Minutes of the 31st GST Council Meeting held on 22nd December 2018 - GST - 31st GST Council Meeting

Minutes of the 31 st GST Council Meeting held on 22 nd December 2018 The thirty first Meeting of the GST Council (hereinafter referred to as ' the Council') was held on 22 nd December 2018 at Vigyan Bhawan, New Delhi under the Chairpersonship of the Hon'ble Union Finance Minister, Shri Arun Jaitley (hereinafter referred to as the Chairperson). A list of the Hon'ble Members of the Council who attended the meeting is at Annexure 1 . A list of officers of the Centre, the States, the GST Council Secretariat and the Goods and Services Tax Network (GSTN) who attended the meeting is at Annexure 2 . 2. The following agenda items were listed for discussion in the 31 st meeting of the Council: 1. Confirmation of the Minutes of 30 th GST Council Meeting held on 28 September, 2018 2. Deemed ratification by the GST Council of Notifications, Circulars and Orders issued by the Central Government 3. Decisions of the GST Implementation Committee (GIC) for information of the Council 4. Decisions/recommendations of the lT Grievance Redressal Committee (ITGRC) for information of the Council 5. Review of Revenue position 6. Issues recommended by the Fitment Committee for the consideration of the GST Council 7. Issues recommended by the Law Committee for the consideration of the GST Council i. Extension of the due date for furnishing the statement in FORM GSTR-8 by electronic commerce operator for the months of October, November and December, 2018 ii. Extension of last date for allowing migration of taxpayers who received Provisional Identification Number (PID) till 31 st December, 2017 iii. FAQ on Banking, Insurance and Stock Brokers Sector iv. Amending SOP issued on TDS - Issues on furnishing of return in FORM GSTR- 7 by registered persons required to deduct tax at source under section 51 of the CGST Act for period during which the deductor was not registered v. Update on the implementation status of the issues referred to the Law Committee by the GST Council vi. Request for exemption from provisions relating to Tax Deduction at Source (TDS) in case of taxable supplies between Government Authority to another Government Authority or to PSU and vice versa vii. Amendments to the CGST Rules, 2017 viii. IGST Rules for determination of Place of Supply ix. Circular to clarify certain issues under GST x. Circular to clarify denial of composition option by tax authorities and effective date thereof xi Clarification on refund related issues xii Clarification on export of services under GST xiii Requirement of submission of invoices for processing of refund unutilised Input Tax Credit (lTC) in FORM GST RFD-01A xiv. Proposal for centralized Authority for Advance Ruling and centralized Appellate Authority for Advance Ruling under GST xv. Suggestions made for allowing quarterly payment by small taxpayers xvi. Issuance of a Circular to clarify taxability of medicines and consumables supplied to in-patients in hospitals during the course of treatment xvii. Amendments to the CGST Rules, 2017, consequential to notifying the provisions of the CGST (Amendment) Act, 2018, SGST (Amendment) Act, 2018 and IGST (Amendment) Act, 2018 xviii. Proposal to extend the due date for availing ITC on the invoices or debit notes relating to such invoices issued during the FY 2017-18 under section 16(4) of CGST Act, 2017 tiIl the due date for furnishing of return for the month up to March, 2019 xix. Extension of the due date for furnishing of annual returns in FORM GSTR-9, FORM GSTR-9A and reconciliation statement in FORM GSTR-9C for the Financial Year2017 - 2018 xx. Proposal for amendment of Section 50 of CGST Act, 2017 to allow payment of interest on net cash liability xxi Reduction in amount of late fees leviable on account of delayed furnishing of FORM GSTR-1 , FORM GSTR-3B and FORM GSTR-4 for the months/quarters from July, 2017 to September, 2018 xxii. Proposal to extend benefit of composition levy for small service providers xxiii. Proposal to introduce the new return system on trial basis from 01.04.2019 and on mandatory basis from 01.07.2019 xxiv. Single interface for disbursal of refund amounts xxv. Rationalisation of cash ledgers in GST 8. Approval of modifications in Articles of Association (AOA) and Memorandum of Association (MOA) of Goods and Services Tax Network (GSTN) based on decision of the GST Council to convert it into a 100% Government-owned entity 9. Status report of work of GoM on Revenue Mobilisation 10. Status report of passage of SGST (Amendment) Bill, 2018 in various States and Union Territories with Legislatures 11. Reconstitution of membership of the Law Committee, Fitment Committee and IT Committee for information of the Council 12. Any other agenda item with the permission of the Chairperson i. Notification to be issued to extend the due date for filing of returns in FORM GST ITC-04 for the period July 2017 to December 2018 ii. Ad hoc Exemptions Order(s) issued under Section 25(2) of Customs Act, 1962 to be placed before the GST Council for information iii. Proposals for boosting real estate sector under GST regime by providing a composition scheme for residential construction units iv. Proposal to increase the threshold exemption limit for supplier of Goods (manufacturers and traders) under GST from existing turnover of ₹ 20 lakh to ₹ 75 lakh and from ₹ 10 lakh to ₹ 20 lakh for Special Category States in a year v. Proposal for removal of differential rate of GST on lottery run by State Government and lottery authorized by the State Government 13. Date of the next meeting of the GST Council Page 2 of 85 Preliminary discussion 3. The Hon'ble Chairperson welcomed the GST Council Members. At the outset, he placed on record the gratitude of the Council for the services rendered by Shri Amar Agarwal, Shri Jayant Malaiya, Shri Rajpal Singh Shekhawat, Shri Etela Rajendar and Shri Lalsawta, the respective Hon'ble Ministers from the States of Chhattisgarh, Madhya Pradesh, Rajasthan, Telangana and Mizoram, who had been associated with this transformational change right from the beginning of the GST implementation. He also placed on record the deep sense of appreciation and gratitude for the services rendered by Dr. Hasmukh Adhia, the Finance Secretary as Secretary to the Council, who retired on 30 th November, 2018, and for the very important role played by him in the GST roll out. He welcomed Dr. Ajay Bhushan Pandey, the new Union Revenue Secretary and ex officio Secretary to the Council. He further informed that Shri S. Ramesh, the Chairman, Central Board of Indirect Taxes and Customs (CBIC), was superannuating on 31 st December, 2018 and welcomed the Chairman designate, CBIC, Shri P.K. Das, as a permanent invitee to the proceedings of the Council. He also welcomed Dr. Rajeev Ranjan, the new Special Secretary in the GST Council Secretariat. He welcomed the new Member attending the Meeting of the Council, namely, Prof. Ram Shinde from the State of Maharashtra. He also welcomed Shri K.K. Sharma, Advisor to the Hon'ble Governor (I/C Finance) of the State of Jammu Kashmir. He noted that the new Members from the States of Telangana, Rajasthan, Madhya Pradesh and Chhattisgarh had not come for this Meeting and they would be formally welcomed in the next Meeting. Thereafter, he invited the Secretary to the Council (hereinafter referred to as the Secretary) to take up the Agenda items for discussion. Discussion on Agenda items Agenda Item 1: Confirmation of the Minutes of 30 th GST Council Meeting held on 28 th September, 2018 4. The Secretary stated that some changes were suggested to the draft Minutes of the 30 th GST Council Meeting (hereinafter referred to as the Minutes). He requested Shri Shashank Priya, Joint Secretary, GST Council to brief the Council regarding the suggested changes. 4.1. The Joint Secretary, GST Council, stated that a written communication had been received from the State of Odisha requesting to correct a typographical error in the version of the Hon'ble Minister from Odisha recorded in line 6 of paragraph 14.9 of the Minutes (' ... in addition to 5% as entry tax ... ') as follows: ' ... in addition to 0.5% as entry tax ... '. The Council agreed to record the revised version of the Hon'ble Minister from Odisha in line 6 of paragraph 14.9 of the Minutes. 4.2. The Joint Secretary, GST Council, informed that during the Officers meeting held on 21 st December, 2018, the Commissioner of State Tax, Kerala had requested to correct a typographical error in the version of the Hon'ble Minister from Kerala recorded in line 3 of paragraph 14.15 of the Minutes (' ... and 18% of consumer products were imported from other (States ... ') with the following: ' ... and 80% of consumer products were imported from other States ... ' . The Council agreed to record the revised version of the Hon'ble Minister from Kerala in line 3 of paragraph 14.15 of the Minutes. 4.3. The Joint Secretary, GST Council, informed that another written communication had been received from the State of Jammu Kashmir informing that Shri B.B. Vyas, the then Advisor to the Hon'ble Governor (I/C Finance) of Jammu Kashmir had attended the 30 th Council Meeting but his name was not included in the list of participants. The communication had also pointed out that the then Advisor was nominated by the State Government to represent the State of Jammu Kashmir in the GST Council constituted under Article 279A of the Constitution and his name should be accordingly included in the list of participants. The Joint Secretary, GST Council, informed that it was proposed to include the name of Shri B.B. Vyas in Annexure I of the Minutes (which contains the names of the Hon'ble Ministers attending the Meeting) with the following note: 'The representative from Jammu Kashmir attended the Meeting on behalf of the Hon'ble Governor of Jammu Kashmir. The matter regarding exact status of the Advisor to the Hon'ble Governor (I/C Finance) in the GST Council was under consideration in consultation with the Union Ministry of Law'. 4.4. The Hon'ble Chairperson observed that prima facie when there is Governor's Rule or the President's Rule and the function of the Government gets taken over, there could not be a situation in the Council where a State goes unrepresented. He stated that the State would still be represented by the authority who takes over the affairs of State under the Constitution. Shri K.K. Sharma, Advisor to the Governor of Jammu Kashmir stated that Advisors were exercising the powers of the Ministers. 4.5. The Joint Secretary, GST Council, informed that the issue under clarification was whether the attendance of the Advisor to the Governor would be as a Member of the Council with all the attendant rights. In this regard, he brought to the notice of the Council, the Minutes of the 1 st Meeting of the Council wherein the Hon'ble Chairperson had suggested, subject to legal vetting, that in a State where there is a Proclamation under Article 356 of the Constitution of India, for the purposes of the Council, the person nominated by the Governor of the State shall exercise the power of a Minister. The Joint Secretary, GST Council further informed that this issue had been referred to the Union Law Ministry for legal opinion. He suggested that the Council could agree to include the name of Shri B.B. Vyas, Advisor to the Governor of Jammu Kashmir in Annexure I of the Minutes (which contains the names of the Hon'ble Ministers attending the Meeting) with the following note: 'The representative from Jammu Kashmir attended the Meeting on behalf of the Hon'ble Governor of Jammu Kashmir. The matter regarding exact status of the Advisor to the Governor in the GST Council was under consideration in consultation with the Union Ministry of Law' . The Council agreed to this suggestion 5. For Agenda item 1 , the Council decided to adopt the Minutes of the 30 th Meeting of the Council with the following changes: 5.1. In line 6 of paragraph 14.9 of the Minutes, to replace the existing version of the Hon'ble Minister from Odisha with the following:' ... in addition to 0.5% as entry tax ... '; 5.2. In line 3 of paragraph 14.15 of the Minutes, to replace the existing version of the Hon'ble Minister from Kerala with the following: ' ... and 80% of consumer products were imported from other States ... '; 5.3. To include the name of Shri B.B. Vyas, Advisor to Hon'ble Governor (I/C Finance) of Jammu Kashmir in Annexure 1 of the Minutes (which contains the names of the Hon'ble Ministers attending the Meeting) with the following note: 'The representative from Jammu Kashmir attended the Meeting on behalf of the Hon'ble Governor of Jammu Kashmir. The matter regarding exact status of the Advisor to the Governor in the GST Council was under consideration in consultation with' the Union Ministry of Law'. Agenda Item 2: Deemed ratification by the GST Council of Notifications, Circulars and Orders issued by the Central Government 6. The Secretary informed that during the Officers meeting held on 21 st December, 2018, a presentation was made on this Agenda item informing regarding the Notifications, Circulars and Orders issued by the Central Government after 28 th September, 2018 (date of the 30 th Council Meeting) and till 13 th December, 2018 to be ratified by the Council (A copy of the presentation is at Annexure 3 of the Minutes). He informed that the officers did not raise any point on this Agenda item and proposed that the Council may ratify the notifications, circulars and orders. The Council agreed to the same. 7. For Agenda item 2 , the Council approved the deemed ratification of the following notifications, circulars and orders, which are available on the website, www.cbic.gov.in: Act/Rules Type Notification Nos. CGST Act/CGST Rules Central Tax 53 to 66 of2018 IGST Act Integrated Tax 3 of2018 UTGST Act Union territory Tax 12 to 15 of2018 Circulars Under the CGST Act 66 to 74 of2018 Removal of Difficulty Orders Under the CGST Act 1 of2018 7.1. The Notifications, Circulars and Orders issued by the Member States, which are pari materia with the above notifications, circulars and orders were also deemed to have been ratified. Agenda Item 3: Decisions of the GST Implementation Committee (GIC) for information of the Council 8. Introducing this Agenda item, the Secretary stated that the GST Implementation Committee (GTC) took certain decisions between 28th September, 2018 (when the 30 th GST Council Meeting was held) and 13 th December, 2018 (before the 31 st Council Meeting). He added that due to agency, certain decisions were also taken by obtaining approval by circulation among the GIC members. He stated that this Agenda item was discussed during the Officers meeting held on 21 st December, 2018 and there were no comments from the officers on the Agenda item. A presentation covering the issues is attached as Annexure 3 . The Secretary invited comments, if any, from the Members of the Council. There were no comments. 9. For Agenda item 3 , the Council took note of the decisions taken by the GIC during the period from 28 th September, 2018 to 13 th December, 2018. Agenda Item 4: Decisions/recommendations of the IT Grievance Redressal Committee (ITGRC) for information of the Council 10. The Secretary informed that under this Agenda item, decisions of the IT Grievance Redressal Committee (ITGRC) taken during its 3 rd meeting held on 26 th October, 2018 were placed before the Council for information. The Hon'ble Chairperson desired that the Council should be briefed regarding the decisions taken by the IT-GRC. Shri Upender Gupta, Commissioner (GST Policy Wing), CBIC, made a presentation on this subject (attached as Annexure 3). He informed that the TTGRC was responsible for resolving problems of taxpayers, who have not been able to fi le their documents, such as TRAN 1, GSTR-3B, GSTR-1 or Registration/Migration, etc. due to technical glitches at the common portal (GST Portal) and it affects a large section of taxpayers. In this regard, Government had issued circular 39/13 dated 3/4/2018 prescribing the procedure for taxpayers for lodging their grievance due to technical glitch in the GST system. He stated that the GSTN had issued a Standard Operating Procedure (SOP) dated 12.04.2018, which had to be followed by the Nodal Officers of the States/Centre while referring the technical glitch cases to the GSTN. Taxpayers had to submit their grievance applications relating to technical glitches to the designated State/Central nodal officers along with evidence, who in turn examined the taxpayer's applications and the supporting evidence and if any prima facie evidence of technical glitch was found, these were sent to the GSTN Nodal Officer with their recommendations by email. He informed that the 3rd Meeting of the ITGRC was held on 26 th October, 2018 and after examination of 268 TRAN-1 cases, the ITGRC decided to allow 70 cases. He informed that wherever ITGRC approved a case, TRAN-1 filing was enabled in the system for that taxpayer and an email was sent by the GSTN to the taxpayer asking him to file TRAN-1. He added that the remaining cases were being examined by the GSTN and would be sent to ITGRC for decision. 10.1 The Secretary informed that discussion on this Agenda item was held during the Officers meeting held on 21 st December, 2018 where the Commissioner (State Tax), Tamil Nadu, had raised an issue that in many cases, entries could not be made in TRAN-1 etc. due to bonafide errors on part of taxpayers which were not due to technical reasons but needed to be resolved and be considered by the ITGRC. However, while examining this issue, the Law Committee had suggested that if any modification was allowed in TRAN-1 on account of such considerations, this could open flood gates and the cases which had already been rejected could also be reopened. Hence, it was decided to further deliberate on this issue in the next meeting of the Law Committee, which could be attended by the Commissioner (State Tax), Tamil Nadu and any other State, which wanted to participate in the meeting. The Secretary invited any other comments from the Council Members on this Agenda item. However, no comments were offered. 