India: Key Updates On The GST Council Meeting Held On June 28, 2022 And June 29, 2022

1. Amidst the five year completion of the Goods and Services Tax ("GST") regime in India, the GST Council ("Council") held its 47th Meeting on June 28, 2022 and June 29, 2022 in Chandigarh. The Council has made a slew of recommendations, some in line with industry expectations and some with a view to close out litigative positions and bring clarity to business. The digital ecosystem was also waiting with bated breath to see the recommendations which would affect them as various issues still require the attentions on the indirect tax side such as treatment of virtual digital assets (VDA), this entire exercise has been deferred. Further, considering the Group of Ministers ("GoM") recommendation of tax at the highest rate on online games and some other crucial valuation issues, there was no mention of these in the final recommendations. It appears that the GoM has been asked to review their position again. While the present Alert covers in detail and lists out the recommendations, it is noteworthy to highlight some key announcements and their impact.
2. To begin with, to aid small sellers and the Micro Small and Medium Enterprises ("MSME") group, the Council has recommended relaxed provisions for supplies made through E-commerce Operators ("ECO") including a waiver of mandatory registration for some suppliers. With an eye on aiding businesses, the Council has also recommended changes in the formula for calculation of refund in inverted duty structures. This flows from the directive of the Supreme Court to consider the calculation mechanism so that industries suffering from inverted duty structure will have some respite. Additionally, further rates have been increased for certain goods to remove this anomaly.
3. Some other key recommendations which will drive up prices in some areas include GST on hospital room rent (excluding ICU) exceeding INR 5000 will now attract GST at 5% without input tax credit ("ITC"), 12% GST will be levied on hotel accommodation upto INR 1000. LED lamps, lights, fixtures will now attract a higher rate of 18%.
4. Some of the recommendations are in the nature of clarifications to settle either existing disputes or pending cases, such as in vitro fertilization and assisted reproductive technology has been recommended to be covered under the definition of healthcare, thus, will get an exemption now. Further, sale of land after levelling and laying of drainage pipes will be outside the purview of GST. Another interesting recommendation is on food items and grains, where previously exemption was applied for unbranded items or where the assessee was forgoing their rights over the brand. The Council has now suggested revising the scope of the exemption and it may now exclude prepackaged and prelabelled retail packs (as understood under the Legal Metrology Act, 2009).
5. The Council has made a host of recommendations relating to changes in GST rates on supply of goods and services (please note that all the rate changes are to be made effective from July 18, 2022) and changes related to law and procedure. While the notifications are being issued, GST council discussed and approved the following:
   1. Recommendations relating to GST rates on certain goods and services.
   2. Clarifications on GST rate of goods and services and withdrawal of exemptions and rate; rationalisation on certain items.
   3. Measures for trade facilitation; and
   4. Other measures.
6. RATE CHANGES

 6.1 Rate rationalisation to remove the inverted duty structure:

6.2 Other GST rate changes recommended by the Council amongst others are as follow

7. EXEMPTION WITHDRAWAL AND RATE RATIONALISATION

7.1 Withdrawal of exemptions and rate rationalisations on various good was announced. Some of which are listed below:

7.2 Withdrawal of exemptions on certain services are also announced. Some of which are listed below:

1. Exemption on transport of passengers by air to and from Northeast states of India and Bagdogra is being restricted to economy class;
2. Transportation by rail or a vessel of railway equipment and material;
3. Services by Reserve Bank of India, Insurance Regulatory and Development Authority, Securities and Exchange Board of India ("SEBI"), Food Safety and Standards Authority of India ("FSSAI") and Goods and Service Tax Network ("GSTN");
4. Renting of residential dwelling to business entities (registered persons);
5. Hotel accommodation priced upto INR 1000 per day shall be taxed at GST rate of 12%
6. Room rent (excluding ICU) exceeding INR 5000 per day per patient charged by a hospital shall be taxed at the GST rate of 5% (no ITC);
7. Fumigation in a warehouse of agricultural produce; and
8. Services provided by the cord blood banks by way of preservation of stem cells.

7.3 Following clarifications are provided among others:

1. Electric vehicles whether or not fitted with a battery pack are eligible for a concessional rate of GST at 5%
2. Sewage treated water is exempted from GST and is not the same as purified water provided in S. No. 99 of notification 2/2017-CT(Rate). The word 'purified' is being omitted to make this amply clear.
3. GST rate on all forms of mango under Customs Tariff Head 0804 including mango pulp attract GST at the rate of 12%. Entry is also being amended to make this amply clear. Raw mangoes continue to be exempt.
4. Nicotine Polarilex Gum attracts GST at the rate of 18%.
5. Sale of land after levelling, laying down of drainage lines etc. is sale of land and does not attract GST.
6. Renting of motor vehicles for transport of passengers to a body corporate for a period is taxable in the hands of body corporate by reverse charge mechanism ("RCM").
7. Services in the form of ART/ IVF are covered under the definition of healthcare services for the purposes of exemption under GST.
8. Due to ambiguity in GST rates on supply of ice-cream-by-ice-cream parlours, GST charged at the rate of 5% without ITC on the same during the period July 01, 2017 to October 05, 2021 shall be regularized to avoid unnecessary litigation.
9. Application fee charged for entrance or for issuance of eligibility certificate for admission or issuance of migration certificate by universities is exempt from GST.
10. 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%.
11. Activity of selling of space for advertisement in souvenirs published in the form of books is eligible for concessional GST at 5%.
12. Services associated with transit cargo both to and from Nepal and Bhutan are covered by exemption under entry 9B of notification No. 12/2017-CT® dated June 28, 2017.

7.4 The other miscellaneous changes are as following:

1. Goods transport agency is being given the option to pay GST at the rate of 12% or 5% on forward charge basis. This option to be exercised at the beginning of the financial year. RCM option to continue.
2. Services provided by an Indian tour operator to a foreign resident for a tour partially in India and partially outside India is to be subjected to tax proportionate to the tour conducted in India subject to the condition that this concession does not exceed half of tour duration.
3. All taxable service of department of posts of India would be subject to forward charge. Hitherto certain taxable services of department of post of India were taxed on reverse charge basis.

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