exact procedures for obtaining consent and sharing data will be defined through these rules.

28. Recommendation to form State level coordination Committee comprising of State and Central GST officers for knowledge sharing

• Recommendation to form a State level coordination Committee comprising of GST officers from both State and Central GST administrations for knowledge sharing on GST matters and coordinated efforts towards administrative and preventive measures.

E. MISCELLENEOUS RECOMMENDATIONS

29. Clarification to be issued regarding TCS liability in case of multiple E-Commerce Operators (‘ECOs’)

• Recommendation to clarify the TCS liability under section 52 of the CGST Act, 2017 in case multiple ECOs are involved in a single transaction.

TAXMANN’s Comments:

Under the GST law, every ECO is required to collect TCS at prescribed rate on value of taxable supply of goods/services sold through its platform. However, in cases where multiple ECOs are involved in a single online transaction, there is no clarity as to who should be liable for TCS compliances under GST.

The Law Committee comprising of Centre and State tax officers has recommended to the GST Council that in such a situation the TCS compliances should be done by the ECO who ultimately releases payment to the supplier of goods/services.

It is expected that GST Council is likely to issue a circular to clarify the tax position in line with the Law Committee recommendations.

30. Exemption on satellite launch services supplied by private entities

• The GST law currently provides an exemption on the services of satellite launch provided by the Indian Space Research Organisation, Antrix Corporation Limited, or New Space India Limited. However, it has been recommended by the GST Council to extend this exemption to include private sector organizations providing satellite launch services. This recommendation aims to promote and support start-ups in the private sector.

31. Supplies by Duty Free Shops (DFS) to incoming passengers to be included in value of exempt supply for reversal of input tax credit (ITC)

• Recommendation to insert Explanation after Rule 43 of CGST Rules to prescribe that the value of supply of goods from DFS at arrival terminal in international airports to the incoming passengers to be included in the value of exempt supplies for the purpose of reversal of input tax credit.

TAXMANN’s Comments:

Under the GST law, the ITC availed in relation to exempt supplies is required to be reversed in terms of Section 17(2) of the CGST Act read with Rule 42 and Rule 43 of the CGST Rules. Section 17(3) of the CGST Act provides the manner of computing the value of exempt supplies for the purpose of reversal of ITC. Notably, Explanation to Section 17(3) of the CGST Act provides that ‘value of exempt supply’ shall not include the value of activities or transactions specified in Schedule III of the CGST Act. However, the said provision is subject to certain exceptions.

One such exception was introduced through an amendment in the Finance Act 2023. This exception is in relation to activities or transactions prescribed under Para 8(a) of Schedule III which deals with the supply of warehoused goods to any person before clearance for home consumption. The purpose of this amendment is to ensure that the value of such supplies is not to be excluded while calculating the ‘value of exempt supply’ for the reversal of ITC.

It is worthwhile to note that goods stored in DFS, located within customs areas, are subject to customs duties upon the removal of goods for home consumption. These transactions are covered under the scope of Para 8(a) of Schedule III of the CGST Act.

In order to give effect to the amendment in Finance Act 2023, the GST Council has recommended to insert an Explanation after Rule 43 of the CGST Rules. This explanation would provide that the value of goods supplied from DFS at arrival terminals in international airports to incoming passengers should be included in the value of exempt supplies for the purpose of reversal of ITC, as per Rule 42 and Rule 43 of the CGST Rules.

32. Recommendation to extend the due dates of compliances for the state of Manipur

• Recommendation to extend the due date for filing of Form GSTR-1, Form GSTR3B and Form GSTR-7 for the months of April, May and June, 2023 for the registered persons of State of Manipur till 31.07.2023

33. Recommendation on amendment of Rule 46(f) of the CGST Rules

• To ease the compliance burden, clause (f) of Rule 46 of the CGST Rules, 2017 is proposed to be amended to provide that in the case of supply of taxable service by or through an ECO or by a supplier of OIDAR service to an unregistered recipient, only the recipient’s State to be provided on the tax invoice instead of recipient’s full name and address.

34. Recommendation on issuance of e-invoice for supplies made to Government departments

• Recommended to clarify that a registered person whose turnover exceeds the prescribed threshold for the generation of e-invoice is required to be issued for any supplies made to government departments, establishments, government agencies, local governments, PSUs, or other entities registered solely for the purpose of TDS.

F. RATE CHANGES IN GOODS

35. GST rate reduced on uncooked/unfried snack pallets to 5%

• Recommendation made to reduce the rate on uncooked/unfried snack pellets, by whatever name called, to 5%.

• Recommendation to regularize payment of GST on uncooked /unfried snack pellets on ‘as is basis’ for the past period.

TAXMANN’s Comments:

The proposed change is a welcome step for the industry which will put to rest the ongoing disputes on taxability of uncooked/unfried snack pellets at higher rates due to divergent views taken by various states advance ruling authorities.

