Minutes of the 39th GST Council Meeting held on 14th March, 2020 - GST - 39th GST Council Meeting

Minutes of the 39 th GST Council Meeting held on 14 th March, 2020 The 39 th meeting of the GST Council (hereinafter referred to as 'the Council') was held on 14 th March 2020 at New Delhi under the Chairpersonship of Hon'ble Finance Minister, Smt. Nirmala Sitharaman (hereinafter referred to as the Chairperson). A list of the Hon'ble Members/Ministers of the Council who attended the meeting is at Annexure 1 . A list of officers of the Centre, the States, the GST Council, the Goods and Services Tax Network (GSTN) who attended the meeting is at Annexure 2 . 2. The following agenda items were listed for the discussion in the 39 th Meeting of the Council: 1. Confirmation of the Minutes of 38 th GST Council Meeting held on 18th December 2019 2. Update by Infosys (through GSTN) 3. Review of Revenue Position 4. Issues recommended by the Fitment Committee for the consideration of the GST Council (Recommendations by the Committee of Officers on Revenue Augmentation) i. Fitment Agenda for Goods: Inverted Rate Structure m GST-Correction of inverted rates on certain key sectors ii. Fitment Agenda for Services 5. Issues recommended by the Law Committee for the consideration of the GST Council A. Issues recommended by the Law Committee for the consideration of the GST Council i. Taxability of 'economic surplus' earned by brand owners of alcoholic liquor for human consumption ii. Challenges faced in apportionment of ITC in cases of business reorganization under section 18 (3) of CGST Act read with rule 41(1) of CGST Rules iii. Issue regarding waiver of penalty and interest on previous period due to removal of pre-import condition under Advance Authorization scheme iv. Levy of interest under the provisions of section 50 of the CGST Act, 2017 for delay in payment of tax v. Proposal for waiver of filing of FORM GSTR-1 by taxpayers who have availed the special composition scheme under notification No. 2/2019-Central Tax (Rate) dated 07.03.2019. vi. Filing of GSTR-9 (Annual Return) and GSTR-9C (Reconciliation Statement) vii. Proposals for amendment in the CGST Rules, 2017 VIII. Proposals for amendment in the CGST Act, 2017 and the IGST Act, 2017 ix. Scheme of 'Know Your Supplier' x. Notifying NPCI, Transunion CIBIL. Ltd. and Association of Mutual fund of India under section 150(1)(P) and Banking Information return under Section 150(1)( e) xi. Proposal for Notification I Rule change for enabling AADHAAR based authentication in GST xii. Clarification in respect of appeal in regard to non-constitution of Appellate Tribunal xiii. Exemption for certain class of registered persons from having e-invoicing along with extension of dates for implementation of e-invoicing xiv. Exemption for certain class of registered persons from capturing dynamic QR code along with deferment of implementation of QR Code xv. Agenda note for GST Council regarding extension of date of GSTR 3B filing for the month of Jan, 2020 till 31 st March 2020 xvi. Agenda note for GST Council regarding continuation of the existing system of furnishing FORM GSTR-1 and FORM GSTR-3B till the month of September, 2020 xvii. Transition Plan in view of merger of Union Territories of Dadra Nagar HaveIi and Daman Diu xviii. Deferring e- WaIIet scheme and extending duty exemption for exporters B. Deliberations of the Law Committee in the matter of the representation by Construction Federation of India on the orders of the Hon'bIe High Court of Delhi 6. Creation of State and Area Benches of the Goods and Services Tax Appellate Tribunal (GSTAT) for the State of Uttar Pradesh 7. Quarterly Report of the NAA for the quarter October to December 2019 for the information of the GST Council 8. Deemed ratification by the GST Council of Notifications, Circulars and Orders issued by the Central Government 9. Decisions of the GST Implementation Committee (GIC) for information of the Council 10. Decisions/Recommendations of the IT Grievance Redressal Committee for information of the Council 11. Any other agenda item with the permission of the Chairperson i. An incentive scheme for consumers to increase invoice compliance in B to C supply ii. Issuance of Circular clarifying certain refund related issues iii. Physical verification and KYC of persons willing to take registration within first six months and corresponding spike rule iv. Proposed amendments in the CGST Act, 2017 v. Proposal to issue notification and circular clarifying issues related to corporate debtors under the provisions of the Insolvency and Bankruptcy Code, 2016 vi. Proposal to issue Removal of difficulty order for extending the time limit for revocation of cancellation of registration vii. Status update on conversion of Goods And Services Tax Network (GSTN) into 100% Government owned Company viii. Judgment of Hon'ble Supreme Court of India in Chief Commissioner of Central Excise and Service Tax Ors. Vs. M/s Ranchi Club Ltd. and State of West Bengal vs. Calcutta Club Limited laying down that from 2005 onwards, Finance Act, 1994 does not purport to levy service tax on member clubs in incorporated form ix. Order of Hon'ble High Court of Rajasthan in the matter of Rajasthan Tax Consultants Association vs UoI and Ors. (D. B. Civil Writ No. 15239/2017) x. Agenda Note for refund of ITC of the tax paid on capital goods, in cash, for registered taxpayers with annual aggregate turnover up to 15 crores xi. Time bound disposal of long pending change request arising out of changes made in Law/Rules through one time special measure. xii. Ad-hoc Exemptions Order(s) issued under Section 25 (2) of Customs Act, 1962 to be placed before the GST Council for Information 12. Date of the next meeting of the GST Council Preliminary discussion 3. The Hon'ble Chairperson invited the Union Revenue Secretary and ex-officio Secretary to the GST Council (hereinafter referred to as the Secretary) to begin the proceedings. The Secretary welcomed everyone to the 39 th GST Council meeting. He, on behalf of the Council, welcomed Shri Rameshwar Oraon, Hon'ble Minister for Planning cum Finance, Commercial Taxes, Food, Public Distribution Consumer Affairs, nominated from the State of Jharkhand. On behalf of the Council he also placed on record the appreciation for contribution made by Shri C.P. Singh, the then Hon'ble Minister for Urban Development, Housing and Transport, Jharkhand. The Secretary also welcomed Shri Nandan Nilekani from Infosys Bangalore who had come from Bangalore to apprise the GST Council regarding various steps taken and those proposed to be taken by Infosys vis a vis the challenges being currently faced in the implementation of GST as well as the implementation status of various decisions taken by the GST Council for the ease of taxpayers. 3.1. After preliminary discussions, the Hon'ble Chairperson asked the Secretary to take up the individual Agenda Items for consideration of the Council. 3.2. The Secretary informed that though the 1 st Agenda item, as usual, was the confirmation of the Minutes of Meeting of the 38 th GST Council (hereinafter referred to as Minutes) held on 18 th December, 2019 at New Delhi; however, since Shri Nandan Nilekani had been invited to make the presentation about the present status of various issues faced at GST Portal, which was to be taken up at Agenda item 2; therefore, he might be asked to make the presentation first discussion on it be held and thereafter regular agenda items might be taken up. The Council agreed to the above proposal and accordingly, Secretary invited Shri Nandan Nilekani to make the presentation. Agenda Item-2: Update by Infosys: Presentation by Shri Nandan Nilekani, Infosys. 4. Shri Sushil Modi, Deputy Chief Minister, Bihar intervened and stated that he was heading a Group of Ministers on the implementation of IT (hereinafter referred to as IT-GoM), therefore he wanted to inform the Council about the status, being relevant to the agenda and as came to his notice during the IT -GoM meetings and that he would like to raise a few issues in the next two minutes for the information of the Council as well as Shri Nandan Nilekani. He would expect Shri Nandan Nilekani to update the Council on those issues as well. He further stated that IT -GoM had been formed to oversee and resolve the IT challenges faced in the implementation of the GST. The IT-GoM, since then had held 13 meetings from time to time and 47 functionalities were required to be implemented in the beginning. Out of these, IT -GoM had prioritized the functionalities to be implemented out of turn for which Infosys took more than one year to develop and implement. The issues faced during the peak days of filing of GSTR-3B such as slowness of the Portal, system and application errors preventing smooth filing, system hitting the circuit breaker so as to limit the people filing the return at the same time etc. were identified and informed to Infosys for resolution from time to time. Similarly, during the filing of GSTR-1, a number of issues were noticed such as, errors of Summary Generation in Progress , GSTR-2 generation and download being slow etc. were also communicated from time to time for resolution by the Infosys team. He further stated that in the meeting held on 23 rd December, 2019, a plan was submitted by Infosys to tackle the issues including on how to resolve slowness of the System. However, no improvement had come to the notice of IT-GoM till date. 4.1. He further stated that, as regards the number of Change Requests (hereinafter referred as CR) pending with the Infosys, it was decided by IT -GoM, after taking inputs from Infosys, that no CR would be kept pending beyond 12 weeks and Infosys would deploy additional resources to tackle the early implementation of change requests, so that the time-line decided could be adhered. However, in the meeting dated 23.12.2019, it was noted that just 49 CR out of 84 CR could be resolved. He also raised the issues of slow progress in the development and implementation of Business Intelligence (hereinafter referred as BI) reports and stated that so far only 2 out of the 17 use cases identified could be developed by Infosys, hampering the anti-evasion work. Further the modules relating to MIS, appeal, audit, enforcement, etc. remained largely undelivered. Similarly, as regards helpdesk tickets, it was decided with the concurrence of Infosys, that either no ticket or only negligible tickets should remain pending beyond time limit of 30 days. Whereas, the perusal of ticket baskets as on 30th January, 2020 showed that there were more than 806 tickets pending beyond 30 days. He, thereafter, asked Shri Nandan Nilekani to cover above points, as highlighted by him, in his presentation before the Council, supported with the data. 4.2. Shri Nandan Nilekani expressed his gratitude to the Chairperson and other members of the Council for being invited to the Council and being given an opportunity to make the presentation. The presentation is annexed as Annexure 3. He stated that his presentation included the status of the system issues, remediation plan along with road map for the GST return filing and it also included the factors contributing to the issues hampering return filing on 20 th January, 2020. He further, stated that in the existing GST return system, GSTR3B return was to be filed by 20th of the month. About 65% of the people filed return by the due date and out of this 35% of the total tax payers came to file the return on last three days while the return filing percentage further increased to about 90% by the end of the month. In the month of January, 19 th January was a Sunday due to which there was very low return filing and bulk of the people came for return filing on 20 th January, 2020. In addition, there was additional rush for filing GSTR-1 due to the expiry of amnesty scheme timeline on the 17 th January 2020. Further, the time for filing GSTR-9 and GSTR-9C for 2017 -18 was also coming to an end. As a result, the system which was designed to handle 1.25 lakh concurrent users, hit the circuit breaker as more than 1.5 lakh people had hit the server for return filing. Load on the server, more than the design, led to further slowness of the system which was compounded by an issue in delivery of OTP by mail. This led to further load on the server as people tried again and again to get the OTP leading to failure of the system. 4.3. In short term, these issues were handled by staggering the last date of filing for different regional users i.e. 20 th , 22 nd and 24 th January and at the same time the issue in delivery of OTP by e-mail was also fixed. As a result, the return filing in the month of February was quite smooth as evident from the main source of complaint i.e. the GSTN tickets, calls and twitters complaints. 