11. For Agenda item 4 , the Council took note of the decisions taken during the 3 rd meeting of the lTGRC held on 26 th October, 2018. The Council further agreed that the issue regarding expanding the mandate of the ITGRC to cover non-technical glitch cases shall be discussed in the next meeting of the Law Committee where the Commissioner of State Tax, Tamil Nadu and any other Commissioner of State Tax wanting to attend the meeting shall be invited. Agenda Item 5: Review of Revenue position 12. The Secretary invited Shri Ritvik Pandey, Joint Secretary, Department of Revenue (DoR), to make a presentation on this Agenda item. The Joint Secretary, DoR gave a broad picture of the GST revenue from September, 2018 to November, 2018 and also the trend of return filing of GSTR-3B till due date and till date for the return period upto October, 2018. He also informed that a corrigendum had been issued and circulated in Volume-3 of the Detailed Agenda Notes making corrections in Table 4 of the Agenda item showing trend of GSTR-3B filing where the figures in the last two columns had got jumbled up inadvertently. On the revenue position, he stated that the total GST revenue during September, 2018 was ₹ 94,442 crore, during October, 2018, it was ₹ 1,00,710 crore and during November, 2018, it was ₹ 97,637 crore. He further stated that the IGST settlement during September, 2018 was ₹ 29,210 crore, during October, 2018, it was ₹ 62,597 crore and during November, 2018, it was ₹ 33,966 crore. He informed that the ad hoc settlement was now being done once in every two months and this would continue in future too. He stated that the balance IGST available with the Central Government after settlement/provisional settlement/refund as on 1 st December, 2018 was ₹ 17,262 crore. The Hon'ble Chairperson observed that now no large amount of IGST was getting accumulated. The Joint Secretary, DoR, informed that the accumulation of ₹ 9,108 crore was also only because refund data was not available; otherwise, the accumulated amount would have been even lower. 12.1. Shri V. Narayanasamy, Hon'ble Chief Minister of Puducherry, stated that the Union Territories of Puducherry and Delhi had been recognised as State under the GST law but they were kept out of the devolution scheme of the Finance Commission, which was not justified. He emphasised that these two Union Territories must get their due share from the Government of India. He pointed out that since the amount went to the Consolidated Fund of India, these two Union Territories became disentitled to get a share of the revenue. He emphasised that since the money was collected by way of taxes, they should also get a share of the same. He stated that the present situation was unjustifiable and requested the Hon'ble Chairperson to find a solution to this problem. 12.2. Shri Manish Sisodia, Hon'ble Deputy Chief Minister of Delhi, stated that for the settlement to be done for accumulated amount prior to March 20 18, the fund was kept in the Consolidated Fund of India. The fund was devolved to all the States in accordance with the Finance Commission's recommendation and they got no share of the funds so devolved to the States. Joint Secretary, DoR, explained that during the last financial year, the whole system of ad hoc settlement started late and as result, they could do only one instalment of ad hoc settlement. The quantum of balances lying in the credit ledger of taxpayers was more and this amount would come down only when taxpayers utilised the input tax credit to pay CGST and SGST, which would lead to regular apportionment for IGST amount. He stated that now ad hoc settlement of IGST was being done even if the input tax credit was lying in the taxpayers' credit ledger. The Hon'ble Deputy Chief Minister of Delhi agreed that in the system being presently followed, all the States including Delhi and Puducherry were getting the due money (b but Delhi did not get the full amount due to it before March, 2018. The Secretary stated that there was only one ad hoc settlement during the last financial year and the net amount accounted in the Consolidated Fund of India had to be devolved to the States by 31 st March 2018. He explained that from the current year onwards, the situation would be different as ad hoc settlement was being done regularly. The Hon'ble Deputy Chief Minister of Delhi stated that earlier too, he had raised this issue several times in the Council. He stated that it was earlier decided that ₹ 1.60 lakh crore of IGST would not be kept in the Consolidated Fund of India but the same was suddenly taken in the pool of the Consolidated Fund of India and got devolved to all States except Delhi and Puducherry. Joint Secretary, DoR explained that as per Constitutional provisions, IGST has to be credited to the consolidated Fund of India at the first instance itself and it is not the case that IGST amount was transferred to the Consolidated Fund at some later stage. 12.3. The Hon'ble Chairperson stated that during the first year under GST regime, there was a high backlog of IGST and there was only one ad hoc settlement due to which net amount of ₹ 1.6 lakh crore was accounted under the IGST head. He observed that this amount was being credited to the Consolidated Fund of India not on account of any arbitrary decision but by virtue of the Constitutional provision. He stated that this situation would not arise in future years. The Hon'ble Deputy Chief Minister of Delhi stated that a way out must be found to settle the past amount as Delhi and Puducherry could not be treated differently vis-a-vis other States. 12.4. The Hon'ble Chief Minister of Puducherry stated that when the issue was raised in the Council earlier, assurance was given that after devolution to the States, a portion of the IGST balance amount lying in the Consolidated Fund of India would be distributed to the Union Territories. The Hon'ble Chairperson stated that if an adjustment was done at this stage, it would imply reducing the net amount accounted under the IGST head at the end of the last financial year and all States to whom the money had been devolved would also need to surrender the amount from their State Consolidated Funds.; He stated that this would lead to unscrambling the whole thing. The Joint Secretary, DoR clarified that IGST is not transferred to the Consolidated Fund of India but it is credited in the same. He added that when a taxpayer deposits liability under the SGST head, the money is directly credited in the State's Consolidated Fund; likewise, when a taxpayer deposits liability under the IGST head, the money is directly credited in the Consolidated Fund of India. 12.5. The Hon'ble Deputy Chief Minister of Delhi stated that because of the problem of devolution, the Union Territory of Delhi had lost about ₹ 3,000 crore during the last financial year. The Secretary stated that had the devolution not taken place and instead adjustment had been made, to that extent, the UT of Delhi would not have suffered net loss. The Hon'ble Chairperson stated that the Hon'ble Deputy Chief Minister of Delhi raised a point that if ₹ 1.6 lakh crore had not been put in the Consolidated Fund of lndia, Delhi would have got a higher share of revenue. He suggested that a workable solution could be found out by discussion between the Revenue Secretary and the concerned Secretaries of Delhi and Puducherry. The Hon'ble Chief Minister of Puducherry stated that this amount could have been kept in a separate account as the two Union Territories could not be deprived of their rights. The Hon'ble Chairperson stated that it was done by virtue of the Constitutional provision. 12.6. Shri D. Jayakumar, Hon'ble Minister from Tamil Nadu, stated that on this issue, they had also written to the Hon'ble Prime Minister to settle the issue of ad hoc settlement. He added that their estimate was that they would get additional ₹ 3,000 crore for the previous year alone. Dr. T.V. Somanathan, Commissioner (State Tax), Tamil Nadu stated that the issue was not only for the Union Territories; 50% of the balance amount lying implicitly comprised SGST. If it had been settled in ad hoc manner, 50% would have gone to the States including Union Territories and 50% would have gone to the Centre. He added that when it is devolved, 58% goes to the Centre and 42% goes to States and nothing goes to the Union Territories. He further stated that in the case of Tamil Nadu, if the money would have been disbursed by virtue of ad hoc settlement, they would have not needed any compensation and instead would have got additional ₹ 2000 crore last year in GST. He requested that the required correction may be made after adjusting compensation both for Union Territories and the States even if the net amounts were not large so that the principles got established. The Hon'ble Chairperson observed that the difference arising out of ad hoc settlement and compensation may not be high because if more of settlement was done, then compensation amount would have gone down. The Hon'ble Deputy Chief Minister of Delhi informed that Delhi had got a compensation of only ₹ 250 crore in the previous year whereas the amount in question was approximately ₹ 3,200 crore. 12.7. Shri Manpreet Singh Badal, Hon'ble Minister from Punjab stated that he was very worried about the revenue situation of Punjab which had suffered 37% revenue shortfall whereas structurally, nothing wrong had been observed about the economy of Punjab. His State was doing well on compliance levels and no alarming tax evasion had been detected. He stated that his advisors had informed that in Punjab, the rate of taxation in pre-GST regime was much higher and with the advent of GST, the rates had come down which was also one of the reasons of revenue shortfall. He added that there were some other issues such as the issue of Place of Supply in the telecom sector, due to which full revenue due to his State was not coming. He explained that the service providers like Paytm in respect of telecom services provided by BSNL and MTNL were accounting a large portion of taxes due to his State, to their head offices in NO IDA based on the address of the suppliers and not of the subscribers. He suggested that a special group should be constituted to look at the possible State-wise distortions and suggest ways for augmentation of revenue and particularly the revenue which had not been reaching the destination States. He further suggested that rate rationalisation should be looked at keeping in mind July, 2022 and not May 2019. 12.8. Dr. T.M. Thomas Isaac, Hon'ble Minister from Kerala, concurred with the points raised by the Hon'ble Minister from Punjab and stated that the revenue position should be thoroughly reviewed. He added that the complaint of the Hon'ble Chief Minister of Puducherry should be seriously deliberated and a Group of Minister (GoM) should be constituted to look into ad hoc distribution of IGST. He further stated that the overall revenue position of GST was below expectations, even more so for the Central Government, which raised a serious question regarding the so-called revenue neutral rate concept that one was supposed to have. He stated that the trend of overall revenue had been on the downward side and it crossed ₹ 1 trillion only two times since GST implementation. He added that in the last two months, the revenue trend had come down further. He stated that the revenue trend had been further affected due to slashing of the tax rates in the Council and the way of implementing it. He observed that as the Finance Minister of a State, he would not have found it appropriate to slash the rates as frequently as had been done in the Council. He cautioned that one had to also look at the situation beyond 2022 when there would be no compensation to the States. He added that during the 28 th GST Council Meeting held on 21 st July, 2018, (which he could not attend and which was not chaired by the current Hon'ble Chairperson the rates of tax on a large number of goods were reduced competitively and without going through the process of examination by the Fitment Committee. 12.9. The Hon'ble Minister from Kerala further observed that earlier, the principle of fitment of rates used to be with reference to pre-GST rates but now, in the proposals of the Fitment Committee, there was no reference to pre-GST rates. He suggested that pre-GST rates should be indicated in all proposals of the Fitment Committee. He stated that earlier while arriving at the tax rates in the Council, there was serious discussion regarding the rate structure with differences of opinion where some Members wanted it to be capped at 18% and some other Members looked at revenue as well as pre-existing GST rates from the point of equity i.e. equitable distribution of tax burden. After a very serious debate, the GST rates were arrived at in the Council. He suggested that before undertaking any further revision in the GST rates, things should be allowed to stabilise and the exercise of rate revision should not be carried out in every meeting. He stated that despite his Party's ideological differences on GST, he had gone along with the Council and consensus decision. He emphasised that having surrendered the State's right to tax independently, he expected that the decisions in the Council should be taken in a deliberative manner. He stated that his State was a big spender on social programmes and suffered revenue deficit and 14% annual rate of growth was not enough for his State. He urged that the Council Members should think twice before undertaking further reduction in tax rates till things stabilised as this was leading to stagnation of revenue. In this regard, he also shared the concern of the Hon'ble Minister from Punjab regarding the revenue position. 12.10. The Hon'ble Chairperson invited the attention of the Members to Table 3 of the Agenda Note, which gave State-wise details of revenue shortfall for the period from August, 2017 to March, 2018 and April, 2018 to November, 2018. The Joint Secretary, DoR .stated that it could be inferred from the table that the high shortfall States were Puducherry, Himachal Pradesh, Uttarakhand, Bihar, Punjab etc. The previous Union Finance Secretary had visited the top six revenue shortfall States and had analysed the reasons for the shortfall. He observed that some of the big gainers of revenue were the North-Eastern States. Some of the larger States like Maharashtra, Tamil Nadu, Telangana and Andhra Pradesh were also doing better than the national average. The Hon'ble Chairperson observed that States like Haryana, Uttar Pradesh, Rajasthan, West Bengal and Sikkim had also improved their revenue performance during April, 2018 to November, 2018 as compared to that during August, 2017 to March, 2018. He observed that as compared to last year, the overall revenue performance was better this year but some States like Delhi had shown a poor performance this year compared to the last year. 12.11. The Hon'ble Deputy Chief Minister of Delhi stated that one of the reasons for revenue shortfall in his State was that during pre-GST era, sales from godowns were taxed at the first point of sale. However, in GST regime, even though the goods were being consumed in Delhi, the big dealers were setting up their godowns in other States due to competitive land prices and rentals. He added that there was also loss of revenue on account of lack of input tax credit matching. 12.12. Dr. Amit Mitra, Hon'ble Minister from West Bengal, stated that it was assumed that in GST, the consuming States would be better off. However, the data available in GST had not been analysed in the way it should have been through the technical processes available. There was a need to relook at the data as to why many consuming States were in a bad revenue position. He observed that in States like Bihar and Madhya Pradesh, consumption was good but revenue was not high. Punjab had given up 14% tax on food grains which was discussed at length in the Empowered Committee. No analysis in theoretical terms had been done that destination tax should have resulted in higher revenue to the consuming States. There was only some heuristic explanation for revenue shortfall like shifting of logistics hubs from Delhi. He emphasised that there should be an analysis based on the original premise of the GST that more revenue should come to the consuming States. He observed that in one meeting of the Council, which was not presided over by the present Chairperson, GST rates were lowered competitively. 12.13. The Hon'ble Chairperson observed that analysis should continue and this would help to understand the trend but at a broader level, it needed to be understood that States like Maharashtra and Karnataka which were performing well on the revenue front, were not only big manufacturing States but also high consuming States. Regarding Bihar, as brought out in the report of the former Finance Secretary, the VAT collection was high for the base year because of increase in the VAT rate on account of implementation of the Prohibition. In Punjab, loss of Purchase Tax was a major reason for revenue shortfall. Uttar Pradesh is partly a manufacturing State but substantially a consuming State where the revenue shortfall had come down to 7%. In the North-Eastern States, the revenue had increased. The States of Telangana and Andhra Pradesh had also done remarkably well on the revenue front. He suggested that a study should be done to analyse these trends. 12.14. The Hon'ble Minister from Kerala stated that the consuming States should have performed much better in revenue collection. Some manufacturing States were also consuming States. He added that the CBIC had country wide data and they should bring out an analytical report. He further stated that prior to GST, Service Tax collection was suboptimal due to paucity of staff in CBIC. The revenue collection from Services could be improved in the GST era and for this, they needed Service Tax collection data of the pre-GST period which should be shared by CBIC with the States. He added that revenue for consuming States would be based on IGST which in tum depended upon effectiveness of e-Way bill system and curbing of large-scale under-valuation of goods like marbles, garments, building material, etc. which would help to augment GST revenue. He informed that Kerala had earlier a floor price system which had gone and this was encouraging under-valuation as there was no such system in place. He suggested to review the rules of e-Way bill system regarding valuation and also address the problem of double run on the same e-Way bill. 12.15. The Hon'ble Chairperson stated that revenue from Service Tax post-GST was a disappointment but there were certain factors responsible for it. He asked Shri Manish Sinha, Joint Secretary (TRU-ll), CBIC, to explain the reasons for the declining trend of revenue from services. The Joint Secretary (TRU-ll), CBIC, stated that at a broader level, three services, namely real estate, telecom and airlines were not performing well. In addition, revenue from smaller service providers had gone down, which was partly due to monthly return system, tax rate on services and hike in the annual turnover threshold for registration from ₹ 10 lakh pre GST to ₹ 20 lakh in GST. Further, small scale service providers were keeping away from GST because of heavier compliance requirements under GST. He stated that the Service Tax revenue collected in the year prior to implementation of GST was around ₹ 2.85 lakh crore, and in normal course, this would have touched ₹ 3 lakh crore this year. 12.16. The Hon'ble Chairperson stated that in the telecom sector, prices were coming do/ because of competition and this had affected the revenue collection. He added that the rate of 18% GST was dissuading small scale sector, such as tailoring units, fitness centres, beauty parlours, hair cutting saloons, etc. to come into the tax net. In the real estate sector, 12% tax rate for under-construction projects was perceived to be an additional burden for the buyers while the finished flats did not attract any GST and only stamp duty. He added that even with input tax credit, the GST rate of 12% appeared to be dissuading the builders from further investment in the sector. Funding by Non-Banking Financial Companies (NBFCs) to the real estate sector had also slowed down. The Secretary stated that from services, tax collection from units with annual turnover of less than ₹ 1 crore was approximately ₹ 800 crore per month in cash, and the ratio of liability versus input tax credit adjusted is about 50%. He observed that small service tax payers were looking at a scheme of composition and a scheme of composition for small Service Tax payers was on the Agenda of this Council meeting. 