Critical Analysis of the decisions taken and recommendations made as part of 47th GST Council Meeting held on 28-29 June 2022 at Chandigarh.

The GST Council’s 47th meeting that was held in Chandigarh on 28th and 29th June 2022 under the chairmanship of the Union Finance & Corporate Affairs Minister has inter-alia made some very impactful recommendations relating to changes in GST rates, law, and procedure. While trying to analyze the recommendations it can be comprehended that they can be put broadly into five (05) important silos i.e.,

  • Trade Facilitation oriented;
  • Clarifications on various issues with an intention to bring simplicity.
  • Rate Rationalization to remove inverted duty structure
  • Withdrawal of Exemptions
  • Measures Streamlining Compliance

(A) Trade facilitation measures

1. The council has given its in-principal approval for relaxation in the provisions for suppliers making supplies through E-Commerce Operators (ECOs), wherein waiver of the requirement of mandatory registration under section 24(ix) of CGST Act has been proposed especially for person supplying goods through E-Commerce Operators, subject to certain conditions, such as

  • the aggregate turnover on an India basis does not exceed the turnover specified under sub-section (1) of section 22 of the CGST Act and notifications issued thereunder;
  • the person is not making any inter-State taxable supply

Critical Analysis of recommendations made at 47th goods and services tax Council Meeting

The second important relaxation is with reference to the Composition Levy. Composition taxpayers would now be allowed to make intra-State supply through e-commerce operators subject to certain conditions as may be imposed later. The details of the scheme is expected tol be worked out by the Law Committee of the Council. The scheme would be tentatively implemented with effect from 01.01.2023, subject to preparedness on the portal as well as by E-Commerce Operators.

2. In order to bring better harmony on the subject of refunds especially on account of inverted duty structure amendment in formula prescribed in sub-rule (5) of rule 89 of CGST Rules, 2017 has been proposed. This is expected to bring more ease in processing of Refund applications and expeditious sanction. Now, the change in formula for calculation of refund under rule 89(5) will take into account utilization 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. This would facilitate those taxpayers who are availing ITC on input services also.

3. An amendment in CGST Rules 2017 has been proposed for handling of pending IGST refund claims in respect of Zero-rated supplies on payment of Tax. In some cases where the exporter is identified as risky exporter requiring verification by GST officers, or where there is a violation of provisions of Customs Act, the refund claims in respect of export of goods are suspended/withheld. Now with the proposed amendment in rule 96 of the CGST Rules 2017 it has been recommended to provide for transmission of such IGST refund claims on the portal in a system generated FORM GST RFD-01 to the jurisdictional GST authorities for processing. This would result in expeditious disposal of such IGST refund claims, after due verification by GST officers, thus benefitting such exporters with faster disbursement of their due claims.

4. Further, Re-credit of amount in electronic credit ledger is to be provided in those cases where erroneous refund amount sanctioned to a taxpayer on account of accumulated ITC or on account of IGST paid on zero rated supply of goods or services, in contravention of rule 96(10) of the CGST Rules, is deposited by him along with interest and penalty, wherever applicable. A new FORM GST PMT-03A is introduced facilitating for the same. This will enable the taxpayers to get re-credit of the amount of erroneous refund, paid back by them, in their electronic credit ledger.

5. As part of the budget exercise the provisions of Clause (c) of section 110 and section 111 of the Finance Act, 2022 are to be notified by Central Government at the earliest. These provisions relate to-

  • retrospective amendment in section 50(3) of CGST Act, with effect from 01.07.2017, to provide that interest will be payable on the wrongly availed ITC only when the same is utilized;
  • amendment in sub-section (10) of section 49 of CGST Act to provide for transfer of balance in electronic cash ledger of a registered person to electronic cash ledger of CGST and IGST of a distinct person.

The rules providing for the manner of calculation of interest under section 50 of CGST Act have also been recommended for more clarity. This will remove ambiguities regarding manner of calculation of interest and will also provide for transfer of balance in CGST and IGST cash ledgers between distinct persons, thereby improving liquidity and cash flows of such taxpayers. This has been a long demand of the taxpayers which has now been considered favorably by the council.

6. The GSTC also has recommended for Waiver of late fee for delay in filing FORM GSTR-4 for FY 2021-22 and also extension of due date for filing FORM GST CMP-08 for Q1 of FY 2022-23. Accordingly, late fee under section 47 for delay in filing FORM GSTR-4 for FY 2021-22 has been extended by approximately four more weeks, i.e. till 28.07.2022. As one may be aware, now the existing waiver is for the period from 01.05.2022 till 30.06.2022. Further, the due date of filing of FORM GST CMP-08 for the 1st quarter of FY 2022-23 has been extended from 18.07.2022 to 31.07.2022.