4.4. Long term solution however, was to increase the capacity of the system to 3 lakh concurrent users for which the discussion was held with the GSTN the Ministry and the permission had been granted to upgrade the system on February 3 rd 2020. In this regard, order had already been placed to Chinese suppliers but due to COVID 19 outbreak, the supplies from China had been affected and hence, instead of 6-8 weeks, it could take about 3 months. Thus, in the next 3 months, it was suggested that staggered filling of returns might be continued along with the close monitoring of the system between 15 th to 24 th of the month specially when the system would be burdened and would be near the circuit breaker. The above steps would take care of the concerns raised by the Council as well as by the Hon'ble Prime Minister. Thus, with the supply of hardware in place, performance issues of the system on the capacity front would be taken care of. 4.5. In addition, certain policy changes in respect of CR implementation were also required. He further, stated that the current process of CR implementation by the GSTN involved preparation of each individual CR, its communication to application team, finalization of the change plan by the application team and its approval which also involved an element of agreement between the two teams, its approval, as well as final implementation and hence, the entire process was time consuming. He, therefore, suggested to adopt the process of Time and Material (hereinafter referred as T M) model for implementation of CR. In this model, he would create a pool of qualified and dedicated 60 personnel who would be regularly in touch at each stage and work on the priority areas identified by the Govt. leading to faster delivery. In T M model, the priority had to be decided by the GSTN and Govt. while the work would be delivered by the dedicated resource tool. He informed the Council that the same model had been adopted by UIDAI successfully. 4.6. He, thereafter, presented the road map for GST returns and stated that the current GST compliance model implemented, was based on two returns model where the supplier declared his outward supplies at invoice/ tax rate level including the exports and deemed export suppliers by the loth of the month in GSTR-1 return. Further, a GSTR-3B return had to be filed where he had to compute re-enter the output GST liability and also compute enter the Input Tax Credit (hereinafter referred to as ITC) claimed and thereafter arrive at net tax liability which had to be offset through a challan. The issue in this system was that taxpayer not only had to do duplicate efforts in computing for the returns, taxpayer had to manually claim the ITC also. These issues were compounded by the challenge in the number of filings of various types of returns. Further, while approximately one crore tax payers file GSTR-3B return in a month, only about 60% filed the corresponding GSTR-1 return. Out of one crore taxpayers i.e. those who were required to file GSTR-1 return, 22% of the people filed 'Nil' tax liability returns, 12% of tax payers only had B2C supplies and hence, were not passing on the ITC, and hence invoice details/ detailed GSTR-1 in these cases were also not required. The balance tax payers could be divided into two categories i.e. those having turnover less than ₹ 1.5 crore required to file a quarterly return while those above ₹ 1.5 crore to file monthly return. 4.7. Further, GSTR-1 was not connected with the GSTR-3B and there was no way to check if the tax paid by the tax payer was equal to the tax liability declared by him in GSTR- 1. The original return filing design involved these linkages with invoices having back and forth movement between sellers and buyers and there was a flow of return amongst GSTR- 1, GSTR-2 and ending with GSTR-3. However, it could not be implemented. It was noticed that the system of GS TR -1, 2 3 was complicated and hence, it was decided to limit the implementation of GST with GSTR-1 and GSTR-3B. As a result, though, it had become easier for compliant tax payers to run their business, yet, there was no connection between GSTR-1 and GSTR-3B with no control on ITC availed and it had become a source of various frauds. As a result, there was under-declaration of liabilities by the taxpayers in 97,853 cases of ₹ 31,247 crores. Similarly, tax payers in 42,618 cases had claimed ₹ 38,771 crore excess lTC. Further, there were cases where the registration had been taken on all fake documents with intent to de-fraud the exchequer and at the same time fake invoice scams were also being reported. Significant amount of revenue would also be involved in these two modes of evasion but it was difficult to quantify and detect through the system and had to be plugged using policy measures. 4.8. He continued the presentation that to address these 4 modes of evasion as enumerated above, new return system was designed which took care of the first two modes of evasion, in his opinion. It had been designed and rolled out for beta testing mode since May 2019 to familiarize people with this system; on which more than 900 feedbacks were received regarding certain difficulties or about suggestions on how to improve the new return system. On New Return, 72 workshops were held in 32 cities and 9 webinars had been held during Oct' 19 to Mar'20. However, this model seemed to be complicated and once introduced in one go would lead to disruption in GST operations for following reasons: a. It had been tested by not even 1.5% of the eligible tax payers b. The number of documents hence the load on taxpayers would go up with ANXI, ANX-II and RET. c. Hardware also had not been upgraded. 4.9. Accordingly, incremental approach towards the rollout of the returns system was suggested rather than implementing 'New Return system' in big bang fashion which might be counter-productive and hence, as an implementer of large systems (not as the Infosys representative), he would suggest to adopt incremental improvement approach to reach the same goal with present returns instead of large-scale disruption. He, thereafter, explained the details of incremental roll-out with the idea to get to the same end result and at the same time reduced, risk in adoption by the public. He, further, stated that as of today the first need was to match the liabilities declared by suppliers between GSTR-1 and GSTR-3B and the second need was to match the ITC of the buyers from the suppliers' GSTR-1 containing his supplies i.e. matching the 2A of the buyer with his ITC declared in 3B. He suggested the following roadmap:- a. Therefore, in the first stage the tax liability would be generated from invoice wise details filed by him in GSTR-1 where initially he could be given chance to amend it by a small margin such as, by 10%. b. This would address a lot of issues, as in case of 22% tax payers out of about one crore tax payers, 'Nil' return was filed which could be implemented through SMS and in case of another 12% tax payers having B2C supplies and passing no lTC, a simplified return could be worked out. Thus, this would be a simple change in system which could be easily carried out while it would be a large change for taxpayers as now GSTR-3B liability would be auto populated, which was independently filled by them based on their calculation. This would address first problem of difference in output tax liability declared by the taxpayers in the two returns as discussed earlier. c. He further suggested, though not as a taxation but more of an economic issue, to enable GSTR-l invoice data details as eligible data for lending by financial institutions to MSME. As per RBI report, the credit flow to MSME was the need of the hour since growth in MSME sector created jobs and GST data could be effectively used for making the easy credit flow possible. The Govt. certified invoices would reduce risk of lender as well as it would be a tool in the hands of the taxpayer to get access to credit / loan. Hence, it would make a small business more compliant due to the carrot in the form of proper filing of returns so as to be eligible to borrow hassle free and at the same time stick in the form of the tax to be paid on whatever was declared. In his view, enabling this facility would not be an add on but natural flow and incentive for MSME to be compliant leading to increased GSTR-1 filing. This required API based access of GSTN data to BHIM (lending platform) as well as the concurrence of tax payers to share his data for credit purposes to make it happen. However, the policy decision in this regard, would have to be taken by GSTC whether to proceed or not to proceed. d. The second stage in the incremental implementation would be to make ITC computation automated as well as to provide a tool for matching. This would require arranging ITC details buyer-wise from GSTR-1 details of invoices of suppliers (as reflected in GSTR-2A) and reflecting the automatically computed ITC in the each buyer's account. e. Once the ITC computation became automated, both the risks of under declaration of tax liability and over declaration of ITC on the compliance front would get covered. f. The spin-off of this incremental approach would be that it would allow the data as enabler for lending and in view of 75 lakh MSMEs below ₹ 50 crore turnover getting the benefit of easy lending. As one MSME employer created on an average one job, approximately 75 lakh jobs would be added to the economy. 4.10. He explained the benefits of the incremental approach as follows: a. Nearly 34% of the tax payers would not have to file detailed GSTR -1 as either they were 'Nil' filers or they had no B2B supplies. b. For tax administration the ITC would be reconciled automatically. c. For tax payers GSTR-3B would be fully auto drafted. d. It could also provide flexibility as in the current system the option to file quarterly return could only be exercised once in an year whereas the flexibility to opt for quarterly or monthly anytime was requirement of the day from the point of view of the tax payer. Further, from the tax administration point of view, as explained earlier, 34% tax payers do not need GSTR-1 to be filed while 40% of the tax payers filed monthly returns any way. This left about 25% tax payers who only needed this flexibility. e. The incremental approach would lead to a situation where the return would be more accurate since it avoided calculation and transcription error and at the same time bring transparency in each return with ITC backed by invoice details. 4.11. He thereafter, explained the timelines for the incremental roll out for effective change management as follows: a. By May, 2020, the SMS based filing of 'Nil' returns would be introduced. b. By June, 2020, linking GSTR-3B liability for monthly filers to their GSTR-l would be done. c. By September, 2020, Infosys would provide matching tools for lTC as well as the linkage of liability ofGSTR-1 to the GSTR3B of quarterly fliers. d. By January, 2021, the linkage of GSTR-1 outward supplies and its tax payment by the suppliers would be linked with the ITC of the recipient. 4.12. He concluded his presentation by stating that spike rule would be developed as addon module to detect unusual behavior which would indicate fraud. Further, the rules had to be specified by the department to deal with suppression of fake invoices and ruling out fake registrations in the system. These implementations would significantly stop the leakages and revenues would increase. 4.13. He further presented concept of GST payment Gateway as a new concept, which needed more discussion. He stated that the GST Payment Gateway could lead to elimination of fake invoices, link input tax credit with the invoice. The 'GST payment gateway' would ensure that payment made on invoice was linked to the ITC available on it. However, he would provide detailed proposal subsequently once it was approved in principle. 4.14. The Secretary thanked Shri Nandan Nilekani for making the presentation and stated that, with the implementation of GST, it was realized that the tax administrations needed to be very agile with reference to the IT platform and that the problems noticed should be immediately redressed; otherwise it would bring bad name to GST. He further stated that the PowerPoint presentation recognized that there was a problem which needed to be fixed but, he would not agree to the proposition that the problem was only in January, 2020. In fact, the ticket data suggested that the problem had been throughout and it needed to be minimized. He thereafter, submitted that Infosys in discussion with GSTN had provided 'T M Model' for the 60 resources which had been placed before the Council as Table Agenda 11(xi). Further, the timelines indicated in the presentation upto January, 2021 and that the time line for spike rule implementation had not been given in the presentation do not seem to be agreeable. Moreover, when 60 persons were being agreed to and provided, the time line should come down. The twin issues of smooth experiences of tax payers and spike rule to cover fake invoices I fake ITCs and tax evasion should be addressed with agility as these loopholes were costing tax administration thousands of crores of rupees. Thus, these timelines needed to be advanced with appropriate resources and support of Government I Council. Another issue that he pointed out was relating to implementation of Aadhar and its linking with the GST registration and refunds, which also needed to be implemented on priority. 4.15. Shri Mauvin Godinho, Hon'ble Minister for Transport and Panchayat Raj from Goa, stated that the presentation by Shri Nandan Nilekani was good and informative and that he thought the 'T M Model' proposal was agreeable in view of dire needs. He however, added that the Council was in urgent requirement of fixing the issues pointed out in the presentation and hence, he thought that the services be delivered on priority and approvals could be post-facto. In July GST would complete 3 years which was a good time to stabilize for any new change. Hence, it was high time to take decision urgently instead of waiting for some time. He further stated that the Council knew the existing problems of 'slowness', absence of 'spike rule' etc. Hence, in his opinion, whatever was achieved in the GST System, was good and it only needed to be improved and streamlined. 