MAJOR RECOMMENDATIONS OF 55TH GST COUNCIL MEETING

[Dr. Sanjiv Agarwal]

The 55th meeting of GST Council was held on 21^st  December, 2024 at Jaisalmer (Rajasthan) wherein various recommendations have been made which inter alia, include changes proposed in CGST / IGST law, rules, clarifications and few rate reductions / rates increase, exemptions, compensation cess, ITC / ISD related amendments and so on. These changes approved shall have far reaching impact on all the stakeholders, particularly taxpayers and revenue. The overall impact is going to be pro-revenue. Also, proposed changes or recommendations are micro in nature leaving aside major policy amendments and rate rationalization for future.

While the Council approved the recommendation in relation to IGST settlement, it noted the procedural rules for internal functioning of GST Appellate Tribunal (GSTAT) to be notified after examination by law panel. Also, it extended the time frame for Group of Ministers on the restructuring of GST compensation upto 30^th June, 2025. A new Group of Ministers shall be formed to recommend a uniform policy on imposition of levy in case of natural disaster / calamity in the state, as requested by AP State. This article discusses major recommendations or the decisions taken in the 55^th GST Council meeting.

Major takeaways from 55^th GST Council meeting

GST Council had its 55^th meeting at Jaisalmer on 21 December 2024, wherein, inter alia, following major decisions were taken:

• To improve tax compliance, track and trace mechanism to be introduced for tax evasion prone specified goods.
• Grant of temporary identification number by tax officers to persons, not liable to be registered otherwise.
• Input Service Distribution (ISD) to include inter-state RCM transactions under the ISD w.e.f. 01.04.2025.
• Amendment in law / Rules to provide legal framework for Invoice Management Systems (IMS).
• Procedural rules for internal functioning of GSTAT to be notified after examination.
• Exemption to RBI regulated payment aggregators.
• Exemption to contribution by general insurance from third party motor vehicle premium charged for motor vehicle accident fund.
• Change in law recommended in section 17(5) to nullify impact of Supreme Court decision in Safari case.
• Waiver of late fee for Form GSTR 9 and GSTR 9C for FYs 2017-18 to 2022-23
• No GST shall be payable on:

• transaction of vouchers
• gene therapy
• penal charges levied or collected by banks and NBFCs

• Sponsorship services provided by body corporates under forward charge mechanism, presently under reverse charge.
• No GST on gift vouchers as it is neither good nor services
• Taxpayers registered under composition scheme not to be covered under reverse charge mechanism for renting of any commercial / immovable property (other than residential dwelling) by unregistered person to registered persons w.e.f. 10.10.2024 on ‘as is where is’ basis.
• In case of hotels, definition of declared tariff omitted and specified premises amended; restaurant services in hotels to attract GST @ 18% with ITC and @ 5% without ITC w.e.f. 01.04.2025. Option to be chosen for respective financial year.
• GST @18% (presently @ 12%) on sale of old and used vehicles including EVs on the margin of supplier, i.e., difference between purchase price / depreciated value and selling price.
• States did not agree to proposal to bring air turbine fuel (ATF) under ambit of GST.
• No decision on GST on RCM basis on charges collected by municipalities for grant of FSI.

Legislative Changes

Owing to the recommendations of GST Council, it is imperative that there are going to be amendments to GST enactments in ensuing Budget / Finance Bill, 2025. This would inter alia, include changes in provisions relating to input tax credit (ITC) in section 17 of CGST Act, 2017 as the Council decided to nullify the impact of Safari case judgment pronounced by the Supreme Court recently, that too from retrospective effect from 1^st July, 2017. Section 17(5)(d) which deals with ITC blocking will replace the phrase ‘plant or machinery’ with ‘plant and machinery’ to ensure consistent interpretation of statutory provisions. The recent Supreme Court ruling held that taxpayers are eligible to claim input tax credit on construction activities if the resultant building / immovable property is used as a plant (renting in the case).

A new provision will also be inserted to provide for enabling the Government to enforce ‘tracking and tracing’ mechanism for tax evasion prone goods (e.g. tobacco products).

Tracking & Tracing Mechanism

A new concept of tracking and tracing is being brought in GST law for specified goods. GST Council approved a proposal to amend GST law enabling the Government to implement track and trace mechanism for specified goods which are prone to tax evasion. This may cover goods like tobacco and related products which is the fifth largest contributor (5%) in GST collection. According to the recommendation, a unique identification marking shall be affixed on goods on packages and will help in training specified commodities across the chain. The unique identifier will have tamper proof security and will allow for verifying product authentication to tax authorities and consumers.

Retrospective Amendment for ITC

Another example of GST Council not being judicious but pro-revenue is revisiting the decision of Supreme Court in Safari Retreat case so much so that the outcome of apex court’s decision has been overruled by deciding to bring in amendment in tax law, that too from retrospective effect from 1^st July, 2017. We are in eighth year of GST now and it is indeed unjust, unfair and unethical, even if Government and GST Council may try to be lawful by bringing in retrospective amendment. Post this amendment, Odisha High Court may not give its remand verdict in favour of taxpayer. This is nothing else but tax terrorism in legal form.