Critical Analysis of recommendations made at 47th GST Council Meeting

7. Negative Liability in Ledgers: – A negative Liability Statement refers to a report available on the GST portal that shows any negative summary in Form CMP-08 for the present quarter that will be carried forward to the next quarter for adjustment against the next quarter’s liability. Balance in the Negative Liability Statement can be known at the closure of the financial year upon submission of GSTR-4 of previous years. Liability paid through Form GST CMP-08 is auto-populated in table 5 of the GSTR-4 for the convenience of the taxpayers. Taxpayers who do not fill up table 6 of GSTR-4 i.e. no liability is declared, even though, the taxpayer may have paid the liability through Form GST CMP-08; since the ‘Tax payable’ in GSTR-4 is computed after reducing the liability declared in GST CMP-08 and then auto-populated in table 5. Thus, if nothing is declared in table 6, then the negative liability entry appears in GSTR-4. To Nullify Negative Liability Adjustment, an aggrieved taxpayer may write to the jurisdictional GST officer or raise a ticket on the grievance portal as soon this issue comes to his notice as a first step. In the past, a lot of tickets were received on the GSTIN Helpdesk for reducing the negative liability from the Negative Liability Statement and the same was being done on a case-to-case basis. An advisory was also issued on the portal to properly overcome the same. This had created some difficulty to the taxpayers and now the council has directed the GSTN to expeditiously resolve the issue of a negative balance in Electronic Cash Ledger being faced by some of the composition taxpayers.

8. The Present exemption of IGST on import of goods under AA/EPCG/EOU scheme is to be continued and E-wallet scheme not to be pursued further. To recollect, earlier it was proposed by the GSTC to have an e-wallet for every exporter. The e-Wallet scheme is basically the creation of electronic Wallets, which would be credited with notional or virtual currency by the DGFT on the basis of the past record of exports. This notional/virtual currency would be used by the exporters to make the payment of GST / IGST on the goods imported/procured by them so their funds are not blocked. On submission of the proof for exports, the amount will be credited to the exporter’s account subsequently facilitating free credit flow. The restriction of this scheme is that the advance amount cannot be encashed thus limiting its usage only for the GST payment.

(B) Issuance of the following circulars in order to remove ambiguity and legal disputes on various issues, thus benefiting taxpayers at large:

9. Clarificatory circulars in order to remove ambiguity and legal disputes on various issues, thus benefiting taxpayers at large have been issued broadly on the following subjects: –

  • Clarification on issue of claiming refund under inverted duty structure where the supplier is supplying goods under some concessional notification.
  • Clarification on various issues relating to applicability of demand and penalty provisions under the CGST Act in respect of transactions involving fake invoices.
  • Clarification on mandatory furnishing of correct and proper information of inter-State supplies and amount of ineligible/blocked Input Tax Credit and reversal thereof in return in FORM GSTR-3B.
  • Clarification in respect of certain GST related issues pending for a long time.
  • Clarification on the issues pertaining to refund claimed by the recipients of supplies regarded as deemed export;
  • Clarification on various issues relating to interpretation of section 17(5) of the CGST Act 2017 on blocked credits;
  • Clarification on the issue of perquisites provided by employer to the employees as per contractual agreement and consequent Tax liability;
  • Clarification on utilization of the amounts available in the electronic credit ledger and the electronic cash ledger for payment of tax and other liabilities.

10. Now an Exemption from filing annual return in FORM GSTR-9/9A for FY 2021-22 has been recommended to be provided to taxpayers having AATO upto Rs. 2 crores.

11. As per entry number 122A of notification number 2/2017-Central Tax (Rate), dated 28-6-2017, sale of duty credit scrips are exempted from GST. The provisions of Section 17(2) of the CGST Act, 2017, which provides that where the goods or services or both are used by a registered person partly for effecting taxable supplies including zero-rated supplies and partly for effecting exempt supplies, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies. There are some exclusions given through explanation 1 to Rule 43 which excludes some particular exempt income from calculation of exempt supplies like services by way of accepting deposits, extending loans or advances. However, there is no specific exclusion given to above subject matter which leaves us pondering on whether reversal is required of Common credit for MEIS/ SEIS sales?

Now, Explanation 1 after rule 43 of CGST Rules is to be amended to provide that there is no requirement of reversal of input tax credit for exempted supply of Duty Credit Scrips by the exporters.

12. UPI & IMPS to be provided as an additional mode for payment of Goods and Services Tax to taxpayers under Rule 87(3) of CGST Rules 2017 in line with the presently popular financial transactions.

