GST Council is a constitutional body set up under Article 279A of the Constitution of India. Its main aim is to make recommendations to the Union and the State pertaining to matters of GST. In order to meet its objectives, the GST Council conducts periodical meetings wherein the representatives of both the Union and the States meet to discuss and make certain recommendations with consensus. As of today, a total of 47 meetings have been held by the Council.
The 47th GST Council Meeting was held on 28th and 29th June 2022 in Chandigarh. After a lot of discussion, a number of recommendations were made by the Council with regard to the inverted duty structure, change in rate of GST, withdrawal of certain exemptions, trade facilitation as well as GST compliances. The aim of this article is to discuss in detail certain recommendations of the Council as well as their corresponding circulars.
INVERTED DUTY STRUCTURE
Sometimes, the rate of tax on inputs purchased is more than the rate of tax on outward supplies. Accordingly, the registered person is left with unutilized Input Tax Credit (“ITC”). In such a situation, the registered person can claim cash refund from the department as per the provisions of Chapter 11 of the Central Goods and Service Tax Act, 2017 (“CGST Act”). This structure of refund is termed as Inverted Duty Structure.
In order to curtail the use of Inverted Duty Structure, the Council has suggested changes in the rate of certain items so that they come outside the purview of Refund.Example: for manufacture of printing ink, one of the input is pigments (item no. 3212). The rate of GST on pigments is 18% whereas the rate of GST on printing ink was 12%. Therefore, the manufacturer of ink was entitled to a refund under the inverted duty structure. Now, the rate of GST on printing ink is increased to 18% to eliminate the need to issue refund.
The Department vide circular no. 173/05/2022, dated 06.07.2022 also clarified that where the suppliers are supplying goods under some concessional notification, they can continue to claim refund under the Inverted Duty Structure.
EXEMPTION FOR RESIDENTIAL DWELLING
As per the Blacklaw’s dictionary, Residential dwelling means living in a certain place permanently or for a considerable period of time. Under the GST law, renting of residential dwelling was exempted under Notification no. 12/2017 Central Tax (Rate), dated 28.06.2017, whether such supply was made to a registered person or an unregistered person. The GST Council, in its 47th meeting has recommended that where the residential dwelling has been rented to a registered person for the purpose of dwelling, such supply shall now be taxable under the reverse charge mechanism. Therefore, the service of renting of residential premises is taxable if the following conditions are fulfilled-
i. The premises rented must be residential and not commercial
ii. The premises rented must be rented to a registered person
iii. The premises must be rented for the purpose of dwelling
Thus, if you are a registered person and you have rented a residential premises for the purpose of dwelling, you will be liable to pay GST on the service of renting. However, no compliance has to be made by the landlord whatsoever.
In order to bring the recommendationin force, Notification No. 5/2022- Central Tax (Rate), dated 13-7-2022 has been issued whereby Entry 5AA has been added to the list under Notification no. 13/2017 Central Tax (Rate), dated 28.06.2017.
EXEMPTION FOR HOSPITAL ROOMS
Under the GST law, healthcare services are exempted under Notification no. 12/2017 Central Tax (Rate), dated 28.06.2017, whether such supply was made to a registered person or an unregistered person.
As per para 2(zg) of the said notification, healthcare services means any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised system of medicines in India and includes services by way of transportation of the patient to and from a clinical establishment, but does not include hair transplant or cosmetic or plastic surgery, except when undertaken to restore or to reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, injury or trauma.
In its 47th meeting, the GST council recommended to withdraw the exemption on hospital rooms the rent of which is more than Rs. 5,000/- per person per day except for ICUs. Thus, the rooms have been bifurcated in the following three categories-
a) Intensive Care Units (ICUs), Critical Care Unit (CCU), Intensive Cardiac Care Unit (ICCU), Neo Natal Intensive Care Unit (NICU)
b) Other rooms with rent of less than Rs. 5,000/- per patient per day
c) Other rooms with rent of more than Rs. 5,000/- per patient per day
For category (c), exemption is recommended to be withdrawn and the GST shall be paid on the same at the rate of 5% without ITC. Notification no. 03/2022- Central Tax (Rate) read with Notification No. 04/2022- Central Tax (Rate), both dated 13.07.2022 have been issued to insert this change with effect from 18.07.2022.