4.16. Dr. Thomas Issac, Hon'ble Minister of Finance Coir from Kerala, stated that the suggestion given by Shri Nandan Nilekani were effective and useful and thanked him for lucid and useful presentation. He further stated that the idea of linking payment of tax on the invoice with the ITC was interesting and needed to be taken forward. However, he wanted to know the timeframe suggested by Infosys to reach the goal and if the same was achieved, what would be the impact on enforcement. 4.17. Shri Sushil Modi Dy. Chief Minister of Bihar, enquired that the suggestion of having 60 persons to be deputed to stabilize the GST System was good but he would suggest personnel deployed to be qualified as required for the project and at the same time who understood GST. He also wanted to know whether the 'New Return System' as approved by GST Council would be implemented in incremental manner or he had a different suggestion. 4.18. Shri Nandan Nilekani responded that he recognized that GST System was a project of national importance and he would personally ensure best talent across the company would be deployed in the project. He further, explained the difference between what was planned in 'New Return system' and what was suggested by him in as much as, the original design was an elaborate process of filing of GSTR-1, 2 3 in a sequence which were also inter-linked with back and forth flow of invoices. However, the return system and linkage could not be established and the process had to be scrapped midway. However, if in the existing system of GSTR3B and GSTR-1 one linked the two returns, the problem of under declaration of liability as well as misuse of ITC would be stopped. Further, if implementation of ANX-l and ANX-II, was done, it would be releasing new forms for the public, which would be bigger challenge for the public to understand and adapt to these new forms and hence, he referred to it as a big bang reform approach. He instead, suggested to have an incremental approach to plug the loopholes using GSTR-l and GSTR-3B, since taxpayers were already familiar with GSTR-l and GSTR-3B; with final goal to improve the compliance. As regards the point raised by Hon'ble Minister from Kerala, he stated that suggestion to link payment to credit was radical and excellent because in that case there would be no fake invoices left in the system and since, the system based tax payment would be the basis of allowing lTC, and no 'spike rule' would therefore be required. However, it was a big step which needed proper consultation and he would come back with specific recommendation. Responding to the issues raised by the Secretary, he stated that implementation of the changes suggested by him required time as it was not merely a systems change, but required a lot of change in the behavior of the public for the reason that GSTR-l would become the basic document to compute the liability (which would be auto populated, not entered) in the tax return and at the same time it would also be the basis of ITC. 4.19. Shri Manish Sisodia, Hon'ble Dy. Chief Minister of Delhi wanted to know the feedback of the taxpayers on 'New Return System' and the slowness of the system, being hardware linked, would be resolved by what time on account of its linkage with the China. Shri Nandan Nilekarii explained that the feedback of 'New Return System' was taken by the Govt. and agreed that the procurement of hardware might take time due to COVID 19 issue. In the meantime, however, Infosys team would do close monitoring of the system and he would take extra efforts to avoid any issues. 4.20. Shri Nitin Bhai Patel, Hon'ble Deputy Chief Minister from Gujarat raised the issue of congestion and delays in the system which required that the capacity of the system should be increased. Further each time there was congestion near the due date of returns, due date had to be increased several times. Once the number of taxpayers went up, the system capacity had to be increased which was known before-hand to Infosys. Shri Nandan Nilekani clarified that though it was known, the number of concurrent users was not clearly known which had increased disproportionately. Dy. Chief Minister, Gujarat further stated that the decision to increase the capacity should be automatic rather than asking for extending the date each time. He further referred to the issues being faced by GST relating to fake bills and fake ITC claims; tackling which should be the first priority. Further, he concluded by saying that Govt. and the Council lost its face due to frequent changes in the due date of the return which should be addressed by Infosys. Shri Suresh Kumar Khanna, Hon'ble Minister Finance, Parliamentary Affairs, Medical Education of Uttar Pradesh stated that he agreed with the suggestion of Gujarat and that the new system should reduce fraud. He suggested that to achieve the simplification of GST and to achieve smooth functioning of GST System, there should be a permanent GoM on IT for addressing various issues and taking decisions that could be implemented. 4.21. Shri Niranjan Pujari, Hon'ble Finance Excise Minister of Odisha stated that he was a member of the IT-GoM and there he had observed that the performance of Infosys was not upto the mark. He was thankful that Shri Nandan Nilekani had come to address the issues being faced at GSTN. He further stated that GST system implementation was a prestigious project which needed will of Infosys to implement and what the project needed was quality people to implement it. Instead he had seen complacent people sitting in the IT -GoM meetings, Shri Nandan Nilekani stated that he would ensure quality people across Infosys for the project as well as would ensure that he would personally attend the IT -GoM Meetings. 4.22. Shri V. Narayansamy, the Chief Minister of Puducherry, stated that while the Council was focusing on the implementation of GST and the need to simplify the compliance; the unscrupulous taxpayers were making fake invoices and taking fake ITC to cover up their tax liability. Therefore, whenever the Council made changes to cover tax evasion, the genuine taxpayers suffered each time. He stated that the presentation of Nandan Nilekani had at least given the idea that GST implementation would be better in future. However, it should be kept in mind that every time the Council simplified certain things in GST, cycle started where system changes would take some time and thereafter, the State tax officers would go on educating the trade. It should also be noted that tax officers can't go on teaching/educating taxpayers all the time and hence, frequent/ large scale modifications should be avoided. 4.23. Shri T.S. Singh Deo, Hon'ble Minister Commercial Tax from Chhattisgarh stated that from the presentation he had observed that GST could save upto ₹ 76,000 crores in terms of fake invoice credit and suppressed outward tax liability. In comparison, the cost of hardware would be negligible. Therefore, in his opinion, the Council should spend that amount and take some time to implement the changes and save the leakages rather than keep on changing the system for next 10 years. 4.24. Dr K. Subramanian, Chief Economic Adviser to the Union of India stated that from the presentation, it was the welcome idea to allow the finance to the MSME based on GST invoices which should be taken forward. In his opinion, rather than having static spike rules, the system should extensively use data analytics to point out misuse of ITC and evasion of GST. He further stated that it would be useful to have analysis of potential revenue loss based on the data about transactions lost in entire revenue chain. 4.25. Shri Anurag Singh Thakur, Hon'ble Minister of State for Finance, Union of India stated that he as well as Union Finance Minister had been meeting several trade organizations in the past few days and the severe backlash of public had been observed solely due to negative work of Infosys while the public never pointed out flaws in the GST Law. He therefore, wanted to know as to whether the decision to increase the capacity was delayed at their end or at the end of Govt. Secondly, he also would like to know whether hardware upgrade would solve the issues and whether it could be sourced from some other country than China. Shri Nandan Nilekani admitted that Infosys should have looked at the capacity issues earlier and that going forward, Infosys would err on the side of caution. As far as, hardware procurement from China was impacted from COVID 19 issue, he stated that Infosys being large procurer of hardware should not face much of a problem. As regards 'spike rules', he stated that, it could be both rule based as well as artificial intelligence based on data. Further, incremental approach to implementation of linking of return had been discussed with Department of Revenue, GSTN and the Government was agreeable to it. Hon'ble Minister form Chhattisgarh wished to know if, the system could link with sales with purchases also to which Shri Nandan Nilekani responded that the system could link ITC with sales and tax paid by suppliers. 4.26. Hon'ble Union Finance Minister Ms. Nirmala Sitharaman, stated that there were 4- 5 suggestions which had croppedup during discussions and she would like to summarize them as below for further discussion: a. IT -GoM need to be empowered enough to take decisions b. It was not the case that the taxpayers faced the problem in return filing during the months of January / February'20 only. Instead there were other months also where the capacity of the system had affected the GST implementation. c. There should be synergy between Infosys and its vendors such as Tech Mahindra and the issues should get resolved at their level rather than reaching the doors of PM / FM/ MoS/ Ministers in the State for them to respond to these situations. d. GST Council to take the call on implementation of 'New Return system' and other associated issues e. For next three meetings of GST Council, Nandan Nilekani should be present when the system issues would be taken up. 4.27. Shri Nandan Nilekani agreed that for next three meetings, he would personally be present before the GST Council. He also considered holding a joint meeting between Tech Mahindra, Infosys and GSTN and stated that having empowered Group of Ministers advising Infosys on the priority issues would help in smooth implementation. He further suggested that at present, there were two or more than two changes being released to public per week which needed to be avoided whereas it should be once in a fortnight or once in a month about which he would discuss with the GSTN and the Secretary separately. 4.28.' At this juncture, the Secretary thanked Shri Nandan Nilekani, for the presentation and informed him that the Council would like to deliberate on this issue and the decision would be communicated to Infosys through GSTN in due course of time. Shri Nandan Nilekani, thanked the Council for the opportunity given to him to give presentation and thereafter left the meeting. 4.29. The Secretary apprised the Council that a Table Agenda on the issue of time bound implementation of long pending Change Requests (CRs) arising out of changes in Law/ Rules through one-time special measure i.e. a similar issue related to this had also been placed before the Council as Table Agenda 11(xi). The Secretary proposed that the issues arising out of the presentation made by Shri Nandan Nilekani may be taken up for discussion along with Table Agenda 11 (xi). The Council agreed to the proposal. 5. For Agenda item 2 , the Council : i. Took note of the presentation made by Shri Nandan Nilekani ii. Agreed to the proposal that Shri Nandan Nilekani would attend the next three meetings of the GST Council and update the Council of the status of implementation of the decisions taken by the Council. Agenda Item 1: Confirmation of the Minutes of 38 th CST Council Meeting held on 18 th December 2019: 6. The Secretary introduced the Agenda item and stated that the draft minutes of the 38 th GST Council Meeting held on 18 th December 2019 were circulated in advance and comments were received from the State of Tamil Nadu suggesting following changes: i. In paragraph 8.13 of the Minutes to add after the last line (The Hon'ble Deputy Chief Minister of Gujarat stated that as most of the States had less liquidity, whatever compensation Cess was collected, should be distributed among the States.) 