13. In respect of refunds pertaining to supplies to SEZ Developer/Unit, an Explanation to be inserted in sub-rule (1) of rule 89 of CGST Rules to clarify that “specified officer” under the said sub-rule shall mean the “specified officer” or “authorized officer”, as defined under SEZ Rules, 2006.

14. Amendment in CGST Rules to provide for refund of unutilized Input Tax Credit on account of Export of Electricity. This would facilitate the exporters of electricity in claiming refund of utilized ITC on zero rated supplies.

15. Supplies from Duty Free Shops (DFS) at international terminal to outgoing international passengers to be treated as exports by DFS and consequential refund benefit to be available to them on such supplies. Rule 95A of the CGST Rules, Circular No. 106/25/2019-GST dated 29.06.2019 and related notifications are to be rescinded accordingly.

(C) Rate Rationalization to remove inverted duty structure [Approval of recommendations made by GoM on rate rationalization]

16. With a primary objective of removing the distortions on account ot the inverted duty structure, on the basis of the recommendations made by the rate GoM on rationalization.

On the Supply of Goods front

  • GST on Printing, writing or drawing ink increased from 12% to 18%
  • GST on Knives with cutting blades, Paper knives, Pencil sharpeners and blades therefor, Spoons, forks, ladles, skimmers, cake-servers etc, increased from 12% to 18%
  • GST on Power driven pumps primarily designed for handling water such as centrifugal pumps, deep tube-well turbine pumps, submersible pumps; Bicycle pumps increased from 12% to 18%
  • GST on Machines for cleaning, sorting or grading, seed, grain pulses; Machinery used in milling industry or for the working of cereals etc; Pawan Chakki that is Air Based Atta Chakki; Wet grinder increased from 5% to 18%
  • GST on Machines for cleaning, sorting or grading eggs, fruit or other agricultural produce and its parts, Milking machines and dairy machinery increased from 12% to 18%
  • GST on LED Lamps, lights and fixture, their metal printed circuits board increased from 12% to 18%
  • GST on Drawing and marking out instruments increased from 12% to 18%
  • GST on Solar Water Heater and system increased from 5% to 12%
  • GST on Prepared/finished leather/chamois leather / composition leathers increased from 5% to 12%
  • GST on Refund of accumulated ITC not to be allowed on Edible oils & Coal

While on the Supply of Services

  • GST on Services supplied by foreman to chit fund increased from 12% to 18%
  • GST on Job work in relation to processing of hides, skins and leather increased from 5% to 12%
  • GST on Job work in relation to manufacture of leather goods and footwear increased from 5% to 12%
  • GST on Job work in relation to manufacture of clay bricks increased from 5% to 12%
  • GST on Works contract for roads, bridges, railways, metro, effluent treatment plant, crematorium etc increased from 12% to 18%
  • GST on Works contract supplied to central and state governments, local authorities for historical monuments, canals, dams, pipelines, plants for water supply, educational institutions, hospitals etc. & sub-contractor thereof increased from 12% to 18%
  • GST on Works contract supplied to central and state governments, union territories & local authorities involving predominantly earthwork and sub-contracts thereof increased from 5% to 12%

17. In order to have a better understanding and ease of comprehension all these changes in rate structure are tabulated for comfort of reference as follows:-

S. No. Description From To
GOODS
1. Printing, writing or drawing ink 12% 18%
2. Knives with cutting blades, Paper knives, Pencil sharpeners and blades therefor, Spoons, forks, ladles, skimmers, cake-servers etc 12% 18%
3. Power driven pumps primarily designed for handling water such as centrifugal pumps, deep tube-well turbine pumps, submersible pumps; Bicycle pumps 12% 18%
4. Machines for cleaning, sorting or grading, seed, grain pulses; Machinery used in milling industry or for the working of cereals etc; Pawan Chakki that is Air Based Atta Chakki; Wet grinder; 5% 18%
5. Machines for cleaning, sorting or grading eggs, fruit or other agricultural produce and its parts, Milking machines and dairy machinery 12% 18%
6. LED Lamps, lights and fixture, their metal printed circuits board; 12% 18%
7. Drawing and marking out instruments 12% 18%
8. Solar Water Heater and system; 5% 12%
9. Prepared/finished leather/chamois leather / composition leathers; 5% 12%
10. Refund of accumulated ITC not to be allowed on flowing goods:

