1. The operation of the taxing statute needs flexibility along with certain power for the smooth implementation of the provisions. Sec 11 of CGST Act 2017 provides the power and flexibility to the Government to grant exemptions on the recommendation of GST Council.
2. Sec 11(1) of CGST Act – Statutory Provision :
Where the Government is satisfied that it is necessary in the public interest so to do, it may, on the recommendations of the Council, by notification, exempt generally, either absolutely or subject to such conditions as may be specified therein, goods or services or both of any specified description from the whole or any part of the tax leviable thereon with effect from such date as may be specified in such notification. – Sec 11(1) of CGST Act 2017
2.1 Explanation:– The relevant points under sec 11 (1) of CGST Act 2017 about Government’s power to grant exemptions are as follows:-
(a) Central/State Government has the power to reduce GST rates by issuing exemption notification.
(b) The exemption should be in the public interest.
(c) The exemption notification can be issued only based on the recommendation of GST Council.
(d) The exemption can either be absolute (unconditional) or subject to conditions
(e) The exemption can be in respect of goods or services or both of any specified description
(f) The exemption can be from the whole or any part of the tax leviable thereon
(g) The exemption notification becomes effective on the date as specified in the notification issued by the Central/State Government.
3. Sec 11(2) of CGST Act – Statutory Provision :
Where the Government is satisfied that it is necessary in the public interest to do so , it may, on the recommendations of the Council, by special order in each case, under circumstances of an exceptional nature to be stated in such order, exempt from payment of tax on any goods or services or both on which tax is leviable
3.1 Power to grant Exemption by Special Order:-
(a) The Central Government has the power to grant the exemption, in the public interest, in exceptional circumstances by special order.
(b) Such exemption can be only on the recommendation of GST Council.
(c ) It is not necessary to publish the order in Official Gazette.
(d) This is an ad hoc exemption and can be granted even retrospectively.
(e) A special exemption can be granted to a specific category of person/sector. The Government has power granting exemption to public sector undertakings giving reasons for such exemption, but not giving similar exemption to private persons It was held in Jain Exports P Ltd. v. UOI that such permission by the Government is permissible and will not be treated as discriminatory.
4. Sec 11(3) of CGST Act – Statutory Provision :
The Government may if it considers necessary or expedient so to do to clarify the scope or applicability of any notification issued under sub-section (1) or order issued under sub-section (2), insert an explanation in such notification or order, as the case may be, by notification at any time within one year of issue of the notification under sub-section (1) or order under sub-section (2), and every such explanation shall have effect as if it had always been the part of the first such notification or order, as the case may be.
4.1 Insertion of clarification to Exemption notification: Exemption notification issued by the Government may have some drafting mistake or ambiguity which creates confusion in taxpayers minds. As a result taxable person gets unintended benefit while in some cases even intended benefit cannot be obtained.
To overcome this problem, section 11(3) of CGST Act provides that Central Government, in order to clarify the scope or applicability of exemption notification or exemption order, may insert an explanation to the exemption notification or order within one year of such notification or order.
The time limit for inserting the explanation in exemption notification is only one year of the date of issue of notification and not thereafter.
Explanation of an exemption Notification will have a retrospective effect from the date of the exemption notification.
The retrospective insertion can be made only to explain or clarify as the purpose of ‘explanation’ is to clarify the scope or applicability of an exemption notification or exemption order.
The clarification to exemption notification/order cannot be added with retrospective effect to restrict the scope of notification/order or to insert a condition that was not there.
5. Explanation to Sec 11(3) of CGST Act – Statutory Provision :
Explanation.––For this section, where an exemption in respect of any goods or services or both from the whole or part of the tax leviable thereon has been granted absolutely, the registered person supplying such goods or services or both shall not collect the tax, over the effective rate, on such supply of goods or services or both.
5.1 The Government vide notifications grant absolute ( unconditional ) or conditional exemption. If a notification grants unconditional exemption from GST and specifies the rate of goods and /or services as the NIL rate, the taxable person cannot collect and pay tax on such a supply of goods and/ or services.
6. Difference between Notifications under Section 11 & Sec 9 of CGST Act 2017
Notifications under section 11 of CGST Act 2017 issued for supply of any goods or /and services which attracts nil rate of tax or which may be wholly exempt and includes Non- Taxable supply also, whilst section 9 is a charging section which Act notifies rates of goods and services
Notification No. 02/2017- Central Tax (Rate) for goods and Notification No. 12/2017- Central Tax (Rate) for services have been issued by using power given under section 11 of CGST ACT. So goods and services mentioned in these two notifications are exempted goods as per the definition of exempt supply.
Section 9 of the CGST Act notifies rates of goods and services vide Notification No. 01/2017- Central Tax (Rate) which contains six schedules specifying tax rates at 2.5%, 6%, 9%, 14%, 1.5%, and 0.125%. There is no schedule levying tax at 0% i.e. NIL rated.
In the case of services, there is only one service that is notified as Nil rated in Notification No. 11/2017- Central Tax (Rate) at S.No. 24 i.e Support services to agriculture, forestry, fishing, and animal husbandry.
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Part 7 of the series will cover the topic “ Time of Supply of Goods “ under section 12 of the CGST Act.
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