36. IGST exemption on import of cancer-related drugs, medicines for rare diseases and Food for Special Medical Purposes (FSMP) used in treatment of rare diseases

• Recommendation made to exempt IGST on import of Dinutuximab (Quarziba) medicine when imported for personal use.

• Recommendation made to exempt IGST on medicines and Food for Special Medical Purposes (FSMP) used in the treatment of rare diseases enlisted under the National Policy for Rare Diseases, 2021 when imported for personal use subject to specified conditions.

• Similarly, IGST exemption is also being extended to FSMP when imported by Centre of Excellence for Rare Diseases or any person or institution on recommendation of any of the listed Centres of Excellence.

TAXMANN’s Comments:

Currently, import of cancer medicine Dinutuximab (Quarziba) attracts IGST @ 12%. The Fitment Committee has recommended to provide IGST exemption to reduce the overall cost so as to make it affordable for patients.

The Council has also recommended to provide IGST exemption on import of medicines used for rare diseases which are covered as per the National Policy for Rare Diseases, 2021.

Also, it is recommended to extend the exemption on food products given to patients of rare diseases when imported for personal use subject to certain conditions or imported by Centre of Excellence for Rare Diseases or any person or institution on recommendation of any of the listed Centres of Excellence.

37. Clarification on taxability of supply of raw cotton, including kala cotton, by agriculturists to cooperatives under RCM

• It has been clarified that supply of raw cotton, including kala cotton, by agriculturists to cooperatives is liable to GST under Reverse Charge Mechanism (‘RCM’).

• Recommendation to regularise issues relating for the past period on ‘as is basis’.

TAXMANN’s Comments:

Notification No. 4/2017-Central Tax (Rate), Dated 28-06-2017 provides for levy of tax under RCM on supply of raw cotton by Agriculturist to any registered person. This entry was introduced via Notification No. 43/2017-Central Tax (Rate), dated 14-11-2017, w.e.f. 15-11-2017. The GST Council has now recommended to clarify that such supply is liable to reverse charge under GST.

It was observed that several traders/institutional buyers have not paid GST under RCM on purchase of raw cotton from agriculturist. However, GST is duly paid on supply of final product under the forward charge mechanism. The department has issued notices raising tax demand along with interest on account of non-payment of GST under RCM on purchase of raw cotton from agriculturist. The GST Council has proposed to regularise these issues for the past period on ‘as is basis’ considering the same as revenue neutral exercise.

38. GST rate on imitation zari thread or yarn known by any name in trade parlance reduced from 12% to 5%

• Recommendation made to reduce GST on imitation zari thread or yarn known by any name in trade parlance from 12% to 5%.

• Recommendation to regularise payment of GST related to this matter on ‘as is basis’ for the past period.

TAXMANN’s Comments:

Currently, all types of metallised yarns or threads are classifiable under tariff heading 5605. Real zari manufactured with silver wire gimped (vitai) on core yarn namely pure silk and cotton and finally gilted with gold attracts 5% GST under tariff item 5605 00 10. However, other goods falling under this heading attract 12% GST. The Government vide Circular No. 52/26/2018-GST, dated 09-08-2018 had clarified that imitation zari thread or yarn known as ‘Kasab’ or by any other name in trade parlance, is liable to GST @ 12% under tariff heading 5605.

The proposed amendment seeks to reduce the GST rate on imitation zari thread or yarn known by any name called in trade parlance from 12% to 5%. It is further proposed to regularise the payment of GST on such goods on ‘as is basis’ for the past periods.

39. MUVs to be treated at par with SUVs for levy of 22% compensation cess under Entry 52B

• It has been decided to amend the entry 52B in compensation cess notification to include all utility vehicles by whatever name called provided they meet the parameters of Length exceeding 4000 mm and Engine capacity exceeding 1500 cc and having Ground Clearance of 170 mm and above.

• Recommendation to clarify by way of an explanation that ‘Ground clearance’ means Ground Clearance in un-laden condition.

TAXMANN’s Comments:

Entry 52B of Notification No. 1/2017-Compensation Cess (Rate), Dated 28-6-2017 provides that the compensation cess at the rate of 22% shall be levied on motor vehicles of engine capacity exceeding 1500cc, popularly known as Sports Utility Vehicles (SUVs) including utility vehicles. Further, the explanation to Entry 52B provides that for the purpose of this entry, SUVs include a motor vehicle of length exceeding 4000 mm and having ground clearance of 170 mm and above.

Further, compensation cess at the rate of 20% is levied on motor vehicles having engine capacity exceeding 1500cc other than those motor vehicles on which 22% Compensation Cess is levied.

Now, with the proposed amendment to levy compensation cess at the rate of 22% on all utility vehicles by whatever name called provided they meet the prescribed parameters, the classification disputes between SUVs and MUVs for levy of compensation cess will be put to rest.

40. GST rate reduced on LD slag from 18% to 5%

• Recommendation made to reduce GST rate on LD slag from 18% to 5% to encourage better utilisation of this product and protection of environment.