12.17. Continuing with the presentation, the Joint Secretary, DoR, stated that as regards the trend of return filing, it was significantly lower in October, 2018 as compared to the previous month. He stated that part of the reason for this was that in October, 2018, the last date of return filing was extended by five days. He added that as seen from the trends, it could be seen that many States came in the range of 50% to 60%. He stated that Punjab, UT of Chandigarh, Uttar Pradesh Gujarat etc. had shown a high level of return filing whereas some Union Territories and the North-Eastern States had shown a low return filing rate as some of them did not have VAT before GST. 12.18. Shri Nitinbhai Patel, Hon'ble Deputy Chief Minister of Gujarat, raised a question as to why revenue collection in some States like Punjab was low even when return filing percentage was high in these States. The Hon'ble Minister from Punjab stated that they were also not able to clearly figure out the reason for this. The Hon'ble Chairperson stated that he had received feedback that in Punjab, bulk of the revenue even on the direct tax side, came from the public sector undertakings; the local trade and industry was contributing marginally to the direct tax collection. The Hon'ble Chairperson asked Shri V.K. Garg, Advisor (Financial Resources) to the Chief Minister, Punjab, to explain the reasons for Punjab's low revenue collection. 12.19. The Advisor (Financial Resources) stated that the National Institute of Public Finance and Policy (NIPFP) had conducted two studies in the run up to GST - one in 2011 and the other in 2013 - where they had indicated that there could be no uniform revenue neutral rate for GST for the entire country. At that time, States like Gujarat, Chhattisgarh, Himachal Pradesh and Goa had expressed apprehension that GST would cause a big loss of revenue as they believed themselves to be the origin States. NIPFP report had indicated that applying a uniform revenue neutral rate for the entire country would lead to loss of revenue to some States and had suggested a high revenue neutral rate for some States like 27% for Chhattisgarh. He added that it was explained to them that the whole concept of origin and destination tax was a farce in the long run since if a State was a producing State, sooner or later it would also become a consuming State. He stated that it could be seen that the State of Gujarat had not lost as much revenue even though the CST component was high in its pre-GST revenue collection. On Service Tax, he stated that earlier, a large part of Service Tax was levied on B2B supplies i.e. between the stages of manufacture and retail like renting of immovable properties, C F agent, business auxiliary service, business support service, advertisement etc. and the revenue from them was going to be cannibalized in GST, being a levy on the final price. He stated that as per his estimate, the net revenue from service tax was supposed to be around ₹ 70,000 crore depending upon the exemption threshold. He added that due to increase in the annual turnover threshold for registration for Service Tax under GST, many taxpayers had gone out of the tax net. He added that major revenue providers in B2C segments were telecom (where revenue was down) and retail (where tax evasion was traditionally high). 12.20. The Advisor (Financial Resources), Punjab, further stated that at the time GST design was first conceived around 2008, the rate of State VAT was standard rated @ 12.54% and merit rate was 4% but the rates rose subsequently across the States as some States started levying 10% surcharge, some raised tax rates etc. At the time GST was ushered, most States had a VAT rate of 13.5%-14% on a cascaded value which included Central Excise, in addition to CST of 2% plus the input tax credit reversals of 4% on stock transfers. Thus, his estimate was that most of the States had a prevalent VAT rate of 18% at the higher end which had now become 9% (as SGST) and VAT rate of 6% (together with similar cascading) had become 2.5% or 6% SGST at the most. This had an impact on the revenue front. He stated that Punjab's primary problem was the mismatch between ratio of Punjab's share of GOP in the Country's GOP when compared 'with Punjab's GST revenue vis-a-vis country's total GST revenue. He added that share of Punjab in the country's GDP was 2.8% but its share of GST revenue was only 2.4%. This automatically neutralized all factors such as Purchase Tax. Since his State was getting lesser revenue than anticipated as per its share of GOP, this indicated some structural problems. One such problem could be in the Place of Supply (POS) Rules due to which some revenue of Punjab was going to other States. He gave an example of POS Rules for international travellers for which the place of supply was where the passenger embarks on the aircraft, which was mostly a metropolitan city. Similarly, in telecom sector, for prepaid electronic recharges done through Paytm, if address of the subscriber was not given, it was deposited in the headquarters of Paytm at NOIDA whereas revenue should have accrued to the consuming State. He added that as highlighted by the Hon'ble Finance Minister from Punjab, such distortions should be looked into by a Committee and the revenue should flow as per the destination principle. 12.21. The Hon'ble Chief Minister of Puducherry stated that his State was a big loser of revenue under GST. He stated that earlier, his State attracted consumers from other States and several warehouses were located in his State. The previous Finance Secretary had met officers during GST roll out and he had indicated that GST would benefit the consuming States but now the experience was that all revenue of small industries was going to other States through sale. His State was also not getting Service Tax revenue, as per expectation. The tax rate on restaurants had been reduced, and during the last year, about 1,700 restaurants had been opened in his State but they were not getting much revenue from this sector. He stated that a proper analysis needed to be done for such loss of revenue and his State was not in a position to carry out such analysis. 12.22. The Hon'ble Chairperson enquired regarding the reasons as to why there was a positive trend of revenue in the State of Maharashtra. Shri Rajiv Jalota, Commissioner, State Tax, explained that his State was a high service consuming State and during the first year of GST, the revenue collection was good. He stated that now there was a downward trend in revenue from service sectors like telecom and airlines. He added that under VAT, there was a composition scheme in his State for manufacturers and now there was a declining trend in revenue from this segment because there was just 1% of composition tax. He added that traditionally Maharashtra has been a better compliant State. However, it had also been noticed that large amount of tax credit was being used through circular transactions and they were trying to improve tax compliance through better data analytics. 12.23. The Hon'ble Chairperson stated that the revenue target of the States was high as it was pegged at a compounded rate of 14% of the revenue of the base year which would amount to almost 50% increase in the revenue target of the State in the next three years. So, increase in revenue collection would need to be in the range of 40% to 45% of the previous collection which was very high. The Hon'ble Minister from West Bengal stated that it was true that his State had performed better in revenue collection. This was partly due to large scale use of e-taxation prior to GST roll out which was also acknowledged by the Government of India. He stated that this had led to easier migration of middle and larger level VAT registrants and the number of new taxpayers had also climbed up rapidly. He added that a lot of work had also been done by officers for augmenting revenue. However, due to nonmatching of invoices, lot of false claims of input tax credit were being made and a holistic approach was needed to address this problem. He suggested that instead of ocularly looking at data and comparing them, there should be an analysis through statistical tools like chi square to analyse any statistical difference of collection figures between the two periods indicated in Table 3 of Agenda notes. 12.24. The Hon'ble Minister from West Bengal further observed that the Hon'ble Ministers from Punjab and Kerala had rightly observed that the GST rates were being varied without much logic. He stated that West Bengal has a metropolitan city and therefore it is a consuming hub but they also had manufacturing and digitisation. He wondered whether they could say that they were doing better. He observed that there were some heuristic reasons for revenue shortfall like re-location of warehouses from Delhi due to lesser land prices in neighbouring States but we lacked analysis of such reasons. He added that during last year, the States were compensated to the tune of ₹ 48,000 crore which could be even higher during the current year and it needed consideration whether GST rate reduction was also a cause for this shortfall. He recalled that during the GST design phase, States of Gujarat and Maharashtra had very strongly opposed GST but now they were performing well. He added that these were some contradictions which were not yet understood. The Hon'ble Minister from Kerala added that at their insistence, initially there was also a proposal to allow retention of 2% additional tax to the producing States. 12.25. The Hon'ble Chairperson enquired whether CBIC could do a data analysis of revenue shortfall. Shri Mahender Singh, Member (GST), CBIC stated that they had done some study and, after refinement, this could be brought before the Council. The Hon'ble Minister from Kerala suggested that there should be a Committee of officers of the Centre and the States to do such an analysis and help should also be taken from some research institutions like National Institute of Public Finance and Policy (NIPFP). He suggested that a GoM should be constituted for revenue analysis and this should be supported by officers. The Hon'ble Minister from West Bengal stated that the experts should do the analysis and then it should be brought before a GoM. 12.26. The Hon'ble Minister from Karnataka stated that revenue from service tax was not supplementing their revenue. His State was a big producer of services (mainly IT) and not much in manufacturing like Maharashtra. With regard to data analytics, he informed that in the GoM on IT Challenges in GST Implementation, he had repeatedly been requesting for analysis about trends and correlations but the analysis presented did not answer questions being raised. He observed that since GSTN was not able to carry substantial assessment, it needed to be considered as to what kind of group should conduct this analysis. Shri Jagdish Chander Sharma, Principal Secretary (E T), Himachal Pradesh stated that revenue gains for the consuming State like theirs was not as expected. He added that due to strong enforcement, they had collected about 21% more revenue from IGST and SGST during September-October 2018. His State had a better national average of e-way bill generation as compared to the registered taxpayers in the State. He expressed that in the next three months, with better enforcement, their revenue performance should improve. He also supported the formation of GoM for revenue analysis. I 12.27. The Hon'ble Minister from West Bengal stated that the analysis should consist of three things namely data mining like chi square test, causal modelling through regression analysis and examination of the structure under which it is happening i.e. the IT structure. He suggested that either a white paper should be published on GSTN or a GoM should be constituted to examine these issues. He added that about 300 crore invoices were supposed to be uploaded per month on GSTN portal and these were supposed to be matched but we had not been able to go to the stage of GSTR-2 and therefore frauds were being committed. He also observed that no single test or pilot project was done before launching GST. 12.28. The Hon'ble Chairperson requested the Joint Secretary, DoR to also show the monthly revenue trends of GST collection. The Joint Secretary, DoR stated that from August 2017 to 31 st March 2018, revenue collection was fluctuating. During August 2017, the collection was ₹ 95,633 crore but it had gone down to ₹ 94,064 crore during September 2017. He added that November 2017 showed the lowest revenue collection of ₹ 83,780 crore and thereafter, there was an increasing trend in revenue. The Hon'ble Minister from Kerala stated that GDP to tax ratio should also be analysed and in his assessment, this was coming down. He stated that the turning point for downward revenue trend was 23rd GST Council Meeting held in Guwahati (10 th November 2017) where the GST rates were reduced. 12.29. Continuing the presentation, the Joint Secretary, DoR stated that in April 2018, the revenue collection was approx. ₹ 1.03 lakh crore. In May 2018, it went down to ₹ 94, 016 crore and in June 2018, it was ₹ 95, 610 crore. The revenue collection in July 2018 was ₹ 96, 483 crore, in August it was ₹ 93,960 crore, in September it was 94,442, and in October it was ₹ 1 lakh crore. In November 2018, the revenue collection was ₹ 97,637 crore. 12.30. Summing up the discussion, the Hon'ble Chairperson stated that taking into account the rate reductions done, the revenue collection figures indicated that the average monthly revenue collection was about ₹ 90,000 crore till March 2018 and it was about ₹ 96,000 crore monthly during the next year. From April 2018 to November 2018, the tax collection ranged between ₹ 94,000 crore to ₹ 97,000 crore. The Hon'ble Minister from Karnataka stated that year-on-year, a nominal revenue growth rate of at least 7% to 8% should be considered, and in this light, the revenue collection per month should have gone up from ₹ 90, 000 crore to about ₹ 96, 000 crore to ₹ 97,000 crore and the shortfall needed to be measured against this and not ₹ 90,000 crore. The Hon'ble Chairperson observed that to break even, the targeted revenue 'collection every month was about ₹ 1.10 lakh crore. The Hon'ble Minister from West Bengal stated that post-refund revenue collection figures should be taken into account. 12.31. The Hon'ble Chairperson suggested that a GoM consisting of about seven members along with experts from the Central and State Governments and research organisations like NIPFP could be constituted to analyse the revenue collection and structural issues relating to revenue shortfall keeping in view the suggestions made by the Members. The Council agreed to this suggestion. 13. For Agenda item 5 , the Council took note of the presentation on the revenue collection for the months of September to November 2018. It also agreed to constitute a 7- Member Group of Ministers along with experts from Central and State Governments and research organisations like National Institute of Public Finance and Policy (NIPFP) to analyse revenue related issues and the structural reasons for shortfall keeping in view the suggestions made by the Members. Agenda Item 6: Issues recommended by the Fitment Committee for the consideration of the GST Council 14. Some preliminary remarks were made before substantive discussion on this Agenda item took place. The Hon'ble Minister from West Bengal stated that he had written a formal letter to the Hon'ble Chairperson, GST Council on 21 st December 2018 regarding the statement made by the Hon'ble Prime Minister on 18 th November 2018, as reported in the newspapers. The Hon'ble Prime Minister of India's suggestion on 28% rate slab was like preempting the discussion on fitment issues in the GST Council. He pointed out that under Article 279A of the Constitution, the Council was authorised to discuss rate structure of GST and stated that this should not happen in future as this undermines the GST Council. 14.1. Dr. Himanta Biswa Sanna, Hon'ble Minister from Assam objected to these observations and stated that the comments of the Hon'ble Prime Minister should not be discussed in the Council because one would not be fully aware of the context and background of it. The Hon'ble Chairperson stated that the Members of the Council should concentrate on the work being done in the Council. He recounted the past experience where, on a number of items, there was unanimous agreement, but subsequently some Members talked against the consensus decisions of those very items. He observed that the Hon'ble Prime Minister had only given a road map and some of the Members and even few Chief Ministers had spoken of such road maps as these are public issues and everybody could give their own view but the ultimate decision lay with the Council. He observed that the environment of the Council should be kept free from the happenings taking place outside the Council. He suggested to concentrate on the decisions to be taken in the Council and to keep politics out of it. He added that the Council Members were also political persons and some political stance could be taken in a democratic setup but in the Council, there should be free and frank discussion and to evolve a consensus. 