However, it is interesting to note that the service of hospital room is always supplied in the form of composite supply with healthcare services, where the healthcare services are the primary supply. Since the primary service, i.e, healthcare services are still exempted, the ancillary service of hospital room shall also stand exempted.
PRE- PACKAGED GOODS
One of the most discussed change post the 47th Meeting of the GST Council was pertaining to withdrawal of exemption on non- branded pre- pachaged commodities. Under the GST law, food items, grains etc. which were not branded or the right on the brand has been foregone were exempted from GST. The GST Council in the 47th meeting has recommended to revise the scope of the exemption to exclude from it pre-packaged and pre-labelled retail pack in terms of Legal Metrology Act, 2009, including pre-packed, pre-labelled curd, lassi and butter milk.
By a bare reading of the recommendation, it is apparent that the same shall be applicable on pre-packaged commodities on which the Legal Metrology Act, 2009 is applicable. So it becomes important to discuss the relevant provisions of the Legal Metrology Act, 2009 and Legal Metrology (Packaged Commodities) Rules, 2011. Section 2(l) of the Legal Metrology Act, 2009 defines a pre- packaged commodity as-
“2….(l) pre- packaged commodity means a commodity which without the purchaser being present is placed in a package of whatever nature, whether sealed or not, so that the product contained therein has a pre- determined quantity.”
The rules pertaining to packages intended for retail sale are stated under the Legal Metrology (Packaged Commodities) Rules, 2011. Rule 3 states that the rules are applicable on-
(a) packages of commodities containing quantity of more than 25 kilogram or 25 litre;
(b) cement, fertiliser and agricultural farm produce sold in bags above 50 kilogram; and
(c) packaged commodities meant for industrial consumers or institutional consumers.
The packages on which Legal Metrology (Packaged Commodities) Rules, 2011 is applicable require a declaration to be made on its label as per the Rule 6. Keeping the background of the legal provisions in mind, lets discuss the new position with regard to pre- packaged goods.
Where the packages are more than 25 Kgs, the package would not come in the definition of pre- packaged commodities in the sense that the Legal Metrology (Packaged Commodities) Rules, 2011 would not be applicable on them. The same was also clarified by the FAQ notification issued by the Ministry of Finance, dated 17.07.20222 wherein it was clarified that if specified commodities are supplied in a package that do not require any declaration/compliance under the Legal Metrology Act, 2009 and rules thereunder, the same would not be treated as a pre- packaged and labelled for the purposes of GST levy. Therefore, it can be understood that a package of 26 kg is exempted from GST levy as the Legal Metrology (Packaged Commodities) Rules, 2011 would not be applicable to it, whether the label is branded or non- branded. The recommendation, therefore, proves to be counterproductive to the aim of increasing revenue of the government.
The following other withdrawals were recommended by the GST Council-
(1) Air travel to North Eastern States-
Exemption that was granted to transport of passengers by air to and from North- Eastern states and Bagdogra is being restricted to economy class. Therefore, now if you are travelling to and from the North Eastern States and Bagdogra by business class, the GST has to be paid.
(2) Government Services
Exemptions have been withdrawn for the services provided by RBI, IRDA, SEBI, FSSAI and GSTN. Also, all taxable services of Department of Posts would by subject to forward charge instead of under Reverse Charge Mechanism.
(3) Services by Universities
Exemption granted in terms of the following services supplied by the universities-
a) Application fee for entrance exams.
b) Application fee for issuance of eligibility certificate for admission.
c) Application fee for issuance of migration certificate by universities.
