The 48th GST Council meeting was held virtually from New Delhi on Saturday, December 17, 2022. The meeting was presided over by Union Finance Minister Smt Nirmala Sitharaman. This blog will examine numerous recommendations made during the meeting including decriminalising some violations, raising the bar for commencing a taxation case to Rs 2 crore, and minimising the sum charged to individuals in cases of multiple violations committed by them. It will also discuss the key issues which were not discussed due to paucity of time.
Recommendations:
The Council did not increase tax on any item. Instead, the Council recommended reducing GST on biofuel from 18% to 5%. Besides, the Council also recommended a reduction of the GST on ethyl alcohol or biofuel supplied to refineries for blending with motor spirit (petrol) to five percent from the current eighteen percent. Ethyl alcohol sold to petroleum distribution organisations for mixing with petrol is presently chargeable under the GST at a reduced value of five percent. When ethyl alcohol is delivered to the independent oil and gas industry, where the increased percentage of 18% applies, the subsidised price is not available. The Committee recommends that the benefit of a subsidised price be extended in cases where ethyl alcohol is supplied to the oil and gas industry for the purpose of mixing gasoline. According to the National Policy on Biofuels, petroleum manufacturers must boost the proportion of ethanol/ethyl alcohol in gasoline to 20 percent by April 1, 2023. According to the regulation, the proposed revision appears to encourage the use of ethyl alcohol in refineries.
Incentives are paid to banks by the central government under a scheme for promoting RuPay. The administration has offered a framework under which they reimburse a predetermined proportion of the amount of money transfers completed via RuPay Debit Cards or BHIM-UPI to banking institutions in an attempt to establish a comprehensive online money transfer environment and encourage RuPay and BHIM-UPI transfers among sections of the population, in addition to further strengthening digital money transfers in the nation. In this regard, the Council has clarified that debit cards and BHIM-UPI transactions are in the nature of subsidies and thus not taxable under the GST.
One of the major initiatives taken was to implement a single definition of Sports Utility Vehicle in the country for clarity for automakers and for tax implications. The GST Council clarified the definition of SUVs for the levy of a 22 percent compensation cess. Currently, SUVs attract GST of 28% and a 22% cess, bringing the effective tax rate to 50%. However, states do not have a consistent definition of defining a vehicle as an SUV, which leads to confusion. A clarification was given at the council meeting that the higher rate of compensation cess of 22% is applicable to a motor vehicle fulfilling the following four conditions: “popularly known as an SUV, engine capacity exceeding 1,500 cc, length exceeding 4,000 mm, and ground clearance of 170 mm and above.” This appears to be consistent with the Maharashtra AAR judgement in the matter of M/s Tata Motors Limited, Re.
Decriminalisation of Offences:
The government has been steadily phasing out criminal provisions of law over the last year. For instance, in company law, a large number of provisions have been removed from criminal prosecution. The government is trying to create a business friendly environment where taxpayers are assured that they will not be victimised for any minor or obvious mistakes. In the case of the GST, the government is accepting the fact that people are willing to pay the tax. GST collections are soaring massively; they reached 1.46 lakh crore in November 2022. It can be concluded that the business environment has become pro-GST and the government is trying to improve the ease of doing business by taking away criminal prohibitions.
The GST Council’s recommendation to decriminalise offences is groundbreaking. There are twelve specified offences for prosecution under Section 132 of the Central Goods and Services Tax Act. Section 69 of the CGST Act gives the inspector the authority to imprison someone if they suspect the individual has committed a crime under Section 132.
The first welcome change is that the threshold limit for GST avoidance, Input Tax Credit wrongfully availed or employed, or reimbursement wrongfully obtained or engaged in initiating proceedings against an individual who engages or induces to undertake and preserve the profit emerging from some wrongdoings has been raised from one crore to two crore rupees for all the twelve specified offences except for fake invoices. For fake invoices, the limit remains at Rs. 1 crore. The objective is to offer reassurance to local firms, as pursuing a conviction might not be a wise decision for them. The idea may provide corporations with an alternative to resolving repeated charges.
The Council recommended decriminalising three kinds of offences: obstruction, or preventing any officer from discharging his duties, deliberate tampering with material evidence; and failure to supply information. Significantly, substantial criminal penalties were previously included in the GST statute as a preventative step to protect against tax breaches. The decriminalisation of the aforementioned acts is a positive step because it will increase confidence in performing company functions efficiently. In addition, it will avoid penal consequences such as jail time and fines imposed following a conviction.
Another suggestion given by the GST Council is to minimise the sum charged to individuals when many violations are committed. Section 138 specifies the lowest and highest sums imposed when multiple breaches are compounded. The lowest and highest amounts that can be compounded are 50% and 150% of the income tax charged, respectively. It is suggested that the above-mentioned limits be reduced to 25% and 100%, respectively. The lowering of cumulative charges will be an enticing option for avoiding lawsuits while also improving the Ease of Doing Business.
Unaddressed issues:
Several concerns were scheduled to be discussed during the session. One of the major things that has not been discussed is the setting up of an Appellate Tribunal. The demand for the GST Tribunal is based on the last five years because the high courts are overburdened. Presently, any person aggrieved by any order of the GST Authority has to approach the high court. The expectations of setting up appellate tribunals, something that would decongest the high courts, have not been met. This demand was raised a number of times, and it is the need of the hour, but no decision could be taken on it at the GST council meeting. This means all of the disputes will continue to clog the high courts. There are some concerns about setting up an Appellate Tribunal. The primary concern is its effectiveness. The work of many tribunals has not been exemplary. Another concern here is that the tax regime is very specialised. So, these tribunals, whenever they are formed, should be chaired by experts only, whether in the field of tax or GST.
One of the major things that has not been discussed is the rate of GST, which is considerably high from an economic point of view. Statistically speaking, a tax rate of 18% for any individual represents a relatively high level of taxation.
The biggest change from the consumer’s point of view is still something that has not been done: taxing newly developed areas of technology like pharmaceuticals and also online gaming and gambling. Tobacco and gutkha taxes have also not been addressed.
Such significant topics could not be addressed because of a lack of time. The 49th GST Council meeting is now likely to discuss this issue.
Conclusion:
Both the central and state governments will now focus on efforts to widen the GST base, indicating that this will be a key strategy in maintaining robust revenue collections. In response to a question on maintaining revenue buoyancy in the wake of normalising economic growth rates, many members of the GST Council feel the need for further expanding the tax base. Widening the tax base implies adding more GST registered entities. At present, there are 14 million GST registered entities.
There is no question that the aforementioned explanation would provide certainty on the contested tax issues. Furthermore, despite being a key item on the agenda, no decision has been made on a few crucial topics such as the establishment of a GST Tribunal, the taxability of online gaming, and a system to combat tax fraud in pan masala and gutkha industry. It is hoped that the next Council Meeting will be conducted soon, and that decisions on these essential topics will be made as soon as possible.
To sum up, the necessary modifications to the CGST Act must be made, which can be accomplished by including them in the forthcoming Union Budget. A finance bill or corresponding ordinance has to be brought to make the changes in the respective CGST and all state SGST Acts. A GST Council decision means corresponding changes to the CGST and SGST laws. So the respective states and the centre have to implement the changes. For early implementation of recommendations, a notification or a circular can be issued within two to three days.
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Author Details:
1. Aayushi Choudhary is a third-year student at Gujarat National Law University, Gandhinagar.
2. Tanishq Sharma is a third-year student at Gujarat National Law University, Gandhinagar.
Author Bio