14.2. Shri Mauvin Godinho, the Hon'ble Minister from Goa stated that the Hon'ble Prime Minister was right to comment on the broad economic policy framework of the country. The Hon'ble Deputy Chief Minister of Delhi cautioned on such kind of debates and also stated that discussion on GST rate was the privilege of the GST Council. Shri Krishna Byre Gowda, Hon'ble Minister from Karnataka stated that there would be more value addition if the members discussed the agenda. He added that the statement of the Hon'ble Prime Minister could be dissected from various angles and it needed to be remembered that the Council was a Constitutional body. However, in deference to the suggestion of the Hon'ble Chairperson, the discussion could move on. 14.3. The Hon'ble Chief Minister of Puducherry stated that the Members should be allowed to make observations. The Hon'ble Minister from Assam stated that indirectly the Members were making avoidable observations on the views expressed outside the Council. He added that many things had been stated against GST and it would be advisable not to bring outside issues into the Council. The Hon'ble Minister from Goa added that all Members should think and work in a constructive spirit with a view of one Nation, one Tax. 14.4. After this preliminary discussion, the Secretary introduced the Agenda Item 6. The Hon'ble Minister from Punjab stated that the Agenda Item listed at S.No.4 of Annexure II regarding GST on licence fee charged for liquor licences stood withdrawn but he recalled that the issue regarding tax on liquor was discussed and decided during the Meeting of the Council held in Jammu Kashmir but the implementing circular or notification was yet to be issued to clarify the matter. Joint Secretary, TRU-ll stated that it was decided in the Officers' meeting on 21 st December 2018 that on merit, no decision was needed and only implementation instrumentality needed to be worked out which would be done at the officers' level that whether it should be done by way of a Circular or by way of an exemption notification. He stated that if liquor licence fee collected by the States was certified as the tax revenue of State excise by all the States, then it would be easy to issue the required circular. He added that issuing such a circular for the period relating to erstwhile service tax would tantamount to annulling judgements of some High Courts on this issue without any new evidence and, therefore, such a certification was needed from the States. 14.5. Advisor (Financial Resources), Punjab stated that the Hon'ble Supreme Court, in the case of M/s Har Shankar vs otrs, bad decided the issue whether licence fee was a tax .or excise revenue and it had held that it was excise revenue. The then Finance Secretary was convinced that this was not liable to GST. If instead of clarification, an exemption notification was to be issued at this stage, the levy would come into question whether it was a fee or a tax. He stated that since it was a one-time exception, a Circular could be issued. The Hon'ble Chief Minister of Puducherry stated that fee on liquor licence was not under GST and it need not come for discussion to the Council at all. He added that notices were still being issued on this issue for Service tax period and this should also be withdrawn. Joint Secretary, TRU-ll stated that wording of the Law was different in different States. Further, it was not mentioned in the 26 th GST Council decision as to how the decision should be implemented. The Secretary stated that at this time, this Agenda item was being withdrawn. 14.6. The Hon'ble Minister from Tamil Nadu requested to take on record his written speech circulated during the meeting and stressed to favourably reconsider the request of Tamil Nadu to reduce the rate of GST on certain goods such as branded rice, wet grinder, matches, recycled plastics and also fishing line and lead weights which the Fitment Committee had not agreed to consider during its last meeting. The Hon'ble Minister from Kerala requested to take up the agenda item wise in a systematic manner. 14.7. The Secretary explained the contents of Agenda Item 6. He stated that Annexure I contained recommendations for making changes in GST rates or for issuance of clarification in relation to goods; Annexure H contained recommendations for making changes in GST rates or for issuance of clarification in relations to Services; Annexure III contained issues where no change had been proposed by the Fitment Committee in relation to goods; Annexure TV contained Issues where no change has been proposed by the Fitment Committee in relation to services and Annexure V contained issues relating to services referred to GST Council for decision. He added that issues covered in Annexure V were again discussed by the Fitment Committee on 21 st December, 2018 as there was near consensus in its last meeting on 15 th December, 2018 and after further discussion, the Fitment Committee had reached an agreement on these issues. 14.8. The Hon'ble Chief Minister of Puducherry enquired regarding the number of items that were presently in the tax slabs of 18% and 28%. Shri G.D. Lohani, Joint Secretary (TRUI), CBIC, informed that at four-digit HSN level, there are altogether 1,216 entries for goods and 48 entries for services. He stated that as regards the contribution of revenue from different rate slabs, 60% of the revenue came from items in 18% rate slab, 13% of revenue came from items in 12% slab, 22% of revenue from items under 28% and rest of the revenue came from 5%, 3% and 1% slabs. He added that 340 tariff lines were taxed at the rate of 5%, 174 tariff lines at the rate of 12%, 517 tariff lines at the rate of 18% and 34 tariff lines in goods are at the rate of 28% and rest are at lower rates. He further added that sometimes one tariff line may spread into different slabs for example parts of auto, etc. The Hon'ble Chairperson stated that in 28% tax slab, there were broadly three categories of 34 items left, as for example, auto parts which may figure in 13 headings or so and tobacco in 4-5 headings. He added that out of these 34 items, several items were falling in the categories of luxury and sin products. He stated that two items involving big revenue collection in 28% slab were cement and auto parts. If the rate of tax on cement was reduced from 28% to 18%, it would lead to annual revenue loss of ₹ 13,000 crore and if the tax rate on auto parts was reduced from 28% to 18%, it would lead to an annual revenue loss of ₹ 22,000 crore. He stated that some of the other items of lesser revenue significance were yacht, luxury cars, etc. Therefore, items under the 28% rate category could be categorised separately into (i) luxury and sin products; (ii) items of big revenue impact; (iii) some items of minimal revenue impact. 14.9. The Hon'ble Minister from Karnataka stated that he would briefly like to delve on the larger issue of revenue and rate. He stated that taking a cue from the concerns raised by the Hon'ble Minister from Punjab, Kerala, etc., in his opinion, rate rationalisation should happen but the question was regarding the timing. He stated that the Council had collectively decided to keep the 28% rate slab as one did not have a fully progressive tax system from which presently 22% of revenue accrued, and they were concerned about the revenue position of the States. He stated that Karnataka had been a fiscally prudent State and it achieved its revenue deficit target under the Fiscal Responsibility and Budget Management (FRBM) Act in 2004, though the target year was 2005-06. Karnataka has also consistently been a revenue surplus State and its fiscal deficit had been 2.1% to 2.8% whereas many States had crossed the 3% mark. In terms of share of his State's GSDP, it was 17% in 2013-14 and today it stood at 18.7%. He stated that in 2014-15, the revenue growth was 13.91% and in 2015-16, it was 9.8%. He added that the State had now been suffering a consistent revenue shortfall of 21%- 22% below the protected revenue rate. He added that the revenue protection was below the previous VAT growth rate. In the pre-GST period, the VAT growth rate for various years was as follows: 19.43% (2006-07), 15.75% (2007-08), 5.25% (2008-09), 11.98% (2009-10), 27% (2010-11), 23.90% (2011-12), 13.70% (2012-13) and 14.98% (201 3-14). 14.10. The Hon'ble Minister from Karnataka further stated that when the State was solely responsible for its tax policy, its revenue growth was high and it was expected that in GST, there would be greater tax buoyancy whereas now the revenue growth stood at 7%-8% in nominal terms. The State had surrendered its sovereignty by implementation of GST on the understanding of higher revenue gains. He stated that as per the present rate of revenue shortfall, in 2022, the State would suffer a sudden drop of revenue of about ₹ 10,000 crore. He stated that there was not enough convincing answer that the structural issues would be addressed. He added that the solution was to reach revenue neutrality and for this, monthly revenue collection should be between 1.08 lakh crore to ₹ 1.10 lakh crore for the country. Karnataka, on its part, was committed to work towards achieving this goal. He stated that the tax rate rationalisation could be looked at after the targeted revenue was assured. He stated that the Hon'ble Chief Minister of Karnataka was worried as to how to mobilise revenue after 2022. He was very seriously concerned about the evolving medium-term financial condition of Karnataka. He suggested that firstly a road map should be shown as to how the revenue would be assured and then one could go ahead with rate rationalisation. If there was no road map and revenue rationalisation was still proposed to be carried out, then revenue protection to the States should be assured beyond 2022. 14.11. The Hon'ble Minister from Kerala stated that the growth of VAT revenue in his State during the year 2006-07 to 2013-14 was in the range of 18% and then it dropped, partly because initially the Entry Tax had been struck down by the Hon'ble High Court and there was own account purchase from the neighbouring States on large scale. It was expected that GST would enable his State to reach a growth rate of 18% and help in fiscal consolidation. However, the trend in 2013-14 showed worsening of fiscal equilibrium. He stated that revenue must be protected. He added that decline in revenue started after the GST rates were slashed and the tax to GDP ratio had come down sharply. He stated that the Members of the Council had different understanding on the issue of GST rates but they had reached a common ground. He stated that in the Council, the revenue potential should not be undermined. Some tweaking in the rate could be done but there should be no major rate changes. He added that some increase in the GST rates could also be discussed after the General Elections in 2019. 14.12. The Hon'ble Deputy Chief Minister of Delhi stated that it was not necessary that in every Council meeting, the rates should be reduced. He observed that in the earlier meetings of the Council, rates of many items had been reduced. He suggested that the Council should postpone proposals for changes in tax rates. He further added that without due analysis, the change in the rates would either be based on some convention or populist decisions. In this regard, he drew attention to the proposal regarding reduction in the rate of tax on marbles, and stated that the differential between marble pieces and marble slabs would cause a problem. 14.13. The Hon'ble Deputy Chief Minister of Gujarat stated that at the beginning of the implementation of GST, it was decided to keep a rate slab of 28% and to review the same as per need and experience. The changes in tax rates could be considered based on representations received from customers, manufacturers, or other stakeholders. He added that now more than one year had passed since the implementation of GST and the impact of the rates on the revenue trend and on the people at large could be seen. He advised that the process of rate rationalisation should not be stopped and suggested that the proposals of the Fitment Committee should be discussed one by one and decision taken on each of them. He stated that tax rate of 28% was not desirable for all items and recalled that initially, there was a demand in the Council not to keep the tax slab of 28%. Now, when the Hon'ble Chairperson and the Fitment Committee bad suggested to reduce the rate of 28% on some items, it should be considered where ever the agreement could be reached. He added that such reduction would help to boost business turnover resulting in more revenue, more compliance and lesser evasion. 14.14. The Hon'ble Chief Minister of Puducherry wondered how revenue shortfall of the States could be met if tax rates were reduced even if their original demand was to lower the rates. He added that States had revenue protection for five years out of which one year was already over. There would be no compensation to States after five years. He supported the view of the Hon'ble Ministers from Karnataka and Kerala that the States should be given an assurance by the Council that the revenue protection shall be extended by another five years. He observed that in case of reduction in rates, revenue would come down, and therefore, protection to the States should be extended by another five years. 14.15. The Hon'ble Minister from Goa stated that decisions in the Council had been taken by consensus and to the satisfaction of the majority of the Members. When rates were proposed to be reduced, some Members opposed the proposal but consensus had emerged. He recalled that from the beginning and in the subsequent meetings a broad consensus had emerged to rationalise the rates and have one common rate and a higher rate for demerit goods. He observed that now that GST had started to stabilise and was working well, there was a general admiration for it in the world. He stated that the average monthly revenue collection of ₹ 97,000 crore was reaching close to ₹ 1.00 lakh crore and the target of ₹ 1.10. lakh crore was not unachievable. If rates of taxes were reduced, there would be less leakage, more compliance and more revenue collection. In, this regard, he complimented all the Members for adopting a positive approach in the Council. He also expressed agreement with the concern of the Hon'ble Minister from Punjab and stated that the reasons regarding revenue shortfall should be analysed from all angles. In spite of high compliance in a State like Punjab, it needed to be investigated why revenue was d9wn and whether this revenue was going somewhere else. He stated that with the level of consumption and manufacturing capacity that lndia has, GST legislation was working well, which was also attested by the healthy revenue figmes. Forms and returns were being rationalised. In the long run, one should try to have one rate except for sin goods, as is prevalent in other countries. 14.16. Shri Rajesh Kumar Agarwal, Hon'ble Minister from Uttar Pradesh, stated that GST Council is a Constitutional body. The Fitment Committee had made its recommendations after due consideration and these should be accepted, particularly for items like fly ash. Shri Sushi! Kumar Modi, Hon'ble Deputy Chief Minister of Bihar, stated that he worked as Finance Minister during introduction of VAT in 2005 and at the time of implementation of VAT, compensation was only for three years, that too in a graded manner. However, the experience was that after two years, no State needed compensation. He observed that in GST too, the revenue shortfall had declined from 20% to 10%. The smaller States had done well in revenue collection. The manufacturing States, who were most fearful about revenue prospects in GST, bad also done well. The Hon'ble Minister from Karnataka pointed out that the figure of 10% was not a weighted average figure and so it did not reflect the total revenue, and that the weighted average for the same period was 16% and 13% respectively. The Hon'ble Chairperson observed that there was improvement over the last year even though the figures were not pro rata for the States. The Hon'ble Deputy Chief Minister of Bihar continued and stated that going by his experience of VAT, he expected that revenue shortfall in GST would gradually come to zero. He added that the Fitment Committee had recommended reduction in tax rate on items like fly ash blocks, walking sticks, agglomerated cork, etc. There was a consistent demand for rationalisation of rate in the case of footwear and in the recommendation, it was stated that it would also address the issue of evasion. Tax rate on cement and auto parts could not be reduced because of significant revenue implications. He added that reduction of GST rates on those items which have no major revenue implication could be supported. He stated that it would be useful to prune the list of items under 28% tax slab and on this issue, he supported the proposal of the Fitment Committee. 14.17. The Secretary informed that in respect of Serial No.5 at page 9 of Volume-2 of the Agenda notes, a corrigendum had been issued and circulated to all the Members (part of Volume-3 of Agenda notes). In the corrigendum, it was stated that against Serial No.4, in place of HSN code 6601 , the HSN code 6602 should be substituted (in Columns 3 and 6) and against Serial No.5 in the comments column in paragraph 7, in place of the rate of 5%/ 12% , the rate of 5%/18% should be substituted. The Joint Secretary (TRU-I), CBIC, further clarified that on footwear, the rates of 5% and 18% were based on the retail sale price but taxation on garments and hotels were based on transaction value. So, in the case of footwear also, there was a demand to levy tax on transaction value and not on retail sale price so that when footwear was sold at a discount on the printed price, the tax would be charged on the transaction value. He clarified that there was no proposal to change the rate of tax on footwear. The Hon'ble Chairperson observed that during 8 months of the last year, the compensation paid was about ₹ 48,178 crore on an average of ₹ 6,000 crore per month, which amounted to about ₹ 72, 000 crore annually and if the same figure was extrapolated for this year, then it would amount to approximately ₹ 83 ,000 crore in the current year. He stated that the compensation paid this year so far in the first 6 months was ₹ 30,000 crore and for the whole year, it was expected to be ₹ 60,000 crore. This indicated that the revenue position was improving. 14.18. Shri C.P. Singh, Hon'ble Minister from Jharkhand, stated that he had been attending the Council Meetings since very beginning and many Members who, in the past, had suggested rate reduction were today expressing reservation to reduce the rates. He stated that this was understandable politically. On merits, there could be reservation for reducing the rate of tax on items such as billiards but there could be no objection to reduce the rate of tax on items like walking sticks, fly ash blocks, etc. He expressed his support for the proposals for tax reduction. He also suggested that the small print media should be exempted from tax while they should continue to pay tax on advertisements, ink boxes, etc. He further stated that the chambers of commerce had indicated that interest for short payment of tax was being charged for the full amount of tax whereas, it should be charged only on the amount outstanding for payment. The Hon'ble Minister from West Bengal clarified that he did not oppose reduction in the rate of tax on walking sticks. 