In this regard, Circular No. 177/09/2022-TRU, dated 03.08.2022 was issued by the CBIC wherein it was clarified that the abovementioned services shall be exempted under Sl. No. 66 of the Notification No. 12/2017- Central Tax (Rate), dated 28.06.2017.
(4) Renting of Services
Renting of vehicle with operator for transportation of goods on time basis is classifiable under Heading 9966 (rental services of transport vehicles with operators) and attracts GST at 18%.GST on such renting where cost of fuel is included in the consideration charged is being prescribed at 12%.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 reverse charge mechanism.
PENALTY AND DEMAND PROVISIONS RELATING TO TRANSACTIONS INVOLVING FAKE INVOICING
In case of fake invoicing, i.e., issue of tax invoice without actual supply of goods and services a punishment in the form of tax liability/ interest/ penalty was imposed under Sections 122 and 132 of the CGST Act, 2017. Such transactions usually involve three parties- the supplier, the person creating fake invoices (broker) and the purchaser. The department levied tax/ interest/ penalty on all three parties with led to triple taxation.
Therefore, the GST Council recommended issue of a clarification on the issue. The Department, accordingly, issued Circular No. 171/03/2022-GST. It was clarified that the nature of demand and penal action to be taken against a person shall now depend upon the specific facts and circumstances of the case.
Therefore, any person who has retained the benefit of the transactions specified under Section 122(1A) of the CGST Act, 2017 and at whose instance such transactions are conducted, shall also be liable for penal action under the provisions of the sub section. It was also clarified that in such cases of wrongful/ fraudulent availment or utilization of ITC, or in case of issuance of invoices without supply of goods or services or both, leading to wrongful availment or utilization of ITC or refund of tax, provisions of Section 132 of the CGST Act, 2017 may also be invokable.
Thus, a person who is engaged in fake invoicing shall be liable for interest and penalty but not tax unless he is the beneficiary of the transaction in terms of tax evasion.
CLARIFICATIONS ON GST RATES
The GST Council recommended the following clarifications on GST Rates-
(1) Electric Vehicles-
Electric vehicles whether or not fitted with a battery pack, are eligible for the concessional GST rate of 5%. It was further clarified by the CBIC vide Circular No. 179/11/2022-GST that electrically operated vehicle is to be classified under HSN 8703 even if the battery is not fitted to such vehicle at the time of supply and thereby attract GST at the rate of 5% in terms of entry 242A of Schedule I of notification No. 1/2017-Central Tax (Rate).
(2) Fly Ash Bricks-
All fly ash bricks attract same concessional rate irrespective of fly ash content.The condition of 90% fly ash content with respect to fly ash bricks applies only to fly ash aggregate, and not fly ash bricks. As a simplification measure, the condition of 90% content is omitted. It was further clarified by the CBIC vide Circular No. 179/11/2022-GST that the condition of 90% or more fly ash content applied only to Fly Ash Aggregates and not to fly ash bricks and fly ash blocks. Further, with effect from 18.07.2022 the condition of 90% is omitted from the description in the light of the recommendations of the 47th meeting.
(3) Sale of land after levelling, laying down of drainage lines etc.-
As per Sl. No. (5) of the Schedule III of the CGST Act, 2012, sale of land is neither a supply of goods nor a supply of services, and therefore, sale of land does not attract GST. Land maybe sold wither as it is or after some development such as levelling, laying down or drainage lines, water lines etc. Vide Circular No. 177/09/2022-TRU, dated 03.08.2022, it was clarified that sale of such developed land is also sale of land within the meaning of Schedule III of the CGST Act, 2017 and therefore, does not attract GST. The circular, dated 03.08.2022 is therefore, in line with the recommendations of the GST Council.
TRADE FACILITATION MEASURES
The following trade facilitation measure were recommended by the GST Council-
(1) Notification of Section 110 and Section 111 of the Finance Act, 2022-
The GST Council recommended to notify Section 110 and Section 111 of the Finance Act, 2022.