'The Hon'ble Council Member from Tamil Nadu in his written speech (circulated during the Meeting) suggested that the compensation to the States may be continued even after the mandatory five-year period, although the rate at which such compensation is to be provided and other modalities could be worked out by this august Council, in the time to come.' ii. In paragraph 12.1 of the Minutes to add after the last line (The Secretary stated that these issues could be discussed in the Fitment Committee.)'The Hon'ble Council Member from Tamil Nadu in his written speech also urged the august Council to consider the remaining representations forwarded to the Council on the ground of rationalisation of tax, items of essential use by common man, items for the benefit of farmers and fishermen, items made by small artisans, items relating to religious sentiments, early.' iii. In paragraph 14 of the Minutes to add after the last line (He also clarified that as for Composition tax payers, the return was filed annually, the same means that this could only be resorted to after the due date for such return.)' The Hon'ble Council Member from Tamil Nadu in his written speech also mentioned that they did not support the suggestion of allowing filing of return with short payment of tax as the taxpayers will be burdened with huge cash crunch; the recipient would take ITC on full credit of input tax, thereby causing loss to exchequer; and refund could also be claimed and granted for short payment by the suppliers.' iv. In paragraph 20 of the Minutes to add after the last line (Finally, the Special Secretary stated that the two GoMs, namely GoM on IGST Settlement and GoM on movement of Gold and precisions Stones had been constituted recently and their reports were yet to be placed before the Council.)' The Hon'ble Council Member from Tamil Nadu in his written speech mentioned that a timeframe for the GoM on lGST settlement may be fixed for resolving the issue of unsettled lGST accumulated amount for the year 2017 -18 v. After para 35.4 of the Minutes to add the following paragraph 35.5. The Hon'ble Council Member from Tamil Nadu in his written speech suggested that a general rule may be introduced to enable manual issue of notice, filing of objection, grant of time and personal hearing and passing of orders and communication of any decision by the proper officer with their signature and serve the same through the method of service as per Section 169 of the CGST/SGST Act, till such time all the business processes are made available electronically by the States and Centre. It was also suggested that steps may be taken for establishing helpdesks in other languages also, in addition to the existing Hindi and English languages and that they were ready to bear the cost of creating Tamil Helpdesk in GSTN. The Secretary noted that the changes were discussed in the officers meeting held on 13 th March 2020 and the same may be accepted and Minutes be confirmed. 6A. The Hon'ble Minister from Goa reminded the Hon'ble Chairperson that the draft Minutes of the 39 th GST Council meeting did not reflect that it was agreed to instruct the GST Intelligence Unit, Hyderabad not to initiate action against the casinos in the State of Goa till it was decided whether GST was required to be levied on the full amount or on the gross gaming revenue as has always been done in the pre GST era. This was for the reason that casinos in Goa were on the verge of closure. That they were a very important source of revenue for the State and that Law and Fitment Committees had decided the issue and that the issue could be brought directly to the GST Council. 7. For Agenda item 1 , the Council approved the Minutes with the following changes i. In paragraph 8.13 of the Minutes to add after the last line (The Hon'ble Deputy Chief Minister of Gujarat stated that as most of the States had less liquidity, whatever compensation Cess was collected, should be distributed among the States.) 'The Hon'ble Council Member from Tamil Nadu in his written speech (circulated during the Meeting) suggested that the compensation to the States may be continued even after the mandatory five-year period, although the rate at which such compensation is to be provided and other modalities could be worked out by this august Council, in the time to come.' ii. In paragraph 12.1 of the Minutes to add after the last line (The Secretary stated that these issues could be discussed in the Fitment Committee.)'The Hon'ble Council Member from Tamil Nadu in his written speech also urged the august Council to consider the remaining representations forwarded to the Council on the ground of rationalisation of tax, items of essential use by common man, items for the benefit of farmers and fishermen, items made by small artisans, items relating to religious sentiments, early.' iii. In paragraph 14 of the Minutes to add after the last line (He also clarified that as for Composition tax payers, the return was filed annually, the same means that this could only be resorted to after the due date for such return.)' The Hon'ble Council Member from Tamil Nadu in his written speech also mentioned that they did not support the suggestion of allowing filing of return with short payment of tax as the taxpayers will be burdened with huge cash crunch; the recipient would take ITC on full credit of input tax, thereby causing loss to exchequer; and refund could also be claimed and granted for short payment by the suppliers.' iv. In paragraph 20 of the Minutes to add after the last line (Finally, the Special Secretary stated that the two GoMs, namely GoM on IGST Settlement and GoM on movement of Gold and precisions Stones had been constituted recently and their reports were yet to be placed before the Council.)' The Hon'ble Council Member from Tamil Nadu in his written speech mentioned that a timeframe for the GoM on IGST settlement may be fixed for resolving the issue of unsettled IGST accumulated amount for the year 2017 -18 v. After para 35.4 of the Minutes to add the following paragraph 35.5. The Hon'ble Council Member from Tamil Nadu in his written speech suggested that a general rule may be introduced to enable manual issue of notice, filing of objection, grant of time and personal hearing and passing of orders and communication of any decision by the proper officer with their signature and serve the same through the method of service as per Section 169 of the CGST/SGST Act, till such time all the business processes are made available electronically by the States and Centre. It was also suggested that steps may be taken for establishing helpdesks in other languages also, in addition to the existing Hindi and English languages and that they were ready to bear the cost of creating Tamil Helpdesk in GSTN. Agenda Item 3: Review of Revenue Position 8. The Secretary invited Shri Ritvik Pandey, Joint Secretary (Revenue) to brief the Council on the subject. 8.1. Joint Secretary (Revenue) initiated the discussion with a presentation on this Agenda item. The presentation is attached as Annexure 4 . He started the discussion by showing the revenue collections under CGST, SGST, IGST and compensation cess during the three months of December 2019, January 2020 and February 2020. He stated that in the last three months the collections have been robust. He stated that the collections since November 2019 have been more than in the previous two financial years. He stated that the growth rate trend of gross GST revenues in the current Financial Year opened with a good growth rate of 10% which slowly came down to 5% in June, 6% in July, 5% in August and went into the negative in the months of September and October. The growth rate picked up in November and has been hovering around 8-9% ever since. While the compensation requirements have increased from ₹ 41,146 crore in 2017-18 to ₹ 69,275 crore in 2018- 19, the amount of compensation cess collected during these two years was ₹ 62,612 crore and ₹ 95,081 crore in 2017-18 and 2018-19 respectively. As against this, in the year 2019- 20 the amount of compensation cess collected till January 2020 was ₹ 79,200 crore while the compensation cess amount released till November 2019 was 1,20,498 crore. Thus, excess amount of compensation cess has been released to States/UTs vis-a-vis what has been collected. In the current financial year, the GST compensation has been provisionally calculated and released fully for April to September 2019 and partly for Oct-Nov, 2019. Resultantly, the GST compensation balance of ₹ 14,036 crore for Oct-Nov, 2019 is still to be released. Further, it is submitted that GST compensation for Dec, 20 19-January, 2020 cycle has also become due in the month of February, 2020 as per GST (Compensation to States) Act, 2017. Therefore, the total amount required in current FY to meet the compensation for Dec., 2019 - Jan, 2020 the balance for Oct-Nov, 2019 is approximately ₹ 48,000 crore. 8.2. He also drew the attention of the Council to the percentage revenue gap during April to February in the current financial year vis-a-vis the previous financial year and submitted that the same had increased. The revenue gap is the difference between the protected revenue and the post settlement gross SGST revenue (including ad-hoc settlement). He also drew attention of the Council to the return filing (GSTR-3B) till the due date and till 31 st January, 2020 for the return periods April 2019 to December 2019. He stated that the filing percentage has reached 68% till due date in month of November. The filing percentage in December slightly fell due to technical issues. He stated that the filing percentage reaches 80% by the month end and reaches 90% over a period of time. Next, he drew attention to IGST account for the current year. As had been the practice, the IGST settlement is done at the month end to ensure that the balance at the end of the month reaches almost zero. He stated that by the end of month of February, the balance was only ₹ 225 Crore for the current year. 8.3. Thereafter, the Hon'ble Chairperson invited comments from the Hon'ble Members of the Council. The Hon'ble Member from Punjab stated that revenue and timely full compensation are the foremost issues. It was doubtful whether full compensation requirement would be released in the 3 rd year of GST with respect to the States entitlement. He stated that there are two issues regarding compensation (a) what was the State's entitlement (b) what was the amount available for disbursement and in case there was a shortfall, how to collectively overcome the shortfall. The State of Punjab has a pending amount of about ₹ 2000 crore. The Hon'ble Member from Punjab further stated that the time has become ripe to activate the dispute resolution mechanism envisaged in the Constitution under Article 279 A and requested that this Agenda may be brought in the next meeting of the Council. This had been suggested during the meeting of the GST Council in Goa on 20 th of September, 2019. He further stated that Punjab had earlier submitted that IGST amount of about ₹ 60,000 crore as on 31 st March, 2018 was appropriated by GOI and for which purpose the Hon'ble Chairperson had constituted a GoM and one meeting of the said GoM had already taken place. If this amount was apportioned among the States then the compensation requirement of the current financial year of about ₹ 48,000 crore could be financed from the kitty in the compensation cess account of the previous two financial years. He further stated that in the last budget NCCD cess on cigarettes had been increased which compromised the ability to enhance the compensation on cigarettes. Finally, he summed by formulating that the issues now are whether the Centre will honour the 14% year on year increase in compensation cess requirement of the States; whether the amount not released in the current financial year would be treated as arrears; whether the arrears of compensation cess would stretch beyond five years and, if so, whether the Compensation Cess Act be amended for this purpose. He further submitted that they have factored in 14% increase in their revenues in the current year in their budget. 