(i) Edible oils

(ii) Coal

Services
11. Services supplied by foreman to chit fund 12% 18%
12. Job work in relation to processing of hides, skins and leather 5% 12%
13. Job work in relation to manufacture of leather goods and footwear 5% 12%
14. Job work in relation to manufacture of clay bricks 5% 12%
15. Works contract for roads, bridges, railways, metro, effluent treatment plant, crematorium etc. 12% 18%
16. Works contract supplied to central and state governments, local authorities for historical monuments, canals, dams, pipelines, plants for water supply, educational institutions, hospitals etc. & sub-contractor thereof 12% 18%
17. Works contract supplied to central and state governments, union territories & local authorities involving predominantly earthwork and sub-contracts thereof 5% 12%

Other GST rate changes recommended by the Council

S. No. Description From To
Goods
1. Ostomy Appliances 12% 5%
2. Orthopedic appliance- Splints and other fracture appliances; artificial parts of the body; other appliances which are worn or carried, or implanted in the body, to compensate for a defect or disability; intraocular lens 12% 5%
3. Tetra Pak (Aseptic Packaging Paper) 12% 18%
4. Tar (whether from coal, coal gasification plants, producer Gas plants and Coke Oven Plants. 5%/18% 18%
5. IGST on import of Diethylcarbamazine (DEC) tablets supplied free of cost for National Filariasis Elimination Programme 5% Nil
6. Cut and Polished diamonds 0.25% 1.5%
7. IGST on specified defence items imported by private entities/vendors, when end-user is the Defence forces. Applicable rate Nil
Services
1. Transport of goods and passengers by ropeways. 18% 5%

(with ITC of services)

2 Renting of truck/goods carriage where cost of fuel is included 18% 12%

(D) Withdrawal of Exemptions

18. GSTC has also recommended withdrawal of a number of Exemptions which were causing a lot of distortions and complications in implementation leading to evasion / avoidance of tax.

Hitherto, GST was exempted on specified food items, grains etc when not branded, or right on the brand has been foregone. It has been recommended to revise the scope of exemption to exclude from it prepackaged and pre-labelled retail pack in terms of Legal Metrology Act, including pre-packed, pre-labelled curd, lassi and butter milk.

19. In case of the following goods, exemption from GST will be withdrawn:

a. Cheques, lose or in book form (Nil to 18%)

b. Maps and hydrographic or similar charts of all kinds, including atlases, wall maps, topographical plans and globes, printed (Nil to 12%)

c. Parts of goods of heading 8801 (Nil to 18%)

20. In case of the following goods, the exemption in form of a concessional rate of GST is being rationalized:

a. Petroleum/ Coal bed methane (5% to 12%)

b. Scientific and technical instruments supplied to public funded research institutes (5% to applicable rate)

c. E-waste (5% to 18%)

21. In case of Services, following exemptions are being rationalized:

i. Exemption on transport of passengers by air to and from NE states & Bagdogra is being restricted to economy class;

ii. Exemption on following services is being withdrawn.

    • Transportation by rail or a vessel of railway equipment and material/storage or warehousing of commodities which attract tax (nuts, spices, copra, jaggery, cotton etc.) Fumigation in a warehouse of agricultural produce.
    • Services by RBI,IRDA,SEBI,FSSAI,GSTN.
    • Renting of residential dwelling to business entities (registered persons).
    • Services provided by the cord blood banks by way of preservation of stem cells Like CETPs,
    • common bio-medical waste treatment facilities for treatment or disposal of biomedical waste shall be taxed at 12% so as to allow them ITC
    • Hotel accommodation priced upto Rs. 1000/day shall be taxed at 12%
    • Room rent (excluding ICU) exceeding Rs 5000 per day per patient charged by a hospital shall be taxed to the extent of amount charged for the room at 5% without ITC.
    • Tax exemption on training or coaching in recreational activities relating to arts or culture, or sports is being restricted to such services when supplied by an individual.

(E) Measures streamlining compliance: –

22. The Provision for automatic revocation of suspension of registration in cases where suspension of registration was done by the system under Rule 21A(2A) of CGST Rules, for non-compliance in terms of clause (b) or clause (c) of sub-section (2) of section 29 [continuous non-filing of specified number of returns], once all the pending returns are filed on the portal by the taxpayer. (Amendment in rule 21A)

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

24. Time period from 01.03.2020 to 28.02.2022 to be excluded from calculation of the limitation period for filing refund claim by an applicant under section 54 and 55 of CGST Act, as well as for issuance of demand/ order (by proper officer) in respect of erroneous refunds under section 73 of CGST Act. Further, limitation under section 73 for FY 2017-18 for issuance of order in respect of other demands linked with due date of annual return, to be extended till 30th September, 2023.

25. The Council directed that the Group of Ministers on Casino, Race Course and Online Gaming re-examine the issues in its terms of reference based on further inputs from States and submit its report within a short duration.

26. The next GST Council meeting (48th) is proposed to be held during the first week of August 2022 at Madurai, TamilNadu.

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