14.19. Captain Abhimanyu, the Hon'ble Minister from Haryana, stated that he had attended all 31 GST Council meetings and was privileged to learn from the diversity of views expressed by the Members of the Council and there was always an occasion to learn from the senior Members. Consensus had been established as a convention in the Council. His Stat was also a fiscally prudent State. When GST was introduced, it was a plunge into e unknown. Originally, the GST rate proposed across the political spectrum was 18%. Slowly, over a period of time, the Council had moved towards the present rate structure and the Fitment Committee had made recommendation for rationalisation of tax rates on some of items. This was a continuous exercise which involved removing distortions, lowering tax rates etc. which would in turn improve compliance, widen tax base and formalise the economy and ultimately lead to gains in terms of revenue. Therefore, his State supported the proposals of the Fitment Committee. He added that regarding revenue protection, each State individually and collectively needed to take certain steps to improve compliance, remove distortions and plug the revenue gap. 14.20. The Hon'ble Minister from West Bengal stated that the earlier decision to do a study through data mining to understand causes of revenue decline should be conducted within a timeframe. At this stage, the Council did not have the perspective to start considering rate reductions. He also enquired regarding the possible loss of revenue due to the rate reductions proposed in the Agenda. The Secretary informed that the estimated loss of revenue due to the proposed rate changes for goods and services would be approximately ₹ 5, 500 crore annually. The Hon'ble Minister from West Bengal stated that the general sense was that some States were in serious problem and it needed to be considered whether any change in the rates should be done at this stage when States were in problem. However, if rates had to be changed only for those items which was recommended by the Fitment Committee, then he was in support of it. He expressed his reservation on the practice of placing some Table Agenda directly in the Council. He did not support such Table Agendas and stated that it should always come through the Fitment Committee or the Law Committee. He further stated that the other option was that once the study was completed, action could be taken on the recommendations of the Fitment Committee. He stated that his first preference was to understand the issues after the study was conducted and then the Fitment Committee to make its recommendation. He suggested that in any situation, at least the decision regarding the Table Agendas should not be taken up by the Council. 14.21. The Hon'ble Minister from West Bengal further stated that input tax credit had been allowed on textiles but it was still not allowed for railway wagons. The tax on inputs for wagon making was at the rate of 18% whereas wagons were taxed at the rate of 5%, which led to accumulation of input tax credit. For textiles, refund of input tax credit had been correctly allowed and the same should also be considered for wagons. He stated that in its absence, big producers as well as SMEs would collapse. The Fitment Committee should take up this item and any other item of this nature where no tax refund was permitted due to inverted duty structure. 14.22. The Hon'ble Minister from Kerala stated that those Agenda items for change in rate, which had not gone through the due process of examination by the Fitment Committee should not be taken up at all. If the Hon'ble Chairperson decided that the Council should look at the recommendations of the Fitment Committee, he was willing to go along with that. He added that in the real estate sector, works contract contributed almost 20% of the revenue to their State and one had to understand its implications before any decision was to be made. 14.23. Shri Shashi Bhusan Behera, Hon'ble Minister from Odisha, stated that his State was a consuming State, and after five quarters of introduction of GST, there was a discussion on pros and cons of rate reduction. He added that after the five-year period of compensation with 14% annual growth rate was over, it was important to consider what will be the revenue position of the State. He added that his State was a mineral bearing State for which they used to charge VAT at the rate of 5% but now they got SGST at the rate of 2.5%. As a result, tax on this item had gone down from ₹ 1,400 crore in a year to about ₹ 700 crore. They were also losing revenue on cereal items like rice to the tune of ₹ 500 crore-₹ 600 crore. He stated that one needed to consider what would happen after the assured compensation period was over. He added that his Chief Minister had written a letter to the Hon'ble Chairperson regarding taxation of tendu leaf. The erstwhile VAT rate was 5% but now it was taxed at the rate of 18% since it as connected to sin good i.e. Bidi. He stated that 8 lakh tribal people were losing livelihood. They needed support because their market was going down due to such high rate of tax. He suggested that the Fitment Committee should look at this item positively so as to take care of the problem of tendu leaf collectors. He added that the recommendations of the Fitment Committee were narrowing the problems but, in some cases, proper analysis should be done before discussion in the Council. 14.24. The Hon'ble Minister from Assam stated that the annual growth of revenue in GST had been pegged at 14% whereas initially discussions also took place to analyse and consider the average of the last three years of pre-GST revenue for safeguarding the revenue of the States. He stated that the assured 14% annual growth rate was a generous gesture by the Centre and it was very challenging to reach 14% growth rate year-on-year basis in the present conditions. He observed that the recommendations of the Fitment Committee were not very heavy and these were limited to small items like walking sticks, music books, etc. The principle being suggested to first do a study and then consider rate reduction need not be adopted as the Council was competent to take decisions. He stated that today a grim picture was being painted and it was being linked to 2022 and several Members who had earlier supported the rate reductions were opposing it today. He suggested that the recommendations of the Fitment Committee should be discussed one by one and the Council should reject those proposals for rate reduction where the revenue loss was high. Rejecting all the proposals would lead to loss of dynamism of the Council. As regards the Table Agenda, he stated that the proposal to raise the exemption threshold for GST was not a Fitment Committee issue and could come like any other agenda. He observed that in the garb of some principle, the rate reduction should not be stopped. He added that, as observed by the Hon'ble Minister from Jharkhand, it was understood politically why this was being done. He also added that some persons had suggested that all items should be taxed at the rate of 18%. 14.25. The Hon'ble Chairperson observed that the practice in the Council was to remain detached from the debate that went outside the Council and to decide the issues on merit and after a frank discussion. The Hon'ble Minister from Punjab stated that the bottom line was that India should become a super power in their own life time. He added that mother India had several sons, with different names, like Punjab, Jharkhand, Assam, etc. Nobody had come in the Council to insult others and that was left for the Assembly and the Parliament. He reminded that power and strength would not always be with one political party. He added that decisions should be taken with a view to boost the economy, simplify the structure, increase the GST revenue and rationalise the tax rates. Revenue loss was a nebulous concept and reduction in tax rates on B2B supplies made no difference. Reduction in tax rates where supplies were pre-dominantly B2C needed to be looked at carefully. He stated that he would not be really worried if rates were reduced on steel, parts of commercial vehicles but one should be careful while reducing tax rates on cars, tobacco, white goods and to some extent the FMCG. He stated that rationalisation of tax rates would also mean that the rates could go up for certain commodities and suggested that tax rate could be increased on some items like junk food. He added that all the decisions should be taken by consensus and within broad principles followed so far in the interest of the nation. 14.26. The Hon'ble Chairperson observed that the Hon'ble Minister from Punjab had summed up the debate well. The issue was not revenue versus rate rationalisation. One needed to work for increasing revenue and rationalising the rate but it had to be done slowly so that one did not take a very big hit on the revenue which one could not afford. Had the 28% rate been abolished initially, all States would have suffered huge revenue shortfall and so it had been done slowly. He stated that amongst three categories of goods in the 28% rate segment, there was total consensus to maintain status quo of rate in regard to two important items which were important for revenue i.e. cement and auto parts and also on sin and luxury goods. As regards other items, one needed to see what could be done and what need not be done. He added that the revenue impact for the proposed rate reductions would be less than ₹ 500 crore per month. As regards the Table agenda, he stated that the Council should discuss to understand their implications even if it was not decided during this meeting. 14.27. After these discussions, the Secretary invited the Joint Secretary, TRU-1 to take up discussion on the items covered under different Annexures of the Agenda Note. The discussions that took place on specific issues is recorded herein below. Annexure I (Part 'A') Pulleys, Transmission shafts and cranks, gear boxes etc. (S.No. 1): 14.28. The proposal was to reduce the rate of tax on these goods from 28% to 18%. The Hon'ble Minister from Kerala inquired whether all auto parts would now be taxed at the rate of 18%. The Secretary informed that only the listed items (under HSN 8483) would attract the rate of 18% whereas others would continue to be taxed at the rate of 28%. He added that if all auto parts were brought into the rate slab of 28%, the revenue impact would be around ₹ 20,000 crore in a year. The Chairperson added that since these items were being used in agriculture sector, it was being removed from the 28% slab. The Council agreed to the proposed reduction in rate of tax on these goods from 28% to 18%. Footwear (S. No. 5): 14.29. The Joint Secretary, TRU-T stated that the proposal of the Fitment Committee was that the rate of 5% and 18% on footwear should be applied on the basis of transaction value as was the case for garments and hotels, the other two cases were differential tax rate was applied based on the value of supply. The Hon'ble Minister from Kerala inquired as to what would be the revenue loss by this change. The Joint Secretary, TRU-1 stated that revenue loss would be marginal as the rate of tax was not proposed to be changed and only the basis of taxation was proposed to be changed. The Hon'ble Chairperson added that it was now proposed to charge tax on the transaction value. The Council agreed to the proposal of the Fitment Committee. GST on auction proceed of gifts received by President, PM, Governor and CM- proceed is used for public or charitable cause (S.No. 11): 14.30. The Hon'ble Chairperson suggested that for this Agenda item, exemption of GST on auction proceeds should also apply to gifts received by public servants which would cover Members of Parliament, MLAs as well as government officials. The Council agreed to this proposal. Monitors/Televisions (S.No.15): 14.31. The Joint Secretary, TRU-I stated that it was proposed to reduce the rate of tax from 28% to 18% on monitors and televisions of size up to 32 inches. The Hon'ble Minister from Punjab stated that this was a white good and rate on this item should not be reduced at this stage. The Hon'ble Chairperson stated that presently, TVs up to 68 cm size, which was about 2 feet 3 inches and was very small, were not being manufactured in India. A small man's television was 32 inches screen size and reduction of tax rate was proposed only for television up to this screen size, and suggested that the proposal may be accepted. The Hon'ble Minister from Karnataka inquired regarding the revenue implication due to rate reduction on television monitors. The Joint Secretary, TRU-I stated that the revenue implication estimated was about ₹ 1500 crore annually. He added that reduction in rate on this product was proposed as televisions of up to 68 cm size hardly existed. The Council agreed to reduce the rate of tax on monitors and televisions of size up to 32 inches from 28% to 18%. Power Banks of lithium ion battery (S.No.16): 14.32. The Joint Secretary, TRU-1 stated that it was proposed to reduce the rate of tax on this item from 28% to 18% to reduce litigation and to bring the rate at par with lithium ion battery. He stated that this item was also used in electric vehicles. The Hon'ble Minister from Karnataka inquired whether this rate would also be applied to electric vehicle batteries. The Joint Secretary, TRU-1 clarified 1tbat electric vehicle batteries of lithium ion were already taxed at the rate of 18%. The Council agreed to the proposal to reduce the rate of tax on Power Banks of lithium ion battery from 28% to 18%. Digital cameras and video camera recorders (S.No.17): 14.33. The Hon'ble Minister from Kerala inquired regarding the rationale for reducing the rate of tax on these goods. The Joint Secretary, TRU-I stated that in today's time, everyone was using mobile phone for taking pictures and the sale of video camera had come down drastically and revenue from these goods was very low. The Hon'ble Chairperson stated that the revenue collection on video cameras was only to the tune of around ₹ 5 crore and on digital cameras was about ₹ 3 crore and in this view, the proposed rate reduction may be accepted. The Hon'ble Minister from Kerala stated that he did not share the enthusiasm to clean up the 28% tax slab but for the sake of consensus, he was agreeable to the proposal. Objects used in Billiards and Snookers (S.No.20): 14.34. The Joint Secretary, TRU-I stated that most items falling under this heading were taxed at the rate of 12% while some were taxed at the rate of 18%. He added that billiards and 6 snookers were normally a means of running business and were hardly purchased for personal use. He added that the revenue involved was small to the tune of ₹ 40 crore annually for the entire entry. He added that with this rationalisation, eight lines of chapter 95 shall be brought to 18% tax slab. The Council agreed to the proposal. The Hon'ble Minister from Goa stated that casino games should also be covered for rate reduction under this heading and that he would give a separate write-up on this issue. Temporary importation of Private Road Vehicles under the convention of carnet de passage (S.No.22): 14.35. The Joint Secretary, TRU-I explained that this proposal was intended to implement the commitment under an international agreement to which India was a party. It was proposed to exempt temporary importation of Private Road Vehicles. The Council agreed to the proposal. Review of 28% list (S.No.23): 14.36. The Joint Secretary, TRU-1 stated that rate rationalisation of other goods under 28% rate slab would be done once the revenue stabilised. The Hon'ble Chairperson observed that other than luxury and sin goods, cement and auto parts, some of the items left in the 28% rate slab were air conditioners, dish-washers and molasses. He stated that the impact on revenue of rate reduction on air conditioners from 28% to 18% would be ₹ 2,000 crore annually and on dish-washers, it would be ₹ 161 crore annually. The Hon'ble Minister from Kerala stated that in future, the Fitment Committee must indicate revenue loss for any proposal of rate reduction as also the pre-GST rate. The Hon'ble Chairperson suggested that the recommendation of the Fitment Committee should have a, column regarding the amount of revenue involved in the proposed rate reduction as well as pre-GST rates. The Council agreed to this suggestion. 14.37. The Hon'ble Minister from Kerala stated that rubber wrappers to collect latex should be taxed at the rate of 5% as it was just a cup. The Hon'ble Chairperson suggested that this could be taken up in the Fitment Committee. He also added that any other suggestion for rate reduction should be given in writing. He also suggested that Council could agree to the proposals on rate reduction where there was consensus amongst officers of the fitment Committee. The Council agreed to this proposal. 14.38. The Council agreed to rate reduction of all the items listed at S.No. 1 to 22 of Part 'A' of Annexure I with the addition in Sl. No. 11 that exemption of GST on auction proceeds should also apply to gifts received by public servants which would cover Members of Parliament, MLAs as well as government officials. It also agreed that the proposals of the Fitment Committee involving rate reduction shall have a column regarding the amount of revenue involved and also the combined pre-GST rate. It further agreed that the proposal to reduce the rate of tax on rubber wrappers to collect latex to 5% shall be considered by the Fitment Committee. Annexure I (Part 'B') 14.39. The Joint Secretary, TRU-I explained that the proposals in Part 'B' of Annexure I related to clarifications, valuation proposals and proposals for consequential changes. The issues discussed are recorded herein below. Solar power generating System and other renewable energy system supplied under Erection, Procurement and Commissioning (EPC) (S.No. 1): 14.40. The Joint Secretary, TRU-l explained that this proposal was regarding assigning value to the supplies falling under S.No.234 of Schedule I in Notification No. 1/2017-Central Tax (Rates), when supplied along with other supplies like services under EPC and goods not covered under the said entry, and it was recommended to take the deemed value of goods falling under entry 234 as 70% of total amount charged and remaining 30% value may be deemed as value of supply of services. He added that it was based on fair estimation of the cost break-up. He stated that this proposal would eliminate disputes regarding applicable rate of tax on a total solar power project. The Council agreed to the proposal. The Council also agreed to the other proposals at S. Nos. 1 to 13 of Part 'B' of Annexure I. Annexure II 14.41. The Council agreed to the proposals contained in S. Nos. 1 to 19 of Annexure Il, recommended by Fitment Committee in its meeting of 14 th and 15 th December, 2018. Annexure III (List of goods not recommended for change in GST rate): 14.42. This contained a list of 172 items on which the Fitment Committee had not recommended any change in GST rate. 14.43. The Hon'ble Minister from Uttarakhand stated that he had circulated a written speech for the Council Meeting. He drew attention to Serial No.1 0 of Annexure Ill where the Fitment Committee did not recommend reduction in the rate for biscuits from 18% to 12%. The Fitment Committee had observed that biscuits were manufactured in the organised sector as well as by bakeries etc. and having two different slabs based on the selling price would lead to evasion of tax and would also have significant revenue implication. In this context, the Hon'ble Minister from Uttarakhand stated that earlier too, he had submitted that glucose biscuits were energy biscuits used by the poorer sections of society. He added that low priced biscuits having maximum selling price not exceeding ₹ 100 per kg. was used by these class of people and was an affordable means of nutrition and was sold in packs of ₹ 2, ₹ 3 and ₹ 5 each. Therefore, a reduced GST rate for biscuits having sale value up to ₹ 100 per kg. would be in the larger interest of the society. He added that such biscuits were earlier exempted from Central Excise. It was also relevant to note that GST rate on footwear, apparels and hotels was also based on price-based classification and a similar provision could be considered for the rate of tax on low priced biscuits (price not exceeding ₹ 100 per kg.). This could be taxed at the rate of 5%. He suggested that the recommendation of the Fitment Committee rejecting the proposal for reduction in the rate of biscuits should be reconsidered. 