8.4. The Hon'ble Member from Kerala stated that in the last GST Council meeting this issue had been discussed in great detail. Release of compensation is linked to collections in the compensation cess fund as was stated by the Hon'ble Chairperson. However, if the minutes of the earlier meetings are read carefully, it has been stated time and again that if the compensation cess fund was not found sufficient to meet compensation requirement then borrowing from the markets would be resorted to. Further, more than the Centre, the States' finances were in serious trouble because their own revenue had gone down. Because of other factors particularly Covid, expenditure on health sector is increasing as tracking, feeding, isolating is required, moreover there are recessionary trends. In such a situation it is important that states are not forced to cut their expenditure, it makes no macro-economic sense, this is happening in every state, every state is forced to cut the expenditure and in some states it very drastically; this will have very serious macro-economic implications. He felt that the GST Council should borrow from the market and pay to the States. The Hon'ble Member from Uttarakhand stated that in the pre-GST era, State of Uttarakhand was growing at the rate of 17% (in terms of revenue receipts) and was one of the top most State in the country; however, there has been sharp decline in their revenues in the GST period. In the year 2019-2020, April 19-Feb 20, the revenue gap of the State was 40% as compared to 35% in the said period of the preceding year indicating an increase of 5%. However, the national average for the same went up by 9% in the aforesaid period. In view of the increasing revenue gap and limited resources of the State, the amount due to the State as compensation was requested to be released at the earliest possible date so that the budgetary provisions kept on account of the anticipated receipts for the year are fulfilled. Compensation due for the month of October-November 2019 comes to ₹ 668.73 crores out of which only ₹ 379.38 crores have been received by the State so far. Thus ₹ 289.35 crore remains balances for the said month and ₹ 579.46 crores have also become due for December 2019-January 2020 to the State. It was therefore, once again requested that the total compensation amount of ₹ 868.81 crores may kindly be released during the current month itself. The Hon'ble Member from Uttar Pradesh stated that regarding this agenda, he wanted to draw attention to the following issues: In the year 2019-20, the ad-hoc IGST settlement amount received was ₹ 1125 crore against which ₹ 1715.22 crore was recovered. He submitted that ₹ 589.62 crore was recovered in excess. This amount may be granted to the State. Along with this, for the period Nov-Feb the State may be granted ₹ 2335 crore. In this, the break up is for the period Oct-Nov ₹ 747 crore and Dec-Jan ₹ 1488 crore have to be granted to the State. The Hon'ble Member from Tamil Nadu stated that during the last meeting, Tamil Nadu and other States had raised the issue of pending compensation to be released by the Government of India. He expressed gratitude to the Government of India for the release of the compensation for the bi-monthly period of October-November 2019. It may be recalled that States had agreed to adopt the Goods and Services Tax regime on the assurance given by the Central Government that it would compensate for the loss on account of the transition for a period of five years. He emphasized that the Central Government had the obligation to deliver on this promise of compensation as per the agreed formula and this obligation should not be made conditional upon availability of resources from the collection of compensation cess. He, therefore, urged the Hon'ble Chairperson to give assurance to ail States of the continued compensation without any break or dilution. Further, this Council may also deliberate on the ways to mobilize funds for meeting the revenue gap of the States that would occur after their entitlement to the compensation ends in June 2022. He also requested that adequate provision may be made in the supplementary estimates for making payment of compensation 8.5. The Hon'ble Chief Minister of Puducherry stated that the compensation cess rate fixation had been decided by the Council after a lot of deliberations. That compensation is a solemn commitment by GST Council to the States and the State budget has been planned keeping in view the 14% growth. Since this is the fag end of the Financial Year, most of the States are depending on the GST compensation as one of the revenue sources to meet the expenditures. Both small and big States are on the same pedestal. He stated that this issue should not be allowed to linger on. State Budgets are planned on the basis of GST compensation. The States will be in a better position to plan their budgets more accurately if they have an estimate of the available compensation. There were methods for meeting shortfall in GST revenues. The former Union Finance Minister had even committed to borrowings from the market to make good the cess requirements of the States. The IGST for the earlier years went to the Consolidated Fund of India. That should be corrected by going for a supplementary demand in the current financial year itself. If there has to be rethinking on compensation issue, it could be discussed, deliberated and a decision may be arrived by consensus. He finally requested the Chairperson to allocate one day for discussion with the State Finance Ministers on measures to augment GST revenues. The Hon'ble Deputy Chief Minister of Delhi stated that in the pre-GST regime both power and accountability were with the States. That 14% compensation cess requirement is based on pre-GST revenues of all the States. He said that there are shortcomings in the GST which should be removed. He further stated that for the country as a whole the revenue gap was about 25% vis-a-vis protected revenue. The solution to the cess deficit has to be found in this year's budget. As a result of the novel Corona virus the economy has headed to a slowdown which will further reduce GST earnings. Some of these sectors where shortfalls had fallen tremendously are restaurants, cinema theatres, shopping malls, etc. He wondered whether we could do something for the falling market and lamented that the Delhi government may not be able to pay salaries. He urged that the solutions for compensation, long term solution for revenue gap and loss of revenues due to the epidemic of Corona Virus should be deliberated. The Hon'ble member from Jharkhand stated that his State was entitled to ₹ 448 crore on account of compensation cess. The Hon'ble Deputy Chief Minister of Gujarat stated that there were two ways to solve this problem. He said liquidity is required and market borrowing could be resorted to. Either the Gujarat Government can borrow and the interest can be paid for from the compensation cess or alternatively GST Council could borrow. That there was a requirement of about ₹ 4,851 crore of Gujarat from compensation. The solution of borrowing will solve the revenue deficit for the States. The burden of interest payments will increase and for this compensation mechanism may be extended for two more years. The Hon'ble Member from Goa stated that his State required a compensation of ₹ 243 crore. Each State had factored in the compensation cess in their budget. The tourism to Goa had gone to less than 30% on account of Corona Virus. Because of non-release of compensation amount they are borrowing to fill in the gap and they are heading towards a debt trap. He emphasised on the importance of response of the Council to tackle the various issues that were highlighted. The Hon'ble Member from Chhattisgarh stated that the tax collected before GST was about 33%; of which one-third was on account of Central Excise while the remaining was of the States. However, after GST this ratio has gone in favour of the Centre as now SGST and CGST are in the ratio of 50:50. If compensation cess @14% is not disbursed, then the States would suffer. Chhattisgarh had received only 56% of its share of cess for October-November 2019 and nothing for December-January. In total, Chattisgarh was entitled to ₹ 1151 which has not been disbursed yet. He wanted to know whether the Compensation Act envisaged growth at the rate of 14% and whether we could resort to market borrowing in case of deficit. 8.6. The Hon'ble Deputy Chief Minister of Bihar stated that his State was entitled to 14,474 crore in the current financial year. He enquired from JS, DoR as to how the compensation collection in Table 1 was shown as 90,440 crore while the amounts shown as collected in Table 3 was 79,000 crore. To this JS, DoR replied that the gross collections during April-February was 9,0440 crore; however, after accounting for refunds etc. the net : amount in the compensation cess kitty from the current year's collections till January 2020 was only ₹ 79,000 crore. Therefore, only 79,000 crore was available for disbursement apart from the carryover from the earlier years. The Hon'ble Deputy Chief Minister of Bihar further stated that regarding the compensation cess, already ₹ 5774 crore balance is present. This is till January 2020. After one more month of February, another ₹ 9000 crore will be present. He felt that hardly ₹ 2000 to 3000 crore will be refunds. So, they can get about ₹ 8000-9000 crore and regarding this ₹ 5774 crore balance, he thought that after the end of Feb, in the month of March, we can have more than ₹ 25,000 crore in cess. He requested that this fund should be transferred in this month only and if a supplementary grant in this regard is required, we should go for it because the States require money in this financial year. All the amounts in the cess fund should be transferred to the States in this month itself which will benefit the State finances. The Dy. CM of Bihar also drew the attention of the Council to the State wise GSTR-3B return filings in Table 6 of the detailed Agenda note and requested that the state-wise break-up filing of returns the Central and State tax authorities should be shown separately. At the State level, the concerned minister monitors the performance of the State officials but it was not clear as to who was monitoring the central tax authorities. He wished to call the jurisdictional CGST officials along with the SGST officials for this purpose. He further stated that in the pre-GST era the growth of net revenue was over 9% as he was not present in the Council, he was not sure as to how the assurance of 14% was given. That Corona virus is having a huge impact on Indian economy and next year growth could be below 4%. Therefore, we have to find newer ways of meeting compensation cess requirements. He requested that in April-May, there maya day long meeting (need not be a GST Council Meeting) of the State Finance ministers to deliberate and find solutions to compensation cess issue, reviving economy, fighting the negative effects of Corona Virus on economy. He submitted that States should be allowed to borrow from the market and interest on which could be paid by the Central Government. The Hon'ble Dy. CM of Haryana stated that there was a shortfall of₹ 1900 crore upto Feb which would go upto ₹ 2000 crore upto March. He observed that only 9 States are growing above or at 14%. States like Punjab, Goa Gujarat which rank high on manufacturing are still way behind. He further submitted that the Union Territory of Chandigarh should be involved in all these discussion because decisions on UT of Chandigarh affect Haryana's revenue. He was supported by the FM from Punjab on this. He submitted that UT of Chandigarh is under cutting both Punjab and Haryana in the price of petrol, liquor, registration fees etc which is discretionary. This is affecting the GST collections which are based on consumption, in both Punjab and Haryana. Finally, the Hon'ble Member from Haryana stated that COVID-19 is going to hit manufacturing which will hit cess collection and future compensation requirement of the State. 8.7. The Hon'ble Chairperson addressing the issue raised by State of Punjab stated that a GoM was constituted to look into it which had met once, JS, DoR had been specifically tasked to look into it. She agreed that there they have gone through the entire case and agree that there was a case for making good the loss suffered at that time due to wrong location of a certain amount which should have been accounted in one financial year but has been accounted in the year before that. This issue has been lingering since then. As was promised in the 37 th GST Council Meeting at Goa, a GoM has looked into the issue and this error shall be corrected. The Business Rules require the CAG to certify that the amount was : indeed wrongly accounted. Once this certification is obtained, then depending on revenue position, in one chunk or more, the amount shall be disbursed. Coming to the issue of compensation, she replied that she had made several suggestions regarding compensation cess and that the States are entitled to it and there is no question of them asking the Centre for it. It was the solemn commitment to the States. The Centre is duty bound to give compensation to the States. She agreed with the statement made by Hon'ble Chief Minister of Puducherry that at one point in time, the money was credited to the Consolidated Fund of india and that surplus could have been managed in a different account for easy disbursal of compensation to the States. She has been consciously working on the issue. She stated that till January 2020, the compensation cess collected was ₹ 79,000 crore only. However, ₹ 1,20,498 crores were paid because of the past balance. She had also mentioned in the parliament that the surplus amounts would also be given by following the proper procedure. She reiterated the commitment made by the then Chairperson of the GST Council that in case there are no adequate resources for giving compensation to the States, market borrowing may be resorted to She also stated that as suggested by Dy CM of Bihar, after the Parliament session is over, may be if everyone so desire, she will work on whether the GST Council itself can borrow, the legality of such a borrowing and she will convene a meeting of all the State Finance Ministers to discuss contingencies in terms of compensation cess requirements; who would stand guarantee in case of market borrowing to fund the compensation requirements of the States, what impact FRBM Act and ways to counter the negative effects of Corona Virus pandemic on the economy. May be if possible she could also look into whether a supplementary grant may be made before the end of March 2020. Hon'ble member from Kerala stated that release of ₹ 3000 crore compensation would ease their position if not solve their problem and wondered on the possibility of taking a short term loan for 3-5 months to tide over the expenditure requirements of March 2020. Thereafter, the Hon'ble Minister from Chhattisgarh enquired from the Secretary about the monthly outgo from compensation cess. The Secretary to the Council replied that the average collection under compensation cess was ₹ 8,000 crore while the average monthly requirement was about 16,000 crore. That next year this deficit would become worse on account of negative effects on economy due to Corona Virus. He further replied that he was monitoring the GST collection in every state on a daily basis, He also stated that an important early indicator is the IGST on imports and during the last 15 days IGST collection on imports has come down by about 20-25%; the earlier daily collection of about ₹ 1 000 crore under IGST on imports has given way to a daily collection of about ₹ 750 crore. While the domestic GST collections have increased by 9%, the GST collections on imports have fallen. Total gross GST Collection growth is around 4-5%. Therefore, a revenue augmentation committee has been constituted which held series of discussions with State Officers. Revenue Augmentation need not necessarily be only through increase in rates. It can be done smartly in a structured manner. Finally, he submitted that the return filing by the Central tax payers is constantly monitored by CBIC Chairman on a weekly basis. The Hon'ble Deputy Chief Minister of Gujarat requested that there is need for amendment in the Central Sales Tax Act, 1956. Letter containing detailed note for amendment in the relevant section of the CST Act is already sent to the Govt. of India. Wrong use of C-Forms is causing loss of CST revenue to many states. Other states have also agreed to prevent wrong use of C-FORM and therefore, the Central Government should bring amendment immediately. If need be, the matter may be discussed in the Council meeting. It was replied by the Secretary to the Council that feedback had been taken from the States. Some of whom have replied; however, this was not a GST Council matter and therefore could not be discussed in the Council. 