New Clarifications

The GST Council approved to issue of certain clarifications so as to bring in more clarity and settle confusion / dispute on issues like:

• Clarification regarding requirement of reversal of Input Tax Credit by electronic commerce operators in respect of supplies made under section 9(5) of CGST Act, 2017.
• Clarification on availability of Input Tax Credit as per section 16(2)(b) of CGST Act, 2017 in respect of goods which have been delivered by the supplier at his (supplier’s) place of business.
• Clarification regarding applicability of late fee for delay in furnishing of FORM GSTR-9C and providing waiver of late fee on delayed furnishing of FORM GSTR-9C for the period from 2017-18 to 2022-23.

Tax on old or used vehicles

The Council has also approved the increase in tax rate from 12% to 18% (literally, 50% hike) on supply of second hand or old or used vehicles. The proposal says all vehicles, which may now include two-wheelers, three-wheelers and small cars. The rate was already 18% for sale of old and used petrol vehicles of engine capacity of 1200 cc or more & of length of 4000 mm or more, diesel vehicles of engine capacity of 1500 cc or more & of length of 4000 mm and SUVs. Thus, GST shall now be @ 18% uniform rate on old vehicles. However, this rate hike will only apply to supply of such vehicles by registered tax payers in ordinary course of business and not by unregistered taxpayers. While this change will not have an impact on individual sellers, it will have a tax impact on organized used car sale market like Maruti True Value, Cars 24 etc who buy from individuals, spend some money on reconditioning or refurbishing of vehicle and sell the same. Since the tax burden will be passed on  to the ultimate buyer, it will be a cost hike for ultimate buyer. Since the tax would be on the margin amount (difference between buying cost or depreciated value if deprecation is claimed and selling price).

Rule 32(5) of CGST Rules, 2017 already provides that where a taxable supply is provided by a person dealing in buying and selling of second hand goods i.e., used goods as such or after such minor processing which does not change the nature of the goods and where no input tax credit has been availed on the purchase of such goods, the value of supply shall be the difference between the selling price and the purchase price and where the value of such supply is negative, it shall be ignored.

This will also cover electric vehicles (EVs). While a new car attracts lower GST on total value, used car will now be subject to 18% GST but only on margin.

Council has only simplified the tax structure and proposed a single rate of GST @ 18% on supply / sale of all old and used vehicles including electronic vehicles (EV’s). This is not a new tax levy. These vehicles would be small car models comprising about 50 percent of used car market.

Hotels & Restaurants

The definition of declared tariff is proposed to be omitted and the definition of specified premises has been amended to link it with the actual value of accommodation supply, affecting GST rates on restaurant services in such hotels. Hence, the definition of specified premises has been amended (from the services rate and exemption notifications) to link it with actual value of supply of any unit of accommodation provided by the hotel and to make the GST rate applicable on restaurant services in such hotels for a given financial year, dependent upon the ‘value of supply’ of units of accommodation made in the preceding financial year i.e.,

Value of supply for any unit of accommodation in the preceding financial year	GST rate
Exceeds Rs. 7500	18% with Input tax credit
Less or equivalent to Rs. 7500	5% without Input tax credit

Thus, restaurant services in hotels will attract an 18% GST with input tax credit if the accommodation rate exceeds Rs. 7,500/-, for any unit in the preceding financial year.  Alternatively, restaurants in hotels can opt to pay tax at 18% with input tax credit by giving a declaration to that effect on or before the beginning of the financial year or on obtaining registration.

Registration Mechanism

GST Council also approved the new registration mechanism for new and small businesses to be given within 3 working days of application. According to new proposed system, it would apply to small businesses and shall address the grievances relating to large number of queries and denial of registration on not so important grounds, besides curbing exploitation of existing registration process to take multiple registrations by using fake identities. It is reported that over 95% of the registrants do not pass input tax credit or do so within a limit of Rs. 5 lakh per month. The new mechanism shall be notified soon for quick registration to the applicants with a threshold limit. This would also avoid visits and physical verification the new registration may start once the law and rules are amended after approval of Law Committee.

Tax on Vouchers

The taxability of vouchers will also get clarity now as it was approved that voucher transaction shall be considered neither as a supply of goods nor supply of services. Thus, distribution of vouchers shall not be liable to GST if done on a ‘principal to principal’ basis. However, such transactions if done through agency, then distribution costs in the form of fee / commission / charges shall be subject to GST. Other amounts charged for allied services in relation to vouchers will be taxed but unredeemed vouchers will be out of GST ambit.

Issues deferred

The Council deferred the decisions in respect of:

• Major rate rationalization
• GST on health insurance and life insurance
• GST compensation cess
• Petroleum and natural gas products
• GSTAT Rules
• GST on charges of Municipalities for FSI
• Issues relating to real estate / transfer of development rights.
• Food delivery e-coms

Epilogue

When GST was introduced, it was claimed that GST shall unify the economy by ‘one nation, one market, one tax’ concept but it has actually and factually failed and not achieved on macro level. At micro level, different tax like on popcorn and different classification for same commodity is a glaring example of complexity of GST law, classification and rates.

While today’s GST Council is flexible and proactive to changes, reforms and to resolve the issues being faced by the taxpayers, the GST law is not so simple as it was supposed to be and as showcased to all the stakeholders. The changes made are revenue centric and this time the Council has gone into micro management and implementation issues rather than being confined to policy issues. Tax on popcorn and tinkering with stand taken on renting of property are just examples. It is imperative that GST Council does a lot more homework with practical approach at the time of taking decision itself rather than being reactive to its own decisions later. It is never too late to make good the lacunas in the tax system. Hope, Council will look into this aspect of tax system.