14.44. The Hon'ble Chairperson stated that any other request for reconsideration of change in GST rate could be sent in writing and then these could be reconsidered. Annexure IV (Issues on services where no change has been proposed by Fitment Committee on 14 th and 15 th December 2018) 14.45. This Annexure contained 46 items relating to services where the Fitment Committee did not recommend any change. The Council took note of it. 14.46. The Hon'ble Chairperson stated that any request for reconsideration of change in GST rate should be sent in writing and then these could be reconsidered. Annexure V (Proposals referred by Fitment Committee 1on 14 th and 15 th December 2018 for decision by GST Council): 14.47. The Joint Secretary, TRU-ll informed that the issues contained in Annexure V were discussed again by the Fitment Committee on 21 st December 2018 and the Committee had reached a consensus on these issues. The points discussed in the Council on this Annexure is recorded as below: Reduction in tax rate from 18% to 12% for GST on third party insurance of goods carrying vehicle (S.No. 1): 14.48. The Joint Secretary, TRU-ll stated that the Hon'ble Supreme Court in a recent judgement had observed that people were not getting third party insurance claims during accident and the judgement had made it compulsory to take such insurance for three years. He further stated that during the Officers' meeting, it was discussed that the most vulnerable groups who did not get insurance after accident were two-wheeler drivers and pedestrians. The Council agreed to the proposal. Reducing the rate of tax on supply of cinema exhibition services (S.No. 2): 14.49. The Joint Secretary, TRU-ll stated that movies were a common man's entertainment and it was proposed to reduce the rate of tax on tickets of price upto ₹ 100 from 18% to 12% and on tickets of price of more than ₹ 100 from 28% to 18%. He added that the annual revenue implication of this proposal was about ₹ 900 crore. The Hon'ble Minister from Kerala inquired as to what was the pre-GST rate of tax on cinema. The Joint Secretary, TRU-ll stated that this ranged between 35% to 55%. The Hon'ble Minister from Kerala stated that while tax was getting reduced, the States were also being forced into giving compensation to the local governments on the basis of GST rates. Commissioner (State Tax), Tamil Nadu informed that they levied local body taxes along with GST on entertainment. The Hon'ble Minister from Karnataka recalled that earlier, consensus in the Council was to dissuade the local bodies from levying local entertainment tax. The Hon'ble Minister from Kerala suggested that a corollary decision must be taken that all cinema tickets should be electronic tickets. He added that the local government had withdrawn from taxation and, therefore, no revenue was accruing from this account. He added that the State should be given right to issue electronic tickets. The Hon'ble Chairperson stated that there should be an enabling power to issue electronic tickets. The Hon'ble Minister from Kerala suggested to frame rules in this regard. The Hon'ble Chairperson suggested that the Council could agree that States are entitled to issue electronic tickets and that the Law Committee should formulate rules in this regard. The Council agreed to the rate reduction and to the suggestion made by the Hon'ble Chairperson. To exempt or reduce GST rate on transport of passengers by air travelling in chartered flights in respect of religious pilgrimage facilitated by the Government of India under bilateral arrangement from 18% to 5%. 14.50. The Hon'ble Chairperson stated that this rate reduction was proposed for all religious pilgrimages facilitated by the Government of India under bilateral arrangement. The Council agreed to reduce the rate of tax on air transport of passengers in chartered flights, on such pilgrimages from 18% to 5%. Annexure VI Approval of the decisions of the Law Committee pertaining to taxability/GST rate on services: 14.51. The Council agreed to the proposals contained in this Annexure. 14.52. Extra Neutral Alcohol (ENA) under GST should be taken at an early date. He added that the earlier decision of the Council in its 20 th Meeting (held on 5 th August 2017) was to continue with the status quo on this issue till the opinion of the Attorney General of India was received. He added that the opinion of the Attorney General of India had been received months back which said that GST could be levied for use of ENA for industrial purpose but not food. Some officers in Kerala were taking an interpretation to impose 18% tax on ENA supplied for manufacture of potable alcohol as AG's opinion had been received. He added that lack of clarity on this issue was creating problem of interpretation at the field level. He suggested that the Council could take a decision to continue with status quo until the Council took a decision on this issue. The Hon'ble Minister from West Bengal stated that ENA had two uses and it was to be decided whether ENA going for manufacture of potable alcohol was liable to be charged to GST. The Hon'ble Chairperson stated that the status quo may be continued till the issue was decided in the Council. The Council agreed to this suggestion. The Hon'ble Chairperson also observed that this issue should be brought before the Council for decision at an early date. 15. For Agenda item 6 , the Council approved the proposals contained in Annexure l, Annexure ll (except S. No.4 which stood withdrawn), Annexure III, Annexure IV, Annexure V and Annexure VI with the following additions/amendments: (i) In Sl. No. 11 of Part 'A' of Annexure I, to add that that exemption of GST on auction proceeds shall also apply to gifts received by public servants which would cover Members of Parliament, MLAs as well as government officials; (ii) All requests for reconsideration of rate of tax on goods and services to be sent in writing to the Fitment Committee/GST Council Secretariat; (iii) Fitment Committee to reconsider the rate of tax on low priced biscuits (price not exceeding ₹ 100 per kg.) and to examine the reduction in the rate of tax on rubber wrappers to collect latex to 5%; (iv) States are entitled to issue electronic tickets and that Law Committee to formulate rules in this regard; (v) The proposals of the Fitment Committee involving rate reduction shall have a column regarding the amount of revenue involved and also the combined pre-GST rate; (vi) On ENA, status quo to be continued till the Council took a decision on this issue, i.e. Extra Neutral Alcohol supplied for industrial purpose shall attract GST at the rate of 18%. Agenda Item 7: Issues recommended by the Law Committee for the consideration of the GST Council 16. Introducing this Agenda item, the Secretary informed that the issues under this Agenda item were discussed in detail in the Officers meeting held on 21 st December 2018 and a presentation was also made (attached as Annexure 4 ). He informed that except for six issues, the officers were in agreement with the other proposals under this Agenda item. He stated that if the Council agreed then except the six issues, the Council may approve the rest of the proposals. The Council agreed to this proposal. He invited Commissioner (GST Policy Wing), CBIC to present five issues and Joint Secretary, DoR, to present one issue for the consideration of the Council. 16.1. The Hon'ble Minister from Punjab stated that before commencement of discussion on these issues, he wanted to draw the attention of the Council to a few issues. He stated that for Agenda Item 7(v) (Issue No.2) regarding introducing a provision in the GST Law to allow a buyer to pay tax for the supplies received from a new or unknown buyer, he had been approached by the rolling mills manufacturers of the Mandi Gobindgarh area, and they requested to allow them to make payment on reverse charge basis. He added that this proposal could add substantial amount of revenue and also contribute to ease of doing business. The Hon'ble Chairperson requested to send a proposal in writing so that the issue could be analysed with due process. In respect of Agenda Item 7(vii) on the proposal to amend Rule 41 of GST Rules for apportionment of unutilised input tax credit between entities arising out of the demerger of a company, the Hon'ble Minister from Punjab suggested that the mechanism to transfer input tax credit between the new entities should be looked at more carefully. He stated that where a business was getting demerged, there was little rationale in insisting on the manner of transfer of tax credits as proposed presently. He suggested that transfer of input tax credit should be allowed on actuals i.e. only on the basis of the value of those assets on which input tax credit had been availed. The Secretary suggested that this issue could be reexamined by the Law Committee. The Council agreed to the suggestion. 16.2. The Hon'ble Minister from Uttarakhand, in the written speech circulated during the Council Meeting, stated that with respect to Agenda Item 7(v) (issue No.3), in pre-GST period, in the State of Uttarakhand and Uttar Pradesh, there was a provision of composition for brick manufacturers to pay in lumpsum in lieu of tax. This provision was based on capacity of the brick kiln (number of paye) irrespective of the turnover. In GST, a general option of composition is available to such manufacturers based on turnover rather than capacity. He stated that during the VAT period, the tax collection from brick manufacturers was ₹ 12 crore but in the GST period, it had declined sharply to ₹ 2.71 crore. 16.3. With regard to Agenda Item 7(v) (Issue No.8), the Hon'ble Minister from Uttarakhand in his written speech stated that there was considerable delay on the part of the Government in making payments due to paucity of funds and also the urgency in discharge of welfare commitments. There is a continuous complaint from works contractors providing services to the Government about the consistent delay in receiving their payments and it was affecting them adversely. He stated that it would be in the interest of these contractors to make the proposed amendment in order to avoid blockage of capital and to prevent them from becoming liable to pay late fee and interest. He, therefore, urged the Council to reconsider this issue. 16.4. After this preliminary discussion, Shri Upender Gupta, Commissioner (GST Policy Wing), CBIC made a presentation on the five issues where consensus was not reached during the Officers meeting held on 21 st December 2018. (i) Agenda Item 7(xiv): Proposal for centralized Authority for Advance Ruling (AAR) and centralized Appellate Authority for Advance Ruling (AAAR) under GST 16.5. The Commissioner (GST Policy Wing), CBIC stated that the Authority for Advance Ruling (AAR) in different States were giving conflicting decisions on similar issue involving similar facts. This caused confusion amongst the taxpayers as well as the tax officials. In view of this, in-principle approval of the Council was sought to replace the existing State specific AARs with a centralized AAR having a national bench with different regional benches across the country. A taxpayer having the same PAN registered in different States could approach the regional bench of the centralized AAR where the head office of the taxpayer was located. He informed that the Law Committee was not in favour of a centralized AAR but there was agreement to create a centralised Appellate Authority for Advance Ruling (AAAR) having a national bench with regional benches. The Hon'ble Minister from Kerala stated that the present system of AAR should be allowed to stabilise and the same should be continued. The Hon'ble Minister: from West Bengal stated that centralization would create problems. He stated that both the proposals, namely model 1 and model 2 in the Agenda would end up creating centralization and would end up in creating problem for all the States. The Hon'ble Chairperson enquired as to how a problem would be resolved when the same taxpayer registered in two different States, was made to pay two different rates of tax on the same commodity on account of differing rulings by the AARs of the two States. He added that in view of this, there should be a mechanism of an appeal or a centralized authority because the issue would need to be resolved and, in its absence, GST would not be one tax. 16.6. The Hon'ble Deputy Chief Minister of Bihar stated that as per the news reports being published, AARs of different States were passing conflicting orders and there should be a centralized AAR which should apply to the whole country. The Hon'ble Chairperson suggested that normally when a State AAR gave a ruling, it should be binding with a right to appeal by the Centre or the State or anyone else. However, when there was conflicting ruling by AAARs of two or more States, there should be a right to appeal by Centre or State or anyone else to a Centralised Appellate Authority of Advance Ruling (CAAR). The Hon'ble Minister from West Bengal stated that there must be representation of the States in the Appellate body. The Hon'ble Chairperson stated that to constitute the CAAAR, the necessary procedural changes in the GST 'Laws should be prepared and recommended by the Law Committee and the same could be brought in the next Finance Bill. He added that the corresponding draft should be prepared for States also. 16.7. The Hon'ble Deputy Chief Minister of Gujarat stated that if two different rulings were given by AAR of two States, a time-limit should be prescribed to decide the appeal. The Hon'ble Chairperson stated that one should not have provisions to encourage further appeal. Appeal should only lie in cases of conflicting decisions of two or more AAARs. For hearing appeals in such cases of conflicting decisions of AAARs of different States, the centralised Appellate Authority for Advance Ruling (CAAAR) could have a part-time Chairman from the legal background along with one officer from the Central Government and one from the State Government having worked in the revenue department in the past. It should work only as a part-time CAAAR. 16.8. The Hon'ble Minister from Tamil Nadu stated tha.t the existing two-tier authority at the State level would suffice and a move to create the centralized authority would tantamount to depriving the States of their statutory rights and he was not in favour of such a mechanism. The Hon'ble Chairperson stated that there would be finality of ruling of AAR at the State level and this mechanism was only for conflicting decisions of AAARs for the same taxpayer registered in different States. The Hon'ble Deputy Chief Minister of Gujarat stated that since HSN codes were also given, there should be no reason for conflicting decisions. The Hon'ble Chairperson stated that classification disputes in central excise were common. Summing up, the Secretary stated that from the discussion it emerged that both AAR and AAAR would continue . However, where there were conflicting decisions of two or more AAARs in relation to a taxable person registered in two or more States (i.e. registered as distinct persons) on the same issue, an appeal would lie to a separate body (CAAAR) which would consist of a Chairman with a legal background and one officer from the Central Government and one officer from the State Government who had worked in the revenue department in the past. The Council agreed to this proposal and gave in principle approval with direction to the Law Committee to draft appropriate law changes in this regard. (ii) Agenda Item 7(xv): Suggestions on allowing quarterly payment of tax by small taxpayers 16.9. The Commissioner (GST Policy Wing), CBIC stated that the Council had earlier agreed to allow quarterly return filing for small taxpayers with monthly payment of tax. In view of the various representations received regarding liquidity problem by small and medium businesses in depositing monthly tax, particularly when payments were pending for a long period (especially from Government departments). In this view, the matter was placed before the Council for consideration whether taxpayers having turnover upto ₹ 5 crore may be allowed to also pay tax on quarterly basis and the buyers from such small taxpayers may be allowed to take input tax credit at the time of purchase i.e. even before the tax was due to be paid by the supplier. The Hon'ble Deputy Chief Minister of Bihar stated that the present provision of filing quarterly return and making monthly payments existed during the VAT regime even for small taxpayers. He observed that it was easier to deposit tax monthly and it should not be an issue for the taxpayers to deposit the tax. 16.10. The Hon'ble Minister from Uttar Pradesh stated that agreeing to this proposal would -f benefit the medium and small enterprises. The Hon'ble Minister from Karnataka stated that already a very significant concession had been given to small taxpayers to file quarterly return and now a mid-course correction would destabilise the system. He added that, since a new return system was in pipeline, these taxpayers should continue to make monthly payments and multiple changes in the system should be avoided. The Hon'ble Minister from Kerala stated that if input tax credit was allowed without payment of tax, this could lead to loss of revenue as some taxpayers could vanish. The Hon'ble Minister from West Bengal also suggested that tax payment should be made on monthly basis. The Hon'ble Chairperson stated that since the Members favoured monthly payment, the existing provisions could continue and the issue could be revisited, if required, when the new return filing system was in place. The Council agreed to this suggestion. (iii) Agenda Item 7(xvi): Circular to clarify taxability of medicines and consumables supplied to in-patients in hospitals during the course of treatment 16.11. The Commissioner (GST Policy Wing), CBIC stated that doubts had been raised on the issue of taxability on medicines and consumables like implants, stents, etc. supplied to inpatients in the hospitals (which were exempted from GST) during the course of medical treatment. He stated that Hospitals were charging patients on the basis of MRP which included GST but the Hospital were not paying GST to the Government nor they were claiming Input Tax Credit. In view of this, it was proposed to clarify that supply of medicines etc., whether part of a package deal or otherwise, shall be taxable under GST with proportionate input tax credit as this was not a composite supply. Hospitals were categorised as retailers under the Drug Price Control Order (DPCO) and Drugs and Cosmetics Act and hospitals were billing medicines and consumable at MRP which meant that it was inclusive of taxes. 