9. For the Agenda Item 3 , the Council took note of the presentation made by JS, DoR and the suggestions made by the Hon'ble Members. Agenda Item 4: Issues recommended by the Fitment Committee for the consideration of the GST Council (Recommendations by Committee of Officers on Revenue Augmentation) 10. Introducing this Agenda, Secretary to the Council stated that the meeting of the Fitment Committee had been convened to consider the deliberations/recommendations made by the Committee of Officers on Revenue Augmentation, which was set up a few months ago. He further said that the Committee of Officers on Augmentation of Revenue looked at some of the structural anomalies in the GST such as inverted tax structure which has led to distortions. He said a detailed presentation has been readied based on the discussions in the Fitment Committee which shall be made before the Council shortly. It is for the Council to take decisions in the matter at an opportune time. He then requested JS (TRU-I) Sh. G.D. Lohani to brief the Council in the matter. 10.1. JS (TRU-I) made a detailed presentation on the subject which is annexed at Annexure 5 . He apprised the Council that the Committee of Officers on revenue Augmentation had observed that inverted tax structure has led to significant distortion in GST tax regime. This issue was deliberated at length in the Fitment Committee He cited some of the instances of inverted rate structure whereunder the GST rate on the final product is lower than on raw materials. This has created distortions in GST which is a deviation from the basic philosophy of a value added tax. He cited some of the adverse implications of the inverted duty structure as follows: Unutilized ITC becomes a cost to the manufacturer To correct this, refund of unutilized ITC is to be given Cash-flow issue even if refund is given No refund of input services and capital goods Inverted rates greater injury to Small standalone units Accumulated ITC on capital goods hurts the exporter Incentivizes imports Disincentives domestic manufacturing and investment Consumer not benefited. Unutilized ITC is a dead weight cost Gives rise to fraudulent practices - fake invoices, misclassification Claiming refund entails efforts, cost and hardship Instances of inverted rate structure highlighted by him included fertilizers, mobiles, footwear, manmade yam fabrics, renewable energy devices, tractors, pharma, etc. The Committee of Officers on Revenue Augmentation recommended to calibrate rates so as to correct duty inversion. This issue was highlighted in the presentation made in the 38 th GST Council meeting held on 18 th December, 2019 at New Delhi. This issue was again examined by the Committee of Officers and deliberated in detail in Fitment Committee. On ABC analysis Fitment Committee as first step recommended rate calibration on four items/sectors i.e. mobile, footwear, textiles and fertilizers. He further stated that these four sectors contribute significantly to the total consumption base of goods. He went on to explain how the inversion arise in case of mobile phones vis-a-vis its parts/intermediate goods. It was stated that about ₹ 5500 crore of ITC refund has been claimed on account of inverted tax structure in respect of mobiles. As no refund of input services and capital goods are allowed, the inverted rate structure adds to the cost of the mobile manufacturers. Consequently, consumers also do not benefit. This has also led to fraudulent practices. He further stated that the issue of a differential rate in respect of push button phones vis-a-vis smart phones was also discussed in detail in Fitment Committee. The margins in respect of push button phones is even thinner. Therefore, the Fitment Committee felt that a differential rate, that 18% on smart phone and 12% on push button phones may not be desirable as such differential rate creates distortion in tax regime and also is not conducive to exports. The export of features phones from India during April 2019 to January 2020 was about ₹ 2000 crore. It was, therefore, desirable to have a uniform rate of 18% on mobile phones and all its inputs. 10.2. Thereafter, JS (TRU-I) drew the attention of the Council to the prevailing inverted tax structure in respect of footwear and how the same has evolved from the pre-GST period and during the GST period. Footwear with RSP of upto ₹ 500 were initially placed in 5% slab. Subsequently this limit was increased to ₹ 1000 in July, 2018. He stated that with effect from 1.1.2019 footwear of value above ₹ 1000 attracts 18% while others attract 5% GST. While soles, components and chemicals, consumables, services, capital goods attract 18% GST, technical textiles attract 12% GST while leather attracts 5% GST. The 70% of the cost of a footwear is contributed by those part components and capital goods which are at 18% GST leading to inversion. The value addition is about 15 to 20%. As a result, the manufacturer and the consumers both are adversely affected and the export of footwear also suffer. Therefore, the Fitment Committee had recommended to avoid dual rate and ideally all footwear should be standard rated. However, considering that the footwear is a mass consumption goods, at this stage, 12% rate for footwear with value upto ₹ 1 000 per pair may be conducive to correct inversion, as recommended by the Fitment Committee. 10.3. JS (TRU-I) further made a detailed presentation on textile sector explaining as to how the existing rate structure has created an acute inversion in the MMF sector and has led to all those distortion as were highlighted earlier in the presentation .. He explained that in pre-GST regime textiles suffered significant embedded taxes as no refund was admissible in excise. He also explained as to how the GST rates were evolved in textile sector. Initially Manmade yarns and fibres were placed in the 18% slab and fabric attracted GST at the rate of 5% with the condition of not allowing refund of accumulated ITC. Subsequently the GST rate on MM yarn was reduced to 12% and refund of accumulated ITC was allowed in Fabric. GST rate on all job work services was brought down to 5%. However, this brought in an inversion in dyeing service. Further, inversion continued in textiles as the value addition at yarn stage and fabric stage is not sufficient to correct inversion on these items. Further capital goods and services (other than job work and transport) attract standard rate of 18%. This inverted structure has been acting as detriment to the growth of textile sector and investment in the sector. He stated that the Ministry of Textiles had also recommended for correcting inverted rate structure so as to unshackle it from the burden of taxes (accumulated ITC etc.). This would increase the employment opportunities in the Textile industry and also make our exports competitive. It was also considered by the Inter-Ministerial Group (IMG) consisting of Ministry of Textiles, Commerce and Niti Ayog who had also observed similarly. The inversion in rate structure of textile sector has led to a refund of about ₹ 4000 crore. In view of the above discussions, he stated that the Fitment Committee proposed the following rate structure on textiles: (a) 5% GST on cotton and other natural fibres (except raw jute, silk and wool) and all natural fibre yarns. (b) 12% GST on manmade fibres (c) 12% GST on MMF yarns (d) 12% GST on all fabrics (e) 12% GST on all garments and made-up (f) 12% GST on dyeing services 10.4. Thereafter, IS (TRU-I) dwelt in detail on the inversion in rate structure in fertilizers. Briefly, he stated that while the GST on fertilizers is 5% most of the major inputs such as ammonia, sulphuric acid, input services and capital goods are at 18%. Only phosphoric acid is at 5% wherein the GST rate was successively reduced from 18% to 12% and finally to 5%. Fertilizer is also a heavily subsidised item as a result of which urea has a much higher inversion. DAP has inversion of 4% on account of inputs alone. In addition, there is inversion on account of services and capital goods. He stated that about 6100 Crores has been claimed as ITC refund so far on fertilizers. In view of the same Fitment Committee had recommended GST rate of 12% on fertilizers. Thereafter, views/comments of the hon'ble Members were invited. 10.5 The Hon'ble Member from Goa congratulated the Fitment Committee for the analysis done and pointed that it was the need of the hour and that other Hon'ble Members should support the proposal. 10.6. The Hon'ble Deputy Chief Minister of Gujarat stated that this was not the appropriate time to raise GST in the case of textiles and fertilizers as the current economic environment will not be able to handle any GST hike on these items. He also referred to his discussion with the textile mill owners, merchants, job workers, processors, retailers from Surat and Ahmedabad, none of them made recommendations regarding correction in inverted duty or that the industry was suffering from the same. More so he pointed out that in the pre-GST era there was no tax at all neither through VAT nor through Central taxes. He wondered if the textile industry was happy with this proposal. The textile industry is in the process of settling down with the existing rate structure and at this juncture it may not appropriate to hike taxes. Likewise, the proposed hike of GST on fertilizers would adversely impact the farmers. However, the recommendation in respect of mobile and footwear may be considered if other Hon'ble Members so desire. 10.7. The Hon'ble Member from Kerala stated that the logic in the presentation was very good which is to eliminate inversion. However he pointed that the, additional cost in terms of refund being no longer available due to correction of inversion would be borne by the consumer and will have an inflationary impact. Council will have to consider the appropriate moment for raising GST. There is a near recession in the economy and a huge contraction in demand. The supply chain has broken on account of COVID-19. The Central Government may not be comfortable with stimulus package because they have an eye on inflation. We should be wary of any increase in commodity taxes at this point of time. Council could wait for a month or two and consider these corrections in the next GST Council meeting. 10.8. The Hon'ble Member from Punjab stated that the corrections proposed to remove distortions in GST are welcome and they generally welcome such corrections. However, as pointed out by fellow Ministers timing is an issue on account of Corona, crude and credit. With respect to textiles the Hon'ble Member stated that there are no direct consumers of fibre or yarn, while the yarn manufacturers are large suppliers, the fabric manufacturers are smaller ones, so it makes sense to increase rates at a more compliant stage. He further stated that the tax rate on natural and manmade textiles should be the same and as proposed to further not allow any evasion due to distinction. With respect to fertilizers he stated that natural gas is one of the major inputs used in the manufacture of fertilizers. He stated that natural gas is outside the ambit of GST and states levy taxes which in the pre-GST era was around 9.7% with CST at 2%, so average levy is anywhere between12-20%. Now if another 12% is charged on fertiliser it would become like a sin good, so he opposed the proposed increase of GST on fertilisers. 