TAXMANN’s Comments:

LD Slag is solid waste produced during steel manufacture which can be used in various manufacturing industries such as cement, marine ecology, highways, etc. In order to promote the utilisation of this product and for protection of environment, it has been decided to reduce GST rate on LD slag from 18% to 5% on basis of report of fitment committee.

41. GST rate on fish soluble paste reduced from 18% to 5%

• Recommendation made to reduce the GST rate on fish soluble paste from 18% to 5%.

• Recommendation to regularize payment of GST on fish soluble paste on ‘as is basis’ for the past period.

TAXMANN’s Comments:

The fish meal industry which is majorly operating under MSME, has seen a negative impact with the implementation of GST on account of incremental rates on fish soluble waste paste, fish meal and fish oil. These products were exempt from tax under the erstwhile tax regime.

Since the introduction of GST, the industry was demanding for lower GST rates which was essential for its survival. Acceding to their request, the GST council has proposed to reduce GST rate on fish soluble paste from 18% to 5%.

42. Compensation cess levy on pan masala, tobacco products, etc. at ad valorem rate where retail sale price is not required to be declared

• It has been decided that on pan masala, tobacco products, etc., where it is not legally required to declare the retail sale price, the earlier ad valorem rate which was applicable till 31st March 2023 may be notified for Compensation Cess levy.

TAXMANN’s Comments:

During the 49th GST Council meeting, a decision was made to change the compensation cess on pan masala, tobacco products, and other items from an ad valorem tax to a specific tax based levy. This means that manufacturers will now be required to pay the cess based on the retail sale price of pan masala and chewing tobacco at the time it leaves the factory gate. The purpose of this decision is to prevent revenue leakages within the supply chain.

The Government issued Notification No. 2/2023-Compensation Cess (Rate), Dated 31-3-2023 to specify rate of compensation cess on the basis of retail sale price of unit (pouch) which is made effective from 1st April, 2023.

However, declaration of retail sale price is not a legal requirement for certain products. In such cases, it has been recommended to prescribe the earlier mechanism for levy of compensation cess at ad valorem rate as was applicable till 31st March 2023.

43. Other Miscellaneous Rate changes in goods

• Recommendation to regularize the matters relating to trauma, spine and arthroplasty implants for the period prior to 18-07-2022 on ‘as is basis’ in view of genuine interpretational issues.

• Recommendation to regularize the matters relating to desiccated coconut for the period 01-07-2017 to 27-07-2017 on ‘as is basis’ in view of genuine interpretational issues.

• Recommendation to regularise the issues relating to GST on plates and cups made of areca leaves prior to 01-10-2019.

• Recommendation to regularise the issues relating to GST on biomass briquettes for the period 01-07-2017 to 12-10-2017. In the 22nd GST Council Meeting held on 6th October, 2017, it was decided to reduce GST rate on biomass briquettes from 18% to 5%. Now, it is recommended to regularise the issues relating to GST on biomass briquettes for the period 01-07-2017 to 12-10-2017.

• Recommendation to include RBL Bank and ICBC Bank in the list of specified banks for which IGST exemption is available on imports of gold, silver or platinum and update the list of banks/entities eligible for such IGST exemption as per Annexure 4B (HBP) of Foreign Trade Policy, 2023.

• Consequential changes in notifications may be carried out in view of new Foreign Trade Policy, 2023.

CONCLUSION

A host of recommendations have been proposed at the 50th GST Council Meeting. It is relevant to note that these are only recommendations and it would be pertinent to analyse the fine print of the ensuing circulars and notifications to understand their impact on businesses and other stakeholders.

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Tel: +91-022-25934806/07/09, 25644807 | Mobile: 09322247686, +91-9619668669

Email: sales.mumbai@taxmann.com, nileshbhanushali@taxmann.com

Ahmedabad: 7, Abhinav Arcade, Ground Floor, Nr. Bank of Baroda, Pritam Nagar Paldi, Ahmedabad - 380007

Tel: +91-079-26589600/02/03 | Mobile: +91-9909984900, 9714105770, 9714105771

Email: bdurgaprasad@taxmann.com, sales.ahmedabad@taxmann.com

Hyderabad: 4-1-369-Indralok Commercial Complex Shop No. 15/1 - Ground Floor, Beside Hotel Jaya

International Reddy Hostel Lane Abids Hyderabad - 500001 Mobile: +91-9391041461/09322293945 | Email: bdurgaprasad@taxmann.com, sales.hyderabad@taxmann.com

Pune: Office No. 14, First Floor, Prestige Point, 283 Shukrwar Peth, Opp.Chinchechi Talim, Nr. BSNL office, Bajirao

Road, Pune - 411002

Mobile: 9822411811, 9834774266, 9322293945 | Email: sales.pune@taxmann.com

For Contact & Assistance: Tel. : +91-11-45562222 | E-mail : support@taxmann.com, sales@taxmann.com

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