The GST Council held its 45th GST Council Meeting on 17 September 2021 in Lucknow. This meeting garnered a lot of attention from the larger audience and market owing to the fact that the Council was finally about to discuss the fate of bringing petrol and diesel within the four walls of GST taxation and to grant tax relief for ever important cancer and covid drugs and medicines.

The Union Finance Minister and state finance ministers discussed a host of other issues as well to ease the compliance burden and make the GST law more user friendly, while providing clarifications on certain contentious issues.

45th GST Council Meeting A wholesome discussion on multiple issues

The outcome of the GST Council meeting covered the following:

1. Relief measures in the wake of ongoing Covid-19.

2. Changes and clarifications related to GST rates and exemptions on goods and services.

3. Recommendations for changes in the GST law procedures and compliance mechanisms.

4. Other matters.

The above points are discussed and analyzed in detail below for the reader’s understanding:

1. Relief measures in the wake of ongoing Covid-19:

The government, while extending the concessional GST rate on certain Covid related drugs, have also notified additional drugs with reduced GST tax rate applicability. The same is tabulated below:

Sr No Particulars Drugs name Extension of reduced GST rate upto
1 Existing covid drugs with concessional GST tax rate 1. Amphotericin B – NIL rate

2. Remdesivir – 5 %

3. Tocilizumab – NIL rate

4. Anti-coagulants like Heparin – 5 %

31st December 2021
2 Additional Covid-19 related treatment drugs with concessional GST tax rate GST rate applicable – 5 %

1. Itolizumab

2. Posaconazole

3. Infliximab

4. Favipiravir

5. Casirivimab & Imdevimab

6. 2-Deoxy-D-Glucose

7. Bamlanivimab & Etesevimab

31st December 2021

Important observation:

While the government has continued the relief on drugs, the government has decided to not continue with the reduced GST rates relief provided in respect of specified medical equipment and devices (such as oxygen concentrators, ventilators, canula etc.), testing kits & machines, oximeters, sanitizers etc. Thus, the tax rate relief provided for such equipment’s and devices etc will end after its current validity till 30 September 2021.

2. Changes and clarifications related to GST rates and exemptions on goods and services:

  • The validity of GST exemption on transport of goods by vessel and air from India to outside India is extended upto 30 September 2022.
  • Some important GST rate changes that have been recommended for supply of goods / services by the GST Council with effect from 1st October 2021:

√ Ores and concentrates of metals such as iron, copper, aluminum, zinc and few others – rate increased from 5% to 18%

√ Specified renewable energy devices and parts – rate increased from 5% to 12% to reduce the inverted duty structure effect particularly in the wake of government’s effort to increase the use of renewable energy.

√ Cartons, boxes, bags, packing containers of paper etc. – rate increased from 12%/18% to 18%

√ Waste and scrap of polyurethanes and other plastics – rate increased from 5% to 18%

√ All kinds of pens – rate increased from 12%/18% to 18%

√ Miscellaneous goods of paper like cards, catalogue, printed material (Chapter 49 of tariff) – rate increased from 12% to 18%

√ Licensing services or the right to broadcast and show original films, sound recordings, Radio and Television programmes (to bring the tax rate at par with distribution and licensing services) – tax rate increased from 12% to 18%

√ Printing and reproduction services of recorded media where content is supplied by the publisher (to bring the tax rate at par with colour printing of images from film or digital media) – tax rate increased from 12% to 18%

  • From 1st January 2022, e-commerce operators have been made liable to pay GST on following services provided through it –

√ Instead of the restaurants, e-commerce operators/foods aggregators would be liable to pay GST on restaurant services/food supplies made through their platform (with some exceptions). The GST rate will be 5%.

√ Transportation of passengers carried out by it through any type of motor vehicle.

Important observation:

It is also pertinent to note that the government is not levying a new tax, it is just that the onus of payment of tax is shifted from the restaurant to the food delivery partners and thus, there will be no impact on the end consumers, as such.

The objective of the above change is to tap the evasion of GST payment by unregistered vendors (having turnover of less than INR 20 lakhs, in general cases) who are otherwise liable to pay GST (as they are making supplies through food aggregators). This would result in increase of compliance requirements by the e-commerce operators as well as the restaurants. The restaurants may be forced to keep separate books of accounts for their regular restaurant business and the business done through food aggregator apps, putting more burden on their overall compliance.