16.12. The Hon'ble Chairperson observed that if a hospital was charging medicines where tax component was in-built, then it would be fair for them to pay tax. The Hon'ble Deputy Chief Minister of Gujarat stated that it would increase the cost of treatment for patients. The Hon'ble Minister from West Bengal stated that the health sector was a sensitive sector and hospitals served thousands of patients in a day and one should examine the issue carefully. The Hon'ble Chairperson suggested that instead of making the clarification hospital specific, the Law Committee should fut1her examine this issue and work on a formulation that wherever an exempted service was supplied which involved supply of taxable goods to the service recipient, the service provider shall be liable to pay tax on such goods. 16.13. Advisor (Financial Resources), Punjab stated that the issue involved in this case could have impact on the entire structure of the GST. He stated that issue was as to what constituted the composite supply and added that the composite supply is those supplies which are naturally bundled and therefore the tax would have to be charged based on the principal supply such as a hotel accommodation where breakfast was also provided within the same room rent. He added that the hospitals could be billing in two ways i.e. either they gave a breakup of individual consumables or medicines and charged separately for the health care services and the other like a composite supply. He suggested that the issue should be considered afresh and requested to drop this entire proposal pending further examination. The Hon'ble Chairperson suggested that this could be further discussed in the Law Committee. The Council agreed to this suggestion. (iv) Agenda Item 7(xxi): Reduction in amount of late fee leviable on account of delayed furnishing of FORM GSTR-1, FORM GSTR-3B FORM GSTR-4 for the months/quarters from July 2017 to September 2018 , 16.14. The Commissioner (GST Policy Wing), CBIC stated that two alternative proposals were discussed by the officers during the meeting on 21 st December 2018. The first alternative was that the late fee may be completely waived off for FORM GSTR-1, FORM GSTR-3B and FORM GSTR-4 for the months/quarters from July 2017 to September 2018 which will be furnished from 22nd December, 2018 but latest by 31 st March 2019. However, no refund of late fee to be given to those taxpayers who have already furnished such details/returns. The second alternative was that the maximum amount of late fee payable may be reduced. In case of GSTR-1/GSTR-3B/GSTR-4 for the months of July 2017,to September 2018 which will be furnished from 22 nd December, 2018 but latest by 31 st March 2019 in case of taxpayers with nil tax liability, to charge a reduced late fee of ₹ 500 + ₹ 500 per return i.e. under CGST and SGST Acts instead of the present limit of ₹ 5,000 + ₹ 5,000. For other taxpayers, the limit may be kept at ₹ 1,000 + ₹ 1,000 per return. However, no refund of late fee may be given to those taxpayers who have already furnished such details/returns. The Hon'ble Deputy Chief Minister of Bihar stated that since it was a one-time waiver and a large number of returns were pending on account of small taxpayers, it would be desirable to completely waive off the late fee. He added that there would not be much revenue implication but this would improve compliance. He suggested that the Council should agree to the first alternative. The Council agreed with this suggestion. (v) Agenda Item 7(xxii): Proposal to extend benefit of composition levy for small service providers 16.15. The Commissioner (GST Policy Wing), CBIC stated that presently composition scheme was not available for service providers other than restaurant services. Following the CGST (Amendment) Act, 2018 a composition taxpayer could supply services (except restaurant sector) of value not exceeding 10% of its turnover in a State/Union Territory in the preceding financial year or 5 lakh rupees, whichever is higher. He stated that it was proposed to seek in-principle approval of the Council for extending the composition scheme to small service providers with annual turnover upto ₹ 50 lakh in the preceding financial year with a uniform tax rate at 5% of the turnover in the State / Union Territory and no input tax credit to be allowed to them. He added that the proposed changes would require amendment to the CGST and SGST Acts. 16.16. The Hon'ble Chairperson elaborating on the proposal stated that the small service providers like electricians, plumbers, etc. were not professionals. They had to pay 18% tax and as they did not have much of input tax credit, this tax( incidence was passed on to the customers. All this led to evasion of tax. He added that there were only 49,000 registrants as service providers with annual turnover upto ₹ 1 crore. He stated that professionals in the services sector were completely becoming cash-centric and, in order to get them into the tax system, it was desirable to have a composition scheme on the lines available for the small traders. This composition scheme could be limited to a smaller annual turnover of ₹ 50 lakh and tax rate could be 5% or 12% given the fact that about 50% of the tax was normally paid through input tax credit. He added that those in favour of taxing such composition taxpayers at the rate of 12% had, instead, agreed to create a new rate of 9%. However, it would be better to continue with an existing rate, say 5%. 16.17. The Hon'ble Minister from West Bengal observed that the proposed annual turnover of ₹ 50 lakh was very low. The Hon'ble Chairperson inquired whether the limit of annual turnover should be increased to ₹ 1 crore. The Hon'ble Minister from West Bengal stated that if the rate of tax was lower, there would be greater chance of compliance. He also inquired that if the annual turnover was kept at ₹ 50 lakh, what would be the loss of revenue. The Hon'ble Chairperson stated that the revenue loss would not be substantial. He stated that the State of Maharashtra had done some study on this issue and invited Shri Rajiv Jalota, Commissioner, State Tax to give details. 16.18. The Commissioner, State Tax, Maharashtra stated that in his State, there were about 2 lakh service providers with annual turnover upto ₹ 50 lakh whose taxable turnover was approximately ₹ 32030 crore and total tax liability was ₹ 5053 crore out of which the amount paid through cash was ₹ 3800 crore and payment through input tax credit was ₹ 1368 crore. He added that if the tax rate was made to be 5%, then the revenue earned would be around ₹ 3000 crore, out of which revenue in cash will be about ₹ 1700 crore. The Secretary stated that the data of the Central Government was in relation to pure service providers and enquired whether the data of 2 lakh service providers in Maharashtra also included those who made some supply of goods. 16.19. Shri Prakash Kumar, CEO, GSTN stated that the data of Mabarashtra was based on a presumption, namely where more than 50% of the supply was made under chapter heading 99, it was presumed that these were services supplier. When analysed in these terms, it was seen that supplier of services were more than 2 lakh. The Hon'ble Minister from West Bengal stated that there seemed to be some data inconsistency as the data from Maharashtra showed 2 lakh pure service tax registrants with annual turnover upto ₹ 50 lakh whereas Central data showed it to be only 49,000. The Hon'ble Minister from Karnataka suggested that some more States should look at their data before coming to any conclusion. The CEO, GSTN stated that they would try to arrive at data for other States on the same basis as for Maharashtra. The Hon'ble Deputy Chief Minister of Bihar stated that some States had been demanding for composition scheme for service providers. He suggested to introduce a composition scheme for pure service providers with annual turnover upto ₹ 50 lakh with a tax rate of 5%. 16.20. The Hon'ble Minister from Tamil Nadu in his written speech stated that in respect of the proposal to allow composition levy for small service providers, keeping in view the high percentage of value addition for such taxpayers, he suggested that the Composition rate could be high, say 15%. 16.21. The Hon'ble Minister from Uttarakhand in the written speech circulated during the Council Meeting stated that in the interest of the petty contractors supplying to the Government, it was suggested that they must be given a provision to opt for composition as has been given to the restaurant services. This would make the procedure simpler. Earlier in the pre-GST regime also, there was a composition scheme for contractors to pay in lump sum in lieu of tax. He urged the Council to consider this provision. 16.22. The Hon'ble Minister from West Bengal stated that he was strongly in favour of a composition scheme for small service providers but the data regarding the revenue from such service providers was not clear and one should look at the numbers as to how many pure service suppliers would be covered, if their annual turnover was taken as ₹ 50 lakh and ₹ 1 crore. He stated that in-principle he agreed to have a composition scheme for small service providers. The Hon'ble Chairperson stated that the Council could give in-principle approval to the proposal to have a composition scheme for the small service providers but turnover threshold and the rate of tax should be discussed by the Law Committee and the Fitment Committee and should be brought before the next Council meeting. The Council agreed to this proposal. (vi) Agenda Item 7(xxiv): Single interface for disbursal of refund amounts 16.23. The Joint Secretary, DoR made a presentation on this issue. He stated that currently refund order for a taxpayer was being issued by a single authority for all four taxes but disbursement of tax was taking place from two different sources. In some cases, taxpayers had to follow up for release of the fund amount from two different administrations. He stated that it was proposed that disbursement process should be automated and should happen from one source i.e. integration of refund order system of the GSTN with PFMS (Public Financial Management System) of the Central Government. He stated that initially disbursement could happen from the Central Government cash account and the data could directly flow from GSTN to PFMS of the Central Government. The amount paid could be settled with the States on a monthly basis. He added that this was already happening on a small scale for UIN (Unique Identification Number) refunds. He stated that this process would make refund disbursement very smooth for the taxpayers. 16.24. The Hon'ble Minister from West Bengal stated that if the disbursement was to be done electronically, then there was no need to go to the Central account and there need not be any intermediation by the Central authority. The Secretary explained that the refund sanction order would continue to be given by the State which would be put in the system and then the refund would be given through electronic mode. The Hon'ble Minster from West Bengal stated that no centrality of role needs to be given to the Central Government. The Secretary stated that the GSTN system would make the payment from the Consolidated Fund of India and adjustment would be done later. The Hon'ble Minister from West Bengal observed that GSTN was already overloaded and whether it was desirable to burden them further. The Secretary stated that presently where tax refunds had been sanctioned, payments were getting delayed. Once refund was sanctioned, payment was needed to be made quickly. He pointed out that in income-tax, refund came to the taxpayer's account through the electronic system. The Hon'ble Minister from West Bengal stated that money should go to the taxpayer's account digitally. 16.25. The CEO, GSTN explained that refund of exports by the Customs was totally automated. Customs department checked the Shipping Bill and after its correctness was verified, the scroll went to PFMS for refund. The same process would be carried out under GST. He added that the refund sanction would be done by the respective tax authorities only and the GST refund system could be connected to PFMS. The processing of refund claim would be done by the officers and then the payment advice would go through GSTN to PFMS. The Hon'ble Deputy Chief Minister of Bihar stated that the proposed new system would be much better as the applicant would get refund payment from one authority. He suggested that the Council may agree to it. The Hon'ble Minister from West Bengal stated that in case of export refund, a physical paper was being dealt with whereas it should be automatic and digital. 16.26. The Hon'ble Deputy Chief Minister of Gujarat stated that after sanction of refund, the refund order went to the treasury and the money was released from the treasury. If the State had no money in treasury and refund order was issued, then one needed to think how the situation would be dealt with. The Joint Secretary, DoR stated that treasury control of payment was only for payment of large sums of money and not for small individual payments. He added that for exporters, the monthly refund would mostly be in the range of ₹ 1 lakh to ₹ 2 lakh and normally treasury control was not exercised for such small amount. The Hon'ble Deputy Chief Minister of Gujarat suggested to put a ceiling for refund amount so that for larger amounts of refund, it could go with the approval of the treasury officer. He stated that Central Government may also need to have such a check. The Hon'ble Chairperson observed that by automating the system, the income-tax department was giving refund in weeks which earlier took years. The Hon'ble Minister from West Bengal stated that if the entire process of refund was to be digital then he would agree with the proposal. The Hon'ble Chairperson stated that the Central administration was giving 96% of the refund claim whereas States were giving 85% to 87%. He added that the Council should agree to start the new system on an experimental basis through a pilot project. The Council agreed to this suggestion. 17. For Agenda item 7 , the Council approved the agenda as proposed for the Agenda items 7(i), 7(ii) 7(iii), 7(iv), ?(vi), 7(viii), 7(ix), 7(x), 7(xi), 7(xii), 7(xiii), 7(xvii), 7(xviii), 7(xix), 7(xx), 7(xxiii), 7(xxv) and for other agenda items, the Council approved the proposals of the Law Committee with the following amendments/directions: 17.1. For Agenda Item 7(v), the Law Committee to further examine the issue no. 2 upon receipt of detailed proposal from the State of Punjab. 17.2. For Agenda item 7(vii) , the Law Committee to re-examine the proposal to amend Rule 41 of GST Rules for apportionment of unutilised input tax credit between entities arising out of the de merger of a company; 17.3. For Agenda item 7(xiv) , where there are conflicting decisions of two or more different Appellate Authorities for Advance Ruling (AAAR) on the same issue in respect of a taxpayer having the same Permanent Account Number (PAN) and registered in two or more States (i.e. as distinct persons), an appeal shall lie to a separate part-time appellate body (CAAAR) consisting of a Chairman with a legal background and one officer each from the Central and the State Government' who has worked in the revenue department in the past; 17.4. For Agenda item 7(xv) , there will be no quarterly payment of tax for taxpayers with turnover upto ₹ 5 crore and, as approved earlier, they shall pay tax on monthly basis, and issue could be revisited, if required, when the new return filing system was in place; 17.5. For Agenda item 7(xvi) , the Law Committee to work on a formulation that wherever an exempted service was supplied which involved transfer of taxable goods to the service recipient, the service provider shall be liable to pay tax on such goods; 17.6. For Agenda item 7(xxi), to completely waive off the late fee for FORM GSTR-1, FORM GSTR-3B and FORM GSTR-4 for the months/quarters from July 2017 to September 2018 allowed to be furnished from 22 nd December, 2018 but latest by 31 st March 2019, but no refund of late fee to be given to those taxpayers who have already furnished such details/returns; 17.7. For Agenda items 7(xxii), the Council agreed in-principle to have a composition scheme for small service providers and the Law Committee and the Fitment Committee to recommend the turnover threshold for Composition and the rate of tax to be applied on such composition taxpayers and to bring it up in the next Council .meeting; 17.8. For Agenda item 7(xxiv), the Council agreed to start the new system of single interface for disbursal of refund amount on an experimental basis through a pilot project. Agenda Item 8: Approval of modifications in Articles of Association (AOA) and Memorandum of Association (MOA) of Goods and Services Tax Network (GSTN) based on decision of the GST Council to convert it into a 100% Government-owned entity 18. Introducing this Agenda item, the Secretary informed that a corrigendum had been issued in respect of this Agenda item in which, instead of the proposed allotment of l 0 shares to the GST Council remaining undistributed, after equal number of shares were allocated to all States, the State of Maharashtra had been proposed to be allotted these remaining shares being on top among the States in GST collection and as proposed and approved by the Union Cabinet. He stated that this Agenda item was discussed during the Officers meeting held on 2 pt December, 2018 and there was full agreement on the same and the Council could also agree to the same. The Council agreed to the proposal made in under this Agenda item. 19. For Agenda item 8 , the Council approved the shareholding pattern of Goods and Services Tax Network (GSTN) contained in the revised Annexure 3 of the Agenda note circulated in Volume-3 of the Agenda notes. The Council also approved, in principle, the Articles of Association and the Memorandum of Association of GSTN and authorised GIC to go through them in detail and finalise the same. Agenda Item 9: Status report of work of GoM on Revenue Mobilisation 20. The Secretary informed the status of work done by the GoM on Revenue Mobilisation. He stated that one meeting of the GoM was held on 18 th October, 2018 during which it was decided to get views of the States on certain issues. A questionnaire had been circulated by the GST Council Secretariat to the States but views had been received only from the States of Gujarat and Karnataka while views of the other States were awaited. 