10.9. The Hon'ble Member from Tamil Nadu stated that the Fitment Committee has recommended increasing the rates of tax on fabrics and garments to 12%, despite reservations expressed by Hon'ble Member from Tamil Nadu. Fabrics include dhotis and sarees, and these along with garments of value less than ₹ 1000/- per piece are widely consumed by lower classes of the society. Similarly, footwears are also goods of mass consumption, any increase would adversely impact this class of consumers. He opined that tax rates should be decided based on ability to pay rather than on grounds only of administrative nature such as inability of the system to manage inverted tax structure. He finally conveyed the opposition of Government of Tamil Nadu to this proposal. Further he stated that Chemical fertilizers are under price control and covered under subsidy programme. The proposed increase in tax rate on fertilizers would increase the retail price of fertilizers. He was therefore opposed to the proposal. Apart from this he pointed to the long pending issue of rationalisation of rates on safety matches and to do away with the differential rates for 5% on hand made and 18% on machine made matches as it was not possible to visually distinguish between the two which is leading to misuse and evasion. He pointed out that the Fitment Committee had already deliberated on issue and recommended uniform rate of 12%, he urged the council to take a decision on the same and not keep it pending. He further stated that in their State, they have been receiving numerous representations from the trade associations dealing with food grains complaining that the tax authorities are demanding tax for delayed filing of disclaimer affidavit before the jurisdictional Commissioner, voluntarily foregoing the actionable claim or the enforceable rights on their brand name. The intention of issuing such notification for filing disclaimer affidavit is to grant exemption on the supply of food grains having unregistered brand name. However, the delay in filing such affidavit should not be a ground for levy and collection of tax on the supply of food grains. He urged the Hon'ble Chairperson to kindly issue guidelines to condone the delay in filing the disclaimer affidavit and not to raise demands on that ground. He also suggested that the distinction between branded and unbranded food grains should be completely done away with as most taxpayers have switched to unbranded category by filing affidavits and consequently the loss to exchequer on account of removal of the distinction will not be much. He also urged the Hon'ble Chairperson to kindly consider the remaining representations forwarded to the Council on the grounds of rationalization of tax, items of essential use by common man, items for the benefit of farmers and fishermen, items made by small artisans and items relating to religious sentiments at the earliest. 10.10. The Hon'ble Deputy Chief Minister of Delhi stated that though he agrees that course correction in respect of GST inversion should be done, the timing is very important because markets are currently very low. And this may not be the right time for increasing taxes. Markets would be down for about two to three months and therefore this decision should be postponed for after two to three months. 10.11. The Hon'ble Member from Chhattisgarh stated that the presentation did not make it clear as to what is being targeted. Is it procedure, relief to manufacturer or revenue augmentation. If procedure was being targeted then we may not allow refund on this accumulated lTC. He also felt that it was not advisable to increase GST on yarns and fertilizers at the moment. In respect of mobile phones, GST may be increased to 18%. 10.12 The Hon'ble Member from Uttar Pradesh stated that their objective is to increase agricultural production for which farmers are given subsidy. He is therefore opposed to increase of GST on fertilizers to 12%. In respect of mobiles he felt there should be two rates i.e. the smart phones costing above ₹ 5000/- may be levied GST at the rate of 18%. While phones below this may continue to attract 12% GST. With respect to inversion correction on footwear and textiles he did not have any comments to make. However, the timing of course correction was important. 10.13 The Hon'ble Deputy Chief Minister of Haryana said he had no problems with the first three i.e. mobiles, footwear and textiles; however, he is opposed to increasing GST on fertilizers. He pointed out that Haryana is primarily an agrarian state, a bag of DAP currently costs 1000 which will further increase by 70-75 and will hit the farmers hard. 10.14 The Hon'ble Member from Assam stated that this agenda item was linked to the earlier agenda item and the discussion on how to make good the compensation requirements of the States. Some of the hon'ble members had recommended for market borrowings. He was of the view that the average monthly GST collection has to be about ₹ 1.3 lakh crore in 2020-21 if the compensation requirement of the States are to be met. The Compensation Cess Act is very clear that compensation has to come from Compensation Cess Act. That all of us as Finance Ministers are used to taking hard decisions and the time has now come to take more such hard decisions. He had no specific comment to make in respect of textiles and fertilizers. Today, there is Corona virus and therefore perhaps we may postpone the decision. The hon'ble Member made it very clear that Assam is dependent on devolution of central taxes. Devolution is equivalent to compensation implying thereby that if the general revenue increases then the amount devolved to Assam would increase. He said that he had no specific comments to make except that distortions in the GST rate structure had to be corrected. Otherwise how would the Union Finance Minister compensate us at the rate of 14% year on year increase over protected revenue. 10.15 The Hon'ble Member from Goa stated that corrections in the GST tax structure should have been carried long ago in order to remove distortions in GST. He cited the instance of a particular industry in Goa, manufacturing fertilizers which has closed down because imported fertilizer is cheaper. He stated that GST Council had decided everything based on goodwill. There is bound to be pain now for gain to come later. There may be another crisis after some time. Where is the money going to come from for compensation? We do not have to be State specific or commodity specific. He urged the Members to think on broader terms and take firm decisions rather than deferring matter to a more suitable time. 10.16 The Hon'ble Minister from Kerala stated that no one is opposing the logic of Fitment Committee. In [act, he was opposed to the reduction of goods from 28% to 18% slab in the past also. However, in the particular situation the macro-economic picture has to be kept in view before going in for a rate increase at the moment. Hence, we may take this up in the next meeting 10.17 The Hon'ble Member from Odisha stated that textiles have two major components, power loom and handloom. The hand loom sector attracts GST of 5% for which we have requested for waiver as this sector in Odisha was similar to agriculture. He requested that If the GST on power loom is raised, the handloom sector should be left untouched. 10.18 The Hon'ble Deputy Chief Minister from Bihar dwelt upon historical evolution of excise duty on textile fabrics and stated that fabrics below R.1000 was subjected to tax under GST for the first time. As this is not an opportune time owing to Corona Virus, there should be no increase on fabrics for the moment although increase in GST on readymade garments could be considered. He also opposed the proposal to raise taxes on fertiliser. Also States should be given more time to dwell on the proposal and think thoroughly. 10.19 The Commissioner, Commercial Taxes of West Bengal stated that West Bengal government is not against correcting the inverted duty structure In fact on the proposal of West Bengal inverted duty on Wagons had been corrected. He pointed out that the sectors such as Textiles, Footwear and fertiliser proposed in the meeting today are very basic consumption items and that this is not appropriate time for any change in GST rate and the same may be postponed for decision in upcoming meetings. 10.20 The Hon'ble Member from Andhra Pradesh also stated that this was not appropriate time to increase GST. The Commissioner, Commercial Taxes of Maharashtra stated that his government supports the recommendations of Fitment Committee but does not support raising GST on garments and fabric 10.21 The Chief Economic Adviser stated that the objective of the proposal is revenue augmentation. However, instead of static modelling it should be done in a dynamic fashion meaning thereby that increase in taxes reduces the marginal propensity to consume (i.e. acts as a dampener to consumption). Further, exports of mobiles and textiles could be adversely impacted by increasing GST on parts and components on the same and therefore should be handled very carefully. The Secretary to the Council stated that this proposal was not for revenue augmentation but noted emphatically that, as highlighted by the Fitment Committee, to correct the distortion in GST tax regime that has been created by inverted tax structure and such correction would make our domestic manufacturing internationally competitive which would add to our GDP, provide employment and also increase exports. 10.22 The Hon'ble Chairperson of the Council mentioned that exercise done by committee was for the purpose of identification of items that are facing inversion, amount of refunds that are disbursed on this account. So, the purpose of this presentation was to highlight the areas of inversion and its extent so that with this information and facts the Council can deliberate. 10.23 The Hon'ble Minister from UP stated that all the members had left important work in their respective States to attend the Council meeting. It was therefore not wise to defer all decisions and not take any decision. He felt that Council should consider the issue of the GST rates on mobile phones. In this he was supported by the Hon'ble Members from Tamil Nadu, Odisha, Goa, Assam, Punjab, Haryana, Gujarat, Telangana, Uttarakhand, Chhattisgarh, Andhra Pradesh, Haryana and Delhi. The Hon'ble Finance Minister observed that there was general consensus for correcting the rate structure on mobile in the manner as was proposed by the Fitment committee. Thus, on consensus Council agreed to increase the rate on mobile phones and its parts to 18% wef 1 st April 2020. 10.24 Thereafter, the Hon'ble Member from Tamil Nadu further stated that they had long pending issue of rationalisation of the rate of tax on safety matches at 12% and to do away with two different rates of 5% on handmade and 18% on manmade matches. It was difficult to distinguish between the two classes of matches by visual examination and therefore evasion by misclassification was rampant. He therefore urged the Council to take it up in this meeting. J S (TRU-I), on being asked to explain, stated that the Fitment Committee had earlier made this recommendation and it was discussed in the earlier GST Council meeting. While, in general there was an agreement in the Council, Chief Minister Puducherry had certain reservation on it. He had observed to come back to the Council with his views. Therefore, this matter is pending for a recommendation of the Council. Hon'ble Finance Minister observed that since then Chief Minister, Puducherry has communicated his agreement to the proposal and since the views of Chief Minister, Puducherry are known and there is no difference of view in the Council, the Council may agree to rationalise the GST on matches to 12%. Accordingly, Council agreed to the proposal to rationalise rates to 12% on all kind of matches. The Council also directed that this change to be affected effect from 1 st of April 2020. 