Section 110 of the Finance Act, 2022 sought to amend Section 49 of the CGST Act, 2017. The effect of the amendment would be that the balance of the electronic cash ledger available under the CGST Act, 2017 of a registered person can be transferred to the electronic cash ledger of a distinct person, under the CGST Act, 2017 and IGST Act, 2017. Therefore, if you have two registrations, say one in Punjab and the other in Haryana, you can now utilize the balance of electronic cash ledger of Punjab for the liability in the electronic cash ledger of Haryana.
Section 111 of the Finance Act, 2022 sought to amend Section 50(3) of the CGST Act, 2017 whereby interest can be levied upon ITC wrongfully availed and utilized with a retrospective effect from 01.07.2017.
Section 110 and Section 111 of the Finance Act, 2022 were notified vide notification no. 09/2022- Central Tax, dated 05.07.2022.
(2) Introduction of PMT-03A
The GST Council recommended the introduction of Form PMT-03A to facilitate re- credit of amount in electronic ledger to be provided in those cases where erroneous refund 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, 2017 is deposited by him.
In this regard, Circular No. 174/06/2022- GST, dated 06.07.2022 was issued. It laid down the procedure of filing the form PMT-03A-
i. The taxpayer shall deposit the amount of erroneous refund with applicable interest and penalty, wherever applicable, through FORM GST DRC- 03 by debit of amount from electronic cash ledger. While making the payment through FORM GST DRC- 03, the taxpayer shall clearly mention the reason for making payment in the text box as- “the deposit of erroneous refund of unutilized ITC” or “the deposit of erroneous refund of IGST obtained in contravention of Rule 96(10) of the CGST Rules”.
ii. Till the time an automated functionality for handling such cases is developed on the portal, the taxpayer shall make a written request to the jurisdictional proper officer to re- credit the amount equivalent to the amount of refund paid back through FORM GST DRC- 03, to the electronic ledger.
iii. The proper officer on being satisfied that the full amount of erroneous refund along with applicable interest, as per the provisions of section 50 of the CGST Act, and penalty, wherever applicable, has been paid by the said registered person in FORM GST DRC-03 by way of debit in electronic cash ledger, he shall re-credit an amount in electronic credit ledger, equivalent to the amount of erroneous refund so deposited by the registered person, by passing an order in FORM GST PMT-03A, preferably within a period of 30 days from the date of receipt of request for re-credit of erroneous refund amount so deposited or from the date of payment of full amount of erroneous refund along with applicable interest, and penalty, wherever applicable, whichever is later.
The requisite amendments have also been notified by the government vide Notification No. 14/2022, dated 05.07.2022.
(3) Automatic revocation of suspension of registration
The GST Council recommended automatic revocation of suspension of registration in cases where suspension of registration was done by the system under Rule 21A(2A) of the CGST Rules, for non- compliance in terms of Section 29(b) or (c), once all the pending returns are filed on the portal by the taxpayer.
i. The GST Council has directed that the Group of Ministers on Casino, Race Course and online gaming re-examine the issues in its reference based on further inputs from States and submit its report within a short duration.
ii. The matter of continuation of GST Compensation to States is deferred.
iii. The Council has decided to constitute a Group of Ministers to address various concerns raised by the States in relation to constitution of GST Appellate Tribunal and make recommendations for appropriate amendments in CGST Act.
iv. Proposal for comprehensive changes in FORM GSTR-3B to be placed in public domain for seeking inputs/suggestions of the stakeholders.
Therefore, the 47th GST Council Meeting recommendations were mixed in the sense that while a lot of the recommendations were a welcome step, especially in terms of compliances and trade facilitation while the other recommendations were either redundant or needed much more clarity than what has been issued to far. However, a lot of matters could not be taken up inter aliaGST Appellate Tribunal, Form GSTR- 3B. Therefore, more changes can be expected in near future.