Brief analysis of significant recommendations of 47th Meeting of GST Council (other than rate changes)

BRIEF ANALYSIS OF THE SIGNIFICANT RECOMMENDATIONS
OF THE 47TH MEETING OF THE GST COUNCIL
(OTHER THAN RATE CHANGES)

I. INTRODUCTION

The 47th meeting of the Goods and Services Tax Council was held on 28th and 29th June 2022 at Chandigarh under the chairmanship of Union Minister for Finance & Corporate Affairs Smt. Nirmala Sitharaman. The GST Council made several recommendations relating to changes in GST rates on supply of goods and services as well as changes related to GST law and procedure. The following write-up presents and briefly analyses the recommendations, which are significant in the author’s view, into following categories:

1. Recommendations relating to withdrawal of exemptions

2. Recommendations towards avoiding disputes/ litigation and providing clarity

3. Recommendations towards change in the method of collection of GST

4. Recommendations relating to trade facilitation

5. Recommendations relating to refund

6. Recommendations towards streamlining GST compliances

It is needless to state that the recommendations of the GST Council have no force of law until they are given effect through issuance of Notifications and/or Circulars by the Central Government and State Governments.

II. GIST OF SIGNIFICANT RECOMMENDATIONS OF THE 47TH GST COUNCIL

1. Recommendations relating to withdrawal of exemptions

1.1. Withdrawal of exemption on specified food items and grains sold in pre­packaged and pre-labelled retail packs in terms of Legal Metrology Act (including pre-packed, pre-labelled curd, lassi and buttermilk), irrespective of the fact that they are unbranded goods or that the right on the brand has been foregone.

1.2. Withdrawal of exemption on the service by way of renting of residential dwelling to business entities (registered persons). Hitherto service by way of renting of residential dwelling for use as residence was exempted irrespective of the status of the recipient. Ruling of West Bengal AAR in the case of Borbheta Estate (P.) Ltd.1 will now be infructuous.

1.3. Withdrawal of exemption to hotel accommodation priced up to Rs. 1,000 per unit per day. The same shall now be taxed at 12%. Assuming that the GST rates of the higher slabs remain unchanged, the revised slabs shall look as under:

1.4. Withdrawal of exemption to services supplied by RBI, IRDA, SEBI, FSSAI, GSTN.

1.5. Room rent (excluding ICU) exceeding Rs. 5,000 per day per patient charged by a hospital shall be taxed at 5% without ITC.

1.6. Exemption to training or coaching in recreational activities relating to arts or culture, or sports under Entry No. 80 of Notification No. 12/2017-CTR now restricted where supplier is an individual. Hitherto such exemption was granted to charitable entities registered under section 12AA or 12AB of the Income-tax Act, 1961.

2. Recommendations towards avoiding disputes / litigation and providing clarity

2.1. Pursuant to the recommendations of the GST Council at its 45th meeting, Circular No. 164/20/2021-GST was issued on 06.10.2021 to clarify that the supply of ice-cream by ice-cream parlours shall be treated as supply of goods liable to tax @ 18%. It has now been recommended that GST charged by the ice-cream parlours @ 5% without ITC (considering the same to be a supply of restaurant service) during the period from 01.07.2017 to 05.10.2021 shall be regularised to avoid unnecessary litigation.

2.2. Clarifications to the effect that –

a) Activity of selling space for advertisement in souvenirs published in the form of books is eligible for concessional rate of 5% GST.

b) Renting of vehicle with operator for transportation of goods on time basis is classifiable under Heading 9966 and attracts GST @ 18%. Further, where cost of fuel is included in the consideration charged for such service, the rate of GST is being prescribed at 12%.

c) Services provided by guest anchors to TV channels in lieu of honorarium attract levy of GST.

d) Sale of land after levelling, laying down of drainage lines, etc. is sale of land and does not attract GST.

e) Additional fee collected in the form of higher toll charges from vehicles not having Fastag is essentially payment of toll for allowing access to roads or bridges to such vehicles and shall be given the same tax treatment as given to toll charges.

f) Services in the form of Assisted Reproductive Technology (ART) / In Vitro Fertilization (IVF) are covered under the definition of “health care services” for the purpose of exemption under GST.

g) Renting of motor vehicles for transport of passengers to a body corporate for a period (time) is taxable in the hands of body corporate under RCM.

h) Electric vehicles whether or not fitted with a battery pack are eligible for concessional GST rate of 5%.

i) Sewage treated water is exempted from GST and is not the same as purified water provided in Entry No. 99 of Notification No. 2/2017-CTR. The word ‘purified’ is being omitted to make this amply clear.

2.3. The Council also recommended the issuance of circulars to remove ambiguity and legal disputes on several other issues such as applicability of demand and penalty provisions in respect of fake invoicing, mandatory furnishing of correct and proper information of inter-State supplies and ineligible / blocked ITC including reversal thereof in FORM GSTR-3B, interpretation of section 17(5) of CGST Act, utilisation of amounts available in the electronic credit ledger and electronic cash ledger for payment of tax and other liabilities, etc.

3. Recommendations towards change in the method of collection of GST

3.1. All taxable services supplied by the Department of Posts would be subject to forward charge. Hitherto certain taxable services of the Department of Posts were taxed on reverse charge basis.

3.2. Option to Goods Transport Agency (GTA) to pay GST at 5% or 12% under forward charge with exercise of option at the beginning of the financial year. Option of payment of tax by the recipient under reverse charge shall continue to remain in operation. The existing rate structure of GTA already gives an option to the GTA to supply its services @ 5% without ITC or 12% with ITC. However, GTA opting to pay tax @ 12% with ITC cannot change the option once exercised. Further, the services of GTA who opts to pay tax @ 5% without ITC are liable to tax under reverse charge when supplied to specified persons2, whereas GTA opting to pay tax @ 12% must collect the tax under forward charge. It appears that now where the GTA opts for payment of tax under forward charge, it would have an additional option to collect and pay tax at 5% without ITC or 12% with ITC and such option within the forward charge mechanism could be changed on a year-on-year basis. The exact modalities would be known once a notification is issued.