11. When the GST Council reassembled after lunch, the Secretary to the Council stated that this Agenda item had two parts and the second part, Agenda item 4(ii) related to the fitment agenda for services. He then asked Sh. Manish Sinha, JS (TRU-II) to apprise the Council about the recommendations made by the Fitment Committee with respect to GST on services. In his presentation (annexed as Annexure 6 ) JS, TRU-1I stated that there were four issues for consideration by the Council. One of the issues at S.No.3 of the Agenda item 4(ii) pertained to levy of IGST on ocean freight payable by importer under reverse charge mechanism. He stated that this issue is under examination and a detailed write-up had been enclosed to detailed agenda note (Annexure III). However, it was proposed to defer the same. The first Agenda was the direction given by the Hon'ble Supreme Court vide their order dt. 11.12.2019 to allow the representations of Haj/Umrah Private Tour Operators (PTOs) to withdraw their petitions and directed the government to decide on the said representation within 90 days of the order. The PTOs have represented that GST should not be levied or exempted on Haj/Umrah tours conducted by PTOs. The Fitment Committee did not find the request of PTOs acceptable on account of the following factors: All religious pilgrimage tours except those organised/facilitated by GOI under bilateral arrangement are taxable. There can be many domestic and international tours which can be considered as religious pilgrimage and this demand can have domino effect in general on PTOs. 11.1. The next agenda was with respect to the place of supply rules in respect of MRO service and the rate of GST on the same. The JS, TRU-II stated that presently the Indian airlines pay 18% GST on domestic MRO service and only 5% IGST as goods (on most parts) under section 3(7) of customs tariff Act on foreign MRO service. Due to existing PoS provision, the following services provided by domestic MRO do not qualify as export and get taxed in India- Services subcontracted by foreign MRO to domestic MRO To foreign airlines on their routine flights; and To foreign aircraft leasing companies. On the other hand, MRO outside India do not pay any tax under IGST Act as the activity of service happens outside the taxable territory. Therefore, their proposal was to reduce GST rate on MRO services to 5% with full ITC and change PoS for B2B MRO Services in respect of aircraft and aircraft parts and components to location of Recipient [Notification u/S 13(13)of the IGST Act]. The advantages of the proposal include that services of both domestic and foreign MRO will be taxed at the same GST rate of 5%, domestic MRO will get additional protection as tax paid at the rate of 5% on most goods sent abroad for repairs u/S 3(7)of the CTA will not be creditable, lower GST rate of 5% will reduce the additional cash flow burden on airlines. The disadvantages include GST rate of 5% may cause mild inversion of duty structure for MRO. 11.2. The last proposal explained by him was to tax job work service in relation to manufacture of alcoholic liquor for human consumption at the rate of 18%. He mentioned that the bottling industry currently is a 250 Crore industry in which 2/3 rd of the units are paying tax at 18% and remaining at 5%. He pointed out that this was due to two rival entries under which this can be taxed, manufacturing services on physical inputs (goods) owned by others at 18% and services by way of job work in relation to all food and food products falling under chapter 1-22 in the Customs Tariff Act at 5%. The proposal was to levy GST on the service of job work in relation to manufacture of alcoholic liquor for human consumption at the rate of 18% and bring an end to this classification dispute by inserting in the entry related to food and food products job work that it excludes alcohol and alcoholic beverages. He further stated that the rate of tax on contract manufacturing in GST was 18%. While proposing to levy GST at the rate of 5% on job work services in relation to food and food products, the Council never explicitly provided for 5% rate for job work on liquor. Furthermore, the default rate of GST on services was 18%. Further, overall, two-thirds of the units were paying GST at the rate of 18% and the rest were paying at the rate of 5%. He explained that in the Fitment Committee most of the members had agreed to the proposal. However, Tamil Nadu and Maharashtra expressed a different opinion. 11.3. The Financial Adviser to the Hon'ble Chief Minister of Punjab stated that they support the proposal on MRO with respect to the amendment in its place of supply. As regards the rate of GST to be applied on the same, as the default rate was 18%, the same may be continued. He pointed out that since ITC was allowed on the MRO services, and the airlines industry was capable of absorbing the same, a reduction in GST on MRO services will not benefit the industry as such. He proposed that the rate be fixed at 12% as this would also not have any inversion. To this, JS, TRU-II clarified that the 5% rate was proposed in consultation with the line ministry with a view to reduce the additional cash flow burden on airlines. The present proposal does not involve any change in duty presently charged under section 3(7) of the Customs Tariff Act, 1975. Domestic MRO will also get protection due to 5% tax paid under section 3(7) of the Customs Tariff Act, 1975 on most imported goods (sent abroad for repairs) as this tax is not available as credit. Particularly at this nascent stage, when we want to invite this business to India, starting with a protection rate (5% GST + 5% on import) would be preferable .He said that on merit 12% was an ideal rate with no inversion but this protection rate is something that the line ministry and the industry has desired for growth of this sector. He further pointed out that the refund outgo due to the mild inversion would be around ₹ 12.70 Crores/annum. 11.4. With respect to the job work on alcohol, the Financial Adviser to Hon'ble Chief Minister stated that they were opposed to it for the reason that alcoholic liquor for human consumption is outside the purview of GST. Therefore, the processes that amount to manufacture should not be subjected to GST and GST should be leviable only on those processes that do not amount to manufacture. In the instant case, job work for alcoholic liquor for human consumption amounted to manufacture and therefore should not be subjected to GST. 11.5. The Hon'ble Minister from Tamil Nadu stated that they welcome the Fitment committee proposal on MRO services but are opposed to the proposal to increase the rate of tax to 18% on the job work services of manufacture of alcoholic liquor for human consumption, classifying them under manufacturing services on physical inputs owned by others . This proposal has been opposed by Tamil Nadu and Maharashtra in the Fitment Committee. At present, the job work services in relation to manufacture of all food and food products is taxable at 5%. Alcoholic beverages fall well within the definition of 'food' under section 30) of the Food Safety and Standards Act, 2006 and therefore, job work services for manufacture of alcoholic liquor for human consumption is taxable at 5%. The proposed increase in tax rate will result in demands by manufacturers for increasing the MRP of alcohol or reducing the State Tax on alcohol. Further, increasing the tax rates will also further limit the manoeuvrability of the States to change State Taxes. 11.6. The Hon'ble Member from Odisha stated that the GST on job work for alcoholic liquor is not a tax on liquor but is a tax on service. He agreed with the recommendations of the Fitment Committee that liquor is not food. He said there are two systems of manufacturing liquor through bottling plant, first being by issue of license to a third party and the other where the brand owner himself does all operations of bottling. If the august house considers that liquor is food, then question of leviablity at 5% arises; else the matter is settled. 11.7. The Hon'ble Member from Andhra Pradesh stated that the proposal will impact the MRP sale price for alcoholic liquor for human consumption and the leverage of State to alter taxes on the same will go down. The Hon'ble Member from Kerala stated that alcoholic liquor for human consumption is in the exclusive domain of the States as far as taxations is concerned and that he supported the views of the Hon'ble Member from Punjab. He compared the proposal to entertainment tax, where it was understood that the states could continue with imposition of the same but effectively states had to withdraw it because the price of the tickets were pushed too high because of GST. 11.8. The Hon'ble Member from Odisha further stated that the 18% GST on service of job work will not impact the price of liquor because this depends upon the relationship between the brand owner and the contract bottling unit. Finally, the Secretary to the Council stated that if there is no unanimity then we could let the hon'ble courts take a view on whether alcohol is food or not and thus determine the rate of tax on this service. 12. For Agenda Item 4 , the Council recommended the following: - i) To increase the GST on mobile phone and parts to 18%; ii) To rationalise the GST on matches (hand-made and machine-made) to 12%; iii) To not exempt GST on Haj/Umrah Tours organised and conducted by Haj Group operators/ private tour operators iv) To defer the decision with respect to levy of IGST on Ocean freight payable by importer under reverse charge mechanism. v) To levy GST on MRO services in respect of aircraft, aircraft engines, and other components and parts at the rate 5% with full ITC and to change Place of Supply for B2B MRO services in respect of aircraft, aircraft engines, and other components and parts to location of recipient (Notification may be issued u/S 13(13) of the IGST Act. vi) To let the law take its own course in the matter of applicable GST rate on the job work service in relation to manufacture of alcoholic liquor for human consumption. vii) To take up the issue of inverted tax structure on textiles, fertilizers, footwears and others in future meetings of the Council. Agenda Item 5A : Issues recommended by the Law Committee for the consideration of the GST Council 13. The Secretary took up the next Agenda on issues recommended by the Law Committee for consideration of the Council. He started by saying that all these issues were deliberated in great detail in the Officers' meeting held on 13 th March 2020. He thereafter, asked the Principal Commissioner, GST Policy Wing, CBIC (PC, GSTPW) to give a brief overview of the deliberations in the Officers' meeting regarding the recommendations made by the Law Committee on the subject. Initiating the discussion, PC, GSTPW made a detailed presentation (annexed as Annexure 7). He stated that the first Agenda item 5A(i) was discussed in great detail in the Officers' meeting on 13.03.2020 wherein some of the States were of the view that the proposed clarification seemed to negate the advance ruling given. It was, therefore, opined by them that jurisprudence should be allowed to evolve in the matter of differing advance rulings. While some of the States did not wish to get into the legality of the issues raised, some of the other States felt that it was a matter of contractual agreement between the bottling unit and the brand owner. The Hon'ble Financial Adviser to Punjab CM had also alluded to the same in his remarks while discussing the job work service with respect to contract manufacturing of alcoholic liquor for human consumption. PC, GSTPW informed that the Officers' Committee on 13-03- 2020, therefore, had decided to defer the issue. 13.1. The next item Agenda item 5A(ii) highlighted by PC, GSTPW was the proposed circular clarifying apportionment of ITC in cases of business organization under section 18(3) of CGST Act read with rule 41(1) of CGST Rules which had been agreed to in the Officers' meeting on 13.03.2020. It was being clarified inter-alia that in case of demerger, for the purpose of apportionment of ITC, the value of assets is to be taken at the State level (at the level of distinct person) and not at the entity (all India) level. The transferor is required to file Form GST ITC-02 in those States where both transferor and transferee are registered. The total unutilized ITCs of the transferor and not the individual unutilised ITCs, is to be apportioned in the ratio of value of assets. A detailed methodology of apportionment was also shown in the proposed circular. 13.2 The next Agenda item 5A(iii) was with respect to waiver of penalty and interest on previous period due to removal of pre-import condition under Advance Authorisation scheme. PC, GSTPW stated that the current request was to exempt interest and penalty for the period 13.10.2017 to 09.10.2019. The GST law, however does not provide for any waiver of interest and the only way was to waive the pre-import condition retrospectively. He further informed that during a meeting held between the Hon'ble Finance Minister and Hon'ble Commerce and Industry Minister it was decided that the above matter will be examined and placed before the GST Council. The Law Committee, however, after deliberations had recommended to maintain status quo which had been agreed to in the Officers' Committee meeting held on 13.03.2020. 13.3 The next item taken up by the PC, GSTPW was the Agenda No. 5A (iv) relating to levy of interest under the provisions of section 50 of the CGST Act, 2017 for delay in payment of tax. He informed that Section 50 of CGST Act was amended through Finance (No.2) Act 2019 to provide for charging interest only on the tax liability net of credit available, but since some of the States were yet to pass the amendment in respective SGST Acts, this had not been notified. He further informed that the Hon'ble High Court of Madras U had passed orders stating that this was a clarificatory amendment and thus stood inserted retrospectively; High Courts of Delhi and Gujarat have stayed recovery on gross liability. PC, GSTPW informed that the said amendment was not made retrospectively and thus would apply prospectively only after notification of date of its effect. He informed that if interest was to be charged @ 18% on the gross basis from July 2017 to September 2019, the liability would come to around ₹ 46,000 crore, and if the interest was to be charged only on cash basis, it would come to around ₹ 8,800 crore. He stated that the matter was discussed in great detail in the Officers' Committee and there was an agreement that interest should be recovered on net basis only under section 50 for delayed payment since 15 th July 2017 itself i.e. retrospectively. He stated that the Council needs to take a decision whether the said amendment should be