20.1. The Hon'ble Minister from Kerala enquired regarding the time frame by which the report of the GoM would be finalised. The Hon'ble Deputy Chief Minister of Bihar, Convenor of the GoM on Revenue Mobilisation, stated that they would hold another meeting during January, 2019 and submit a report of the GoM during the next meeting of the Council. 20.2. On the proposal of the State ofKerala to levy additional10% SGST in its own State for flood relief, the Hon'ble Minister from Tamil Nadu in the written 5peech circulated during the Council Meeting stated that he was, in principle, agreeable to the State-specific additional cess on the SGST of the particular State for the purpose of creating additional resource for funding for natural calamities and disasters through GST. He cautioned that such a cess or additional rate of tax should not be for an indefinite period and should be levied within the respective State and not be applicable on IGST payable on the goods when exported from that State. He added that system changes should not adversely affect the functioning of GSTN IT system in other States or cause compliance burden in other States. 20.3. The Hon'ble Minister from Uttarakhand in the written speech circulated during the Council Meeting stated that views of Uttarakhand on the questionnaire circulated by the GST Council Secretariat were part of the speech. 20.4. The Hon'ble Chairperson observed that there was already a high-level Committee comprising of Home Minister, Agriculture Minister and himself which deals with budgetary allocation to NDRF (National Disaster Response Fund). He stated that the GoM could consider whether there should be a parallel track for budgetary allocation in the Council or whether it should be subsumed in the NDRF. He added that the total outlay for the entire country for NDRF was about ₹ 10, 000 crore and it needed to be considered how much resources could be collected annually by additional levy on luxury items and what should be distribution mechanism as calamity were of two types. The Hon'ble Deputy Chief Minister of Bihar stated that in the last meeting of the GoM it was also discussed whether the State affected by calamity should only impose the tax or should the entire country share the responsibility. The Hon'ble Chairperson stated that if the State affected by calamity raised the tax, then consumers would suffer. 20.5. The Hon'ble Minister from Kerala stated that his State needed additional resources in view of the calamity suffered and the NDRF and the SDRF (State Disaster Response Fund) assistance was only for specific purpose. He added that if no consensus could be reached to impose a national level calamity cess, then the State could be given flexibility to impose additional cess for calamity. The money so raised could be used for relief work but this revenue would not be sufficient to finance the reconstruction cost. Therefore, he proposed that a sub-committee of GoM could meet the Finance Commission and suggest that in assessing the reconstruction cost required, additional FRBM borrowing limit upto 0.5% could be allowed for two years. The Hon'ble Finance Minister stated that GoM should take note of the views of the State of Kerala and 'prepare a report and bring a proposal in the Council in the next meeting. The Council agreed to this suggestion. 21. For Agenda item 9 , the Council took note of the work done by the GoM on Revenue Mobilisation and decided that its Report shall be placed before the Council in its next meeting. Agenda Item 10: Status report of passage of SGST (Amendment) Bill, 2018 in various States and Union Territories with Legislatures 22. Introducing this Agenda item, the Secretary informed that the Council, in its 28 th Meeting held on 21 st July, 2018, had approved the proposal for amendments in the CGST Act, 2017, TGST Act, 2017, UTGST Act, 2017 and GST (Compensation to States) Act, 2017. While the Central Government and majority of the States had passed the Amendment Ac four States, namely Delhi, Meghalaya, Puducherry and Telangana had not yet a the SGST (Amendment) Act. During the Officers meeting held on 21 st December, 2018, it was informed that the Legislative Assemblies of Puducherry and Delhi had also passed the Amendment Bills on 18 th and 21 st December, 2018 respectively. The Amendment Bills were also expected to be passed shortly by the States of Meghalaya and Telangana. ln view of this, it was proposed to notify the Amendment Acts on 1 st February, 2019. The Council agreed to the proposal. 23. For Agenda item 10, the Council took note of the status of the passage of the SGST Amendment Bills, 2018 and decided that the amendment CGST Act, IGST Act, GST (Compensation to States) Act and SGST Acts shall be notified on 1 st February, 2019. Agenda Item 11: Reconstitution of membership of the Law Committee, Fitment Committee and IT Committee for information of the Council 24. Introducing this Agenda item, the Secretary stated that the membership of the Law Committee, Fitment Committee and IT Committee had been reconstituted on account of transfer of some of the erstwhile Members of the Committees. The orders were placed before the Council for information. The Council took note of the reconstitution of these three Committees. 25. For Agenda item 11, the Council took note of the reconstituted membership of the Law Committee, Fitment Committee and IT Committee. Agenda Item 12: Any other agenda item with the permission of the Chairperson Agenda Item 12(i): Notification to be issued to extend the due date for filing of returns in FORM GST ITC-04 for the period July 2017 to December 2018 26. The Secretary informed that this Agenda item as discussed during the Officers meeting held on 2Pt December, 2018 and there was agreement amongst the officers to extend the due date for filing of return in FORM GST ITC-04 for the period July, 2017 to December, 2018 till 31 st March, 2019 as development and implementation of the revised FORM GST ITC-04 was expected to take some more time. He proposed that the Council could agree to the same. The Council agreed to this proposal. 27: For Agenda item 12(i) , the Council approved to extend the due date for filing of return in FORM GST ITC-04 for the period July, 2017 to December, 2018 till 31 st March, 2019. Agenda Item 12 (ii): Ad hoc Exemptions Order(s) issued under Section 25(2) of Customs Act, 1962 to be placed before the GST Council for information 28. Introducing this Agenda item, the Secretary stated that an Ad hoc Exemption Order No.02 of 2018 was issued on 11 th December, 2018 on the request of the Ministry of Defence for Customs Duty exemption for import and re-export of guns/equipment from Sri Lanka. This also involved IGST exemption of about ₹ 83.3 lakh. He stated that the Council may take note of the Order. The Council took note of the Order. 29. For Agenda item 12(ii ), the Council took note of the Ad hoc Exemption Order (AEO) No.02 of 2018 dated 11 th December, 2018. Agenda Item 12(iii): Proposals for boosting real estate sector under GST regime by providing a composition scheme for residential construction units 30. The Secretary stated that in view of the difficulties faced by the real estate sector, it was proposed that GST at the rate of 5% could be prescribed without input tax credit for construction of residential complexes, buildings and civil structures for houses other than affordable housing projects. For houses in affordable housing projects also, GST rate of 5% could be prescribed without input tax credit. In the interest of revenue, certain safeguards were suggested, like 80% of inputs, capital goods and input services other than TDR (transfer of development rights) or similar rights shall be purchased from a GST registered supplier only and for purchases which are below 80% benchmark and are procured from unregistered persons, GST at the rate of 12% on reverse charge basis should be paid in cash by the registered person without any input tax credit. 30.1. The Hon'ble Chairperson stated that this Agenda item on real estate sector was placed before the Council in order to give boost to this sector. He stated that about 7 to 8 lakh apartments were lying unsold, which had caused blockage of funds for the real estate developers. He explained that if a purchaser invested in a flat under construction, he had to pay GST at the rate of 12% and even though input tax credit was available, psychologically buyers found payment of 12% GST burdensome. He observed that if input tax credit was passed on to the buyers, the incidence of tax was not very high but the psychological factor was still there. 30.2. The Hon'ble Minister from Kerala stated that he needed time to study the proposal. The Hon'ble Minister from Goa suggested that as people in the real estate sector were suffering, it should be implemented early. The Hon'ble Chairperson observed that availability of input tax credit encouraged every transaction in real estate by cheque payment and introduction of composition scheme in the real estate sector had the risk of encouraging transactions in cash. Because of. this, there was a proposal for payment of tax on reverse charge basis if more than 20% of the total construction material was purchased from an unregistered taxpayer. He stated that this suggestion was via media so that the tax could be reduced to 5% with no input tax credit provided if 80% of the inputs are purchased through banking transactions from registered dealers, otherwise the buyer would pay 5% and the builder would pay balance 7%. The Hon'ble Minister from West Bengal stated it would become complicated and added that if no input tax credit was permitted, then there would be more transactions in cash. The Hon'ble Minister from Kerala stated that the Fitment Committee had not looked into the proposal and it should be examined by the Committee. The Hon'ble Deputy Chief Minister of Gujarat stated that making housing available was the responsibility of every State Government and this proposal should be implemented. The Hon'ble Chairperson suggested that this proposal could be examined jointly by the Fitment Committee and the Law Committee. The Council agreed to this proposal. 31. For Agenda item 12(iii) , the Council approved that the proposal shall be examined jointly by the Fitment Committee and the Law Committee and thereafter, their recommendations shall be placed before the Council. Agenda Item 12(iv): Proposal to increase the threshold exemption limit for supplier of Goods (manufacturers and traders) under GST from existing turnover of ₹ 20 lakh to ₹ 75 lakh and from ₹ 10 lakh to ₹ 20 lakh for Special Category States in a year 32. Introducing this Agenda item, the Secretary stated that the present exemption limit for taking registration under GST was annual turnover of ₹ 20 lakh. However, this had caused compliance burden for small taxpayers. He added that in the pre-GST days, small manufacturers having annual turnover upto ₹ 1.5 crore were exempt from registration under Central Excise. For the smaller manufacturers, return filing had become burdensome. In view of this, it was proposed to increase the threshold exemption limit for suppliers of goods (manufacturers and traders) from the existing annual turnover of₹ 20 lakh to ₹ 75 lakh and from ₹ 10 lakh to ₹ 20 lakh for 'Special Category' States. 32.1. The Hon'ble Chairperson stated that this was an important issue and this could be considered in the GoM on MSME. The Council agreed to the same. 33. For Agenda item 12(iv) , the Council approved to refer this issue to the GoM on MSME for consideration and making available their recommendations to the Council. Agenda Item 12(v): Proposal for removal of differential rate of GST on lottery run by State Government and lottery authorized by the State Government 34. Introducing this Agenda item, the Secretary stated that representations had been received from All India Federation of Lottery Trade and Allied Industries that the present two rates of GST on lottery, namely 28% on lotteries authorised by the State Governments and 12% on lotteries run by the State Governments were creating different types of difficulties. It had led to reduction in sales; it was anomalous to have two rates on the same product of lottery when sold in the State itself and when sold in another State and a huge variation of 16% between two rates helped the larger States and exploited customers of smaller States, who could not compete with the former. High differential rates also encouraged noncompliance by small business. In view of this, it was proposed to rationalise the rates by increasing the GST rate of 12% on lotteries authorized by State Governments. The Hon'ble Chairperson enquired as to what was the experience of maintaining two different rates on lottery. The Hon'ble Minister from Kerala suggested that status quo should be maintained and stated that he would prefer to discuss the issue bilaterally with the Hon'ble Minister from Maharashtra, Punjab and West Bengal regarding the problems. He also added that legality of such rationale was unquestionable and this had been upheld by the Hon'ble High Court too. The Secretary proposed that it could also be discussed in the Committee of Officers. The Hon'ble Chairperson suggested that the issue could be discussed in the joint meeting of Fitment Committee and the Law Committee. The Council agreed to this proposal. 35. For Agenda item 12(v) , the Council approved that the issue shall be discussed in the joint meeting of the Fitment Committee and the Law Committee and their recommendations shall be placed before the Council in its next meeting. Other Issues 36. The Hon'ble Ministers from Tamil Nadu and Uttarakhand circulated written speeches during the Meeting of the Council. The extracts of the speech relating to the relevant Agenda item have been recorded as part of discussion on those Agenda items. In addition to that, some other important issues highlighted in the written speech are recorded herein below. 36.1. In the written speech of the Hon'ble Minister from Tamil Nadu, he suggested that taxpayers, who could not claim transitional credit due to issues other than IT glitches, namely clerical errors, entry of claim in the wrong table and so on, were filing writ petitions before the High Courts and getting directions to consider their representations. To resolve this problem, Tamil Nadu had proposed that the IT Grievance Redressal Committee itself could be mandated to deal with such non-IT glitch cases also. The IT Grievance Redressal Committee had resolved to bring a subject to the Council, but surprisingly this had not been done. He urged the Council to resolve this matter. He expressed agreement with most of the recommendations of the Law Committee, but on the proposal of single interface for disbursal of refund amounts, he stated that GSTN must devise a glitch-free module for refund. The State would prefer that the existing system of allowing claims of refund based on invoices which find place in FORM GSTR-2A should continue. He also suggested that the Hon'ble Chairperson should look into the matter of constituting the GST Appellate Tribunal at the earliest as there were several litigations pending, challenging the qualifications prescribed for the members of the proposed GST Appellate Tribunal. 36.2. In the written speech circulated by the Hon'ble Minister from Uttarakhand, it was highlighted that the State of Uttrakhand is a landlocked Himalayan State and there was a special Central Industrial package for the State, which gave area-based exemption in Central Excise. During the period, a lot many industries were established in the region and there was a huge spurt in growth of revenue in the State. The revenue accruing to the State due to CST was almost 29.5% of the total revenue, which was no more the case (the national average was just 8%). In addition to this, the drop in the rate of tax in GST, when compared to VAT, also impacted the revenue and the contribution from service sector had been minimal. Thus, due to structural reasons, his State had lost out on revenue, which was not recoverable by means of just enforcement action, as it was not a case of tax evasion. Thus, Uttarakhand was in a disadvantageous position, which was also noted by the Hon'ble Chairperson during the earlier Council meeting. In pursuance of this, the former Finance Secretary had recently visited Uttarakhand to study the impact of GST. In his report on the Revenue Gap Analys is, it was stated that Uttarakhand is among the top 5 States in terms of the percentage of revenue shortfall. Up to November, 2018, the average revenue shortfall of Uttarakhand was 34% as against the national average of 10%. The Study observed that due to structural factors connected to switchover, Uttarakhand had lost about 34.5% of its revenue base (29.5% of CST and 5% of input tax credit reversal on stock transfer). The Hon'ble Minister added that it was imperative that for States where the revenue base was reduced due to structural factors, some remedy be given. He requested the Council to recommend to the Union Government/Finance Commission and other bodies to keep this in mind and account for the loss the State had suffered due to structural changes brought about by GST. 36.3. He further suggested that the revenue position of the State could be improved by notifying sub-rule (7) of Rule 138 of the GST Rules, which provides for generation of e-Way bill by the transporter where the aggregate value of the consignment carried in a conveyance is more than ₹ 50,000. This provision was presently kept in abeyance. In the absence of this provision, transporters were taking multiple consignments of various dealers with each individual dealer's consignment being less than ₹ 50,000, but in aggregate it was far more, thus circumventing the spirit of law. He added that Uttarakhand has a very porous border near Hardwar / Bijnor / Muzaffarnagar / Saharanpur and also near Udhamsingh Nagar / Moradabad / Rampur / Bareilly. He stated that to check evasion, the State had earlier a system of trip- sheets, which covered every transaction/import irrespective of the value of goods. Now with no mandatory provision for online declaration for importing goods, if the consignment is of multiple persons with individual value less than ₹ 50,000, the capacity of the enforcement unit is drastically reduced. He also suggested that for goods, which are high in weight/quantity but low in cost, such as minor minerals, r iver bed material, soap stone and bricks, thee-Way bill should be based on weight/quantity rather than value. Agenda Item 13: Date of the next meeting of the GST Council 37. The Hon'ble Chairperson stated that the date of the next meeting of the Council would be informed at a later date once the issues referred to the GoM on MSME and the Fitment Committee and the Law Committee were examined and their recommendations were ready. 38. The meeting ended with a vote of thanks to the Chair.