The foremost agenda of the 49th GST Council meeting was to discuss the setting up of the Appellate Tribunal and mechanism to curb tax evasion in pan masala, chewing tobacco, and gutkha industry, among other matters for trade facilitation and streamlining GST compliances. The key decisions taken by GST Council in the said meeting are as follows:

Payment of Compensation Cess

The Central Government will be paying the entire balance of GST compensation payable to States for June 2022, amounting to INR 169.82 billion.

GST Appellate Tribunal

GST Council adopted the report of the Group of Ministers on the setting up of the GST Appellate Tribunal, and final draft amendments in this regard will be circulated to Council Members. It is expected to put up the proposal before both the Houses of Parliament along with the Finance Bill 2023 in the first week of March.

Measures to curb tax evasion from commodities like pan masala, gutkha, etc.

  • Capacity-based levy not to be prescribed.
  • Compliance and tracking measures to be increased to plug leakages/evasions.
  • Export of such commodities is to be allowed only against a Letter of Undertaking (LUT) with a consequential refund of the unutilized Input Tax Credit (ITC).
  • The mechanism to levy compensation cess on such commodities is being changed from ad valorem based to a specific tax-based levy to boost the final stage collection.

GST Rate related proposals

The GST rate on Rab has been reduced from 18% to 5% (if sold pre-packaged and labeled) and to Nil (if sold otherwise), while the GST rate on pencil sharpeners has been reduced from 18% to 12%.

Our Comments

The proposed revision in the GST rate of pencil sharpeners is to address the issue faced by the industry, wherein the supply of stationery kits was getting taxed at a higher rate of 18% on account of being a mixed supply. Said issue also arose before the Gujarat AAR in the case of M/s. Doms Industries Pvt. Ltd. where it was held that kit/pack containing various stationery items is not composite supply but "mixed-supply", and thus such kit/pack were treated as supply of sharpeners as the same attracted highest rate of tax which is 18%. This shows the pro-activeness of the GST Council in addressing practical issues being faced by trade and industry in day-to-day business activities.

Other changes relating to Goods and Services

  • GST Council has decided to regularize GST paid on 'Rab' for past periods on "as is basis" on account of doubts over classification.
  • The benefit of exemption from Basic Customs Duty and Additional Duty on containers shall also be extended to tracking devices or data loggers affixed on such containers. Suitable amendments are to be made in the exemption notification. Thus, IGST will not be payable separately on such tracking devices, or data loggers affixed on import of such containers.
  • The rate of Compensation Cess has been reduced to 'Nil' even on coal rejects supplied to a coal washery, similar to that of coal rejects supplied by a coal washery.
  • Exemption benefits available on entrance examinations conducted by educational institutions shall also be extended to entrance exams conducted by any authority, board, or body set up by the Central or State Government, including National Testing Agency.
  • GST on services such as renting premises to telecommunication companies for installing towers, renting the chamber to lawyers, etc., provided by Courts or Tribunals shall be discharged under the Reverse Charge Mechanism (RCM) going forward.
  • Presently, services by any Court or Tribunal established under any law for the time being in force are covered under Schedule III of the CGST Act, 2017, hence not taxable. A suitable amendment to the same is expected.

Measures for facilitation of trade

  • The time limit for applying for revocation of cancellation is proposed to be increased to 90 days from the existing 30 days. Additionally, one-time amnesty may be provided for filing applications for past cases.
  • The time limit for withdrawal of best judgment assessment order by furnishing return is proposed to be increased to 60 days from the existing 30 days. Additionally, a one-time amnesty may be provided for the conditional withdrawal of past assessment orders, irrespective of appeal status against the same.
  • Proposal for rationalizing late fees for delay in filing the annual return for FY 2022-23 onwards as under:

Turnover

Late Fee for delayed filing of GSTR-9

Up to 50 million

INR 50 each day, subject to a maximum of 0.04% of the turnover in the state

More than 50 million to 0.2 billion

INR 100 per day, subject to a maximum of 0.04% of the turnover in the state

More than 0.2 billion

INR 200 per day, subject to a maximum of 0.5% of the turnover in the state
  • An amnesty scheme by way of conditional waiver/reduction of late fee is proposed in respect of pending returns in FORM GSTR-4, GSTR-9 and GSTR-10.
  • Removal of Section 13(9) of IGST to rationalize place of supply in case of transportation of goods to be the location of the recipient of service where supplier/recipient is located outside India.

Our Comments

The proposed deletion of Section 13(9) of the IGST Act is in line with the fundamental principles of consumption-based taxation. Indian transporter/freight forwarder transporting goods for foreign exporters/importers shall qualify as exports, subject to fulfillment of conditions. Whereas Indian importers/exporters engaging foreign transporter shall be liable to discharge GST on RCM.

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