Another, important point to be considered is the different tax rates applicable to restaurants i.e. 5%, 12% and 18%. When the food aggregators will be asked to collect taxes, it will be important to note as to how the tax rates play out.

Further, taxability at the end of food aggregators also raises questions around applicability of TCS provisions on such transactions.

  • Relaxations have also been proposed in conditions relating to IGST exemption for import of goods on lease, where GST is paid on the lease amount, so as to allow this exemption even in following conditions:

√ such goods are transferred to a new lessee in India upon expiry or termination of lease; and

√ the lessor located in Special Economic Zone pays GST under forward charge

  • Necessary changes to be carried out in GST rates with effect from 1st January 2022 to correct inverted duty structure for footwear and textiles sector.
  • Group of Ministers (‘GoM’) to be setup to examine the inverted duty structure and its correction for major sectors, rationalizing the rates and reviewing exemptions for GST revenue augmentation.
  • GoM to be setup for discussion of ways and means of using technology to further improve compliance and strengthening the institutional mechanism for intelligence sharing and a coordinated effort of action taking by central and state governments. This will also include improved monitoring through an improved mechanism of e-way bill systems, e-invoice system and FASTag data.
  • The petroleum products will be kept outside the purview of GST for the time being. The sole reason for the discussion of this issue during GST Council meeting was the directive of Kerala High Court. This is because the Central and state governments are already at a tussle to compensate for the loss of revenue due to introduction of GST and bringing petroleum products within the GST will further hit one of the biggest revenues earning source for state governments.
  • ‘Carbonated Fruit Beverages of Fruit Drink’ and ‘Carbonated Beverages with Fruit Juice’ would attract GST rate of 28% and Cess of 12%.
  • Services by cloud kitchens/ central kitchens would be covered under the term ‘restaurant service and therefore attract GST of 5% (without input tax credit).
  • Services by way of grant of mineral exploration and mining rights would attract GST rate of 18% from 1st July 2017.
  • Alcoholic liquor for human consumption is not food and food products for the purpose of entry prescribing 5% GST rate on job work services in relation to food and food products.

3. Recommendations for changes in the GST law procedures and compliance mechanisms:

  • After the notification of amendment in CGST Act (Section 16) regarding matching of ITC with return filed by vendor, the ITC restriction rule currently allowing availment of mismatched credit to the extent of 5%, would be amended to restrict the availment of ITC only to the extent of the invoice and debit note details uploaded by the vendor in their GST returns and reflecting in GSTR-2B of the recipient.

Important observation:

This amendment will have a far-reaching consequence on small businesses in the long run because the taxpayer will have to unnecessarily defer the availment of credit merely because it is not appearing in GSTR-2A/ 2B. This will impact the credit ledger balance of the taxpayer, ultimately forcing them to discharge their output tax liability through cash payment and thus directly impacting there working capital.

  • The GST council has recommended the relaxation in filing of Form GST ITC-04 i.e. job work return under Rule 45(3) of CGST Rules, 2017. It has been recommended that ITC-04 would be required to filed as under:

√ Half yearly return instead of quarterly return to be filed by taxpayers having aggregate turnover during preceding FY is above INR 5 crores

√ Yearly return instead of quarterly return to be filed by taxpayers whose annual aggregate turnover during preceding FY is upto INR 5 crores

  • The GST law will be amended retrospectively with effect from 1st July 2017 to levy interest only in cases where the taxpayer has ‘availed and utilized ineligible input tax credit’ and not wherein ‘ineligible ITC has only been availed but not utilized’ by the taxpayer.

Important Observation:

There are several decisions wherein Court has ruled that interest is required to be charged only in respect of ITC which was wrongly availed and utilized. This is because mere wrong availment of credit does not result in any revenue loss the government per se.

It has been seen across the country that department is seeking interest even on ineligible credit which was merely availed but never utilized. However, several taxpayers had taken a conscious approach and refrained themselves from paying interest in cases where they have sufficient balance lying in their credit ledger. On a plain reading of the recommendation, it can be inferred by the taxpayer that no interest will be applicable in situations wherein taxpayer has wrongly availed ineligible ITC but has balance lying in electronic credit ledger to the extent of such ineligible ITC amount. Thus, it will be important to note the stance taken by department on this issue post GST Council recommendation.

Also, the government has not provided clarification on whether the taxpayers who have paid interest on such ineligible credit wrongly availed in past will be allowed to claim refund of such interest amount.

  • Subject to certain safeguards, unutilized balance in CGST and IGST CASH ledgers may be allowed to be transferred by an entity from one registration to another registration, without going through the refund procedure.

Important observation:

This change will allow the taxpayers to bypass the issue of applying for refund in states wherein they have balances lying in cash ledgers and at the same time making fresh cash payments in other states with tax liability. This will improve the working capital functioning of the taxpayer and have a lasting impact on the overall functioning of the taxpayer’s business.

  • Aadhaar authentication to be made mandatory for filing refund claim by the taxpayer and also for revocation of cancellation of registration.
  • In case of delayed filing of GSTR-1, late fee applicable will be auto-populated and collected in next GSTR-3B return filed by the taxpayer.
  • The refund claim will be disbursed in the bank account linked to the same PAN which was provided at the time of GST registration by the taxpayer.
  • With effect from 1st January 2022, the taxpayers will be barred from filing of GSTR-1 in case they have not filed the GSTR-3B for the previous month (necessary changes to be made in Rule 59(6) of CGST Rules, 2017).

Important observation:

At present, the GSTN portal disallows the taxpayer from filing of GSTR-1 if the taxpayer has failed to furnish the GSTR-3B return for immediately preceding 2 months (monthly filers)/ past quarter (quarterly filers). This will now change to 1 month from 1st January 2022. Through this change, the government wants to improve the taxpayer’s compliance with GST law, ensure timely reporting while safeguarding the government revenue at the same time.

  • Rule 36(4) of CGST Rules, 2017 will be amended after notification of Clause (aa) of Section 16(2) of CGST Act, 2017. This will restrict the availment of ITC in respect of invoices/ debit notes that are not reported by the supplier in its GSTR-1/ IFF and available to the recipient in Form GSTR-2B.

Important Observation:

The question arises as to whether or not the recipient is at fault wherein it has paid the full amount for invoice/ debit note but the supplier has not filed its GSTR-1. Should it be denied of the benefit to which it is in principal legally eligible.

This amendment will have a far-reaching impact on the conduct of business at large. The recipient can block the future payment to vendors for non-reporting. Further, it will entail the late fee and interest applicability at the time of delayed filings. Thus, it can create a vicious cycle with larger impact on the recipient as compared to the supplier.

4. Other matters:

  • The government will issue circulars in due course on below issues to remove ambiguity and legal dispute and benefit taxpayers at large:

√ Clarification on scope of ‘intermediary services’ under GST.

√ Clarification relating to interpretation of the term ‘merely establishment of distinct person’ specified in Section 2(6) of IGST Act, 2017.

√ From 1st January 2021, the date of issuance of debit note will determine the timelines prescribed under GST law for availment of ITC in respect of such debit note. The date of issue of original invoice will no longer be relevant for availment of ITC in respect of such invoice.

Important observation:

The recommendation is explained through the below table:

Sr No. Amendment Invoice date Debit note date Time limit for availment of ITC on DEBIT NOTE
1 Before 1st January 2021 20 March 2020 15 July 2020 Due date of filing of GSTR-3B for September 2020 i.e. upto 20 October 2020.
2 On or after 1st January 2021 20 March 2021 15 July 2021 Due date of filing of GSTR-3B for September 2022 i.e. upto 20 October 2022.

√ There would be no need to carry the physical copy of tax invoice in case of ‘e-invoice’.

Note: The government has already issued relevant circulars providing clarification on above topics. Please read my other article – ‘Clarifications on contentious GST issues by CBIC’.

The 45th GST Council meeting was the first meeting held physically since the inception of Covid pandemic last year and the meeting proved fruitful from the perspective that several important issues were discussed in detail and shows the government’s commitment towards making GST a Goods and Simple Tax.

*****

Disclaimer: The above article is based on the information provided on the basis of author’s understanding of the GST Council press release and the tax laws, tax rules, various tax platforms, the relevant circulars and notifications and the author’s personal view of the tax law. Please refer to the latest law and consult the author before forming an opinion basis the information provided above as tax laws are subject to frequent changes. The author is not responsible for any issues arising as a result of opinion based on the above article without consultation. The author can be contacted on [email protected]

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