The Constitution (One Hundred and Twenty Second Amendment) Bill, 2014 (the 'GST Bill') as passed by the Lok Sabha and introduced in the Rajya Sabha was referred to the Select Committee (the "Committee") for its recommendations. The Committee has tabled its report on July 22, 2015 with recommendations on modifications required in specific clauses in the GST Bill based on inputs received from various stakeholders. The Committee has endorsed most existing clauses in the GST Bill as is with specific recommendations on amendments required in a few instances. The Committee has further provided certain overall recommendations on the GST framework and the manner of its implementation. The key recommendations of the Select Committee are captured hereunder:
With respect to the GST rates, the Select Committee has observed that the standard rate should be within 20%, while the lower rate should not be lower than 14%. The Committee has recommended for a definition of the term "band" to be incorporated to define the range of GST rates that may be levied on specific categories of goods or services. The Committee has strongly recommended that State Government stake adequate measures to ensure that adequate revenues flow to the local bodies. The Committee has further called upon the GST Council to opt for a broad base and a moderate rate and as far as possible to avoid multiplicity of tax rates.
Levy of additional tax of 1% on inter-state supply of goods
The proposal to levy a non-creditable additional tax of 1% on inter-state supply of goods has been the centre stage of controversy and vehemently opposed inter alia on grounds of its cascading effect. While the Committee has not recommended for its omission per se, it has recommended that the term "supply" for purposes of additional tax levy in clause 18 of the GST Bill be explained as "all forms of supply made for a consideration". While this should mitigate additional tax levy on stock transfer of goods, its cascading effect could continue on successive interstate sales (other than branch transfers) of the same goods.
GST coverage - alcoholic liquor for human consumption, petroleum and tobacco
While several recommendations were made with respect to GST coverage of the items above, no changes have been proposed by the Select Committee. Accordingly, alcoholic liquor for human consumption would be outside the purview of GST; petroleum (crude, high speed diesel, motor spirit, natural gas and aviation turbine fuel) would be subsumed under GST at a later date and tobacco would attract GST as well as an additional levy.
GST related compensation to States
Addressing concerns expressed by States on potential discretion in the disbursement of compensation for loss of revenue caused by GST, the Committee has recommended that the Parliament may, by law, on the recommendation of the GST Council, provide for compensation to the States for the loss of revenue arising on account of implementation of GST for a period of five years. The Committee has however declined the demand of States to replace the term 'may' with 'shall' with regard to provision of compensation to States for loss of revenue.
Voting pattern of the GST Council
No changes have been proposed in the voting pattern of the GST Council which remains, voting by three fourths with weightage of 2/3 for States and 1/3 for the Centre.
GST dispute resolution
The Committee has declined to accept recommendations for reinstatement of the GST Dispute Resolution proposed under the Constitution (115th Amendment) Bill, 2011. The Committee is of the view that if any Dispute Settlement Authority is separately created it will hamper the functioning of the GST Council in general and Legislatures (Parliament and States) in particular. The Committee has further observed that the GST Council shall be guided by the need for a harmonized structure of goods and services tax and for the development of a harmonized national market for goods and services.
The term 'supply' not to be defined in the GST Bill
A key industry concern was for the term "supply" to be defined in the GST Bill to ensure uniformity across GST laws including unintended taxation of non-commercial supplies including all forms of intra-company supplies. The Committee has recommended that it would be more appropriate for the term "supply" to be defined in the Central GST and State laws.
Definition of 'Goods', 'Services' and 'Goods and Services Tax'
The Committee has recommended for adoption of all definitions without any change despite several representations made for specific inclusions and illustrations to be included in the definitions. Accordingly, the definition of service as currently adopted poses specific concerns.
Endorsing the view of the Fourteen Finance Commission, the Committee has recommended that it would be best to keep the GST Compensation Fund out of the purview of the GST Bill given it is temporary in nature and limited to a period of five years.
The Committee has recommended that if possible banking services may be kept outside the GST altogether; or at least interest, trading in securities and foreign currency and services to retail consumers should not be liable to GST. The Committee has also recommended for a lower GST rate for banking sector including specific provisions providing for single registration mechanism coupled with input credit to customers.
After obtaining inputs/suggestions from Industry at large, the Select Committee of Rajya Sabha has restricted the rate of GST to be between 14% to 20%, whereas the States are insisting upon a higher rate of GST. In our view, the lower rate of RNR will reduce cascading effect on supply of goods and services. However, in our view, supply of goods for a consideration shall also have a cascading effect of 1% as the same is not creditable. Further, with petroleum products remaining out of GST ambit, the same shall also result in cascading effect of taxes on the final product.
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