4. Recommendations relating to trade facilitation

4.1. In-principal approval to a scheme of relaxation for suppliers making supplies through E-Commerce Operators (ECOs). Scheme to be worked out by the Law Committee of the Council and to be tentatively implemented w.e.f. 01.01.2023, subject to preparedness of the GST portal and the ECOs. The scheme would cover the following aspects:

a) Where the aggregate turnover of a person making intra-State supply of goods through ECOs is under the prescribed threshold limit, such person would not be required to mandatorily get registered under GST under the provisions of sec. 24(ix) of CGST Act.

b) Composition taxpayers would be allowed to make intra-State supply through ECOs subject to certain conditions.

4.2. Recommendation to notify the retrospective amendment in section 50(3) of CGST Act at the earliest. The amendment states that interest will be payable on the wrongly availed ITC only when the same is utilised. Further, the rate of interest has been brought down from 24% p.a. to 18% p.a. with retrospective effect from 01.07.2017.

4.3. Recommendation of rules for providing the manner of calculation of interest under section 50 of CGST Act to remove ambiguities regarding the manner of calculation on interest. There has been a long-standing argument that in the absence of a prescribed manner of calculation of interest under section 50(1), as mandated by section 50(2), such interest cannot be charged at all. It appears that the GST Council has sought to correct this anomaly.

4.4. Exemption from filing annual return in FORM GSTR-9/9A for F.Y. 2021-22 for taxpayers having AATO up to Rs. 2 crores.

4.5. Additional modes of payment of GST in the form of Unified Payments Interface (UPI) and Immediate Payment Service (IMPS).

4.6. Amendment to Explanation 1 of rule 43 of CGST Rules to provide that there is no requirement of reversal of ITC for exempted supply of Duty Credit Scrips by the exporters.

4.7. Amendment in CGST Rules to provide for refund of unutilised ITC on account of export of electricity.

5. Recommendations relating to refund

5.1. Change in the formula prescribed under rule 89(5) of CGST Rules for calculation of refund on unutilised ITC on account of inverted rate structure to take into account utilisation of ITC on account of inputs and input services for payment of output tax on inverted rated supplies in the same ratio in which ITC has been availed on inputs and input services during the said tax period. Hitherto the formula took into account only the ITC availed on inputs. This recommendation is in line with the judgement of the Hon’ble Supreme Court in VKC Footsteps India Pvt. Ltd.3 wherein the Apex Court had strongly urged the GST Council to reconsider the said formula and take a policy decision to correct the anomalies therein. (Para 111)

5.2. Amendment in rule 96 of CGST Rules to provide for transmission of IGST refund claims of risky exporters in a system generated form to the GST authorities for processing with a view to expeditiously dispose such refund claims after due verification by GST officers.

5.3. Introduction of a new FORM GST PMT-03A for re-crediting the erroneous refund amount in the claimant’s electronic credit ledger where the claimant has reversed the erroneous refund amount along with interest and penalty, wherever applicable.

5.4. Withdrawal of special procedure for claiming refund by Duty Free Shops (DFS) under rule 95A of CGST Rules by rescinding the said rule, Circular No. 106/25/2019-GST and related notifications. Further, supplies by DFS at international terminals to outgoing international passengers shall be treated as exports and DFS shall be eligible to claim refund as exporters.

5.5. Time period from 01.03.2020 to 28.02.2022 to be excluded from calculation of the limitation period for filing refund applications under section 54 and 55 of the CGST Act, as well as for issuance of demand / order by proper officer in respect of erroneous refunds under section 73 of CGST Act. The aforesaid period would be excluded while calculating the limitation period of two years from the relevant date for filing applications for refund.

6. Recommendations towards streamlining GST compliances

6.1. Amendment in rule 21A of CGST Rules to provide for automatic revocation of suspension of registration in cases where the suspension was done by the system for non-compliance of section 29(2)(b) or 29(2)(c) of CGST Act relating to continuous non-filing of specified number of returns. The suspension shall be revoked automatically by the system once all the pending returns are filed on the portal by the taxpayer.

6.2. Proposal for comprehensive changes in FORM GSTR-3B to be placed in public domain for seeking inputs / suggestions of the stakeholders.

6.3. Limitation under section 73 for F.Y. 2017-18 for issuance of order in respect of demands linked with due date of annual return to be extended till 30.09.2023. Hitherto the due date was 06.02.2023 considering that the extended due date for filing annual return of F.Y. 2017-18 was 07.02.2020. Further, the last date for issuance of notice u/s 73(1) shall stand extended from 06.11.2022 to 30.06.2023. Therefore, the GST department shall have almost eight additional months to issue notices and pass orders u/s 73.

Notes:

1. All rate changes recommended by the GST Council will be made effective from 18.07.2022.

2. The above write-up is based on Press Release dated 29.06.2022 issued by the Ministry of Finance wherein the recommendations of the GST Council have been presented containing major item of decisions in simple language for information of all stakeholders. The recommendations would be given effect through relevant Circulars/ Notifications/ Law amendments which alone shall have the force of law.

3. This write-up does not purport to cover all the recommendations of the GST Council. It is intended to provide an overview of the significant recommendations. Specialist advice should be sought about your specific circumstances.

Disclaimer:

The Author assumes no responsibility or liability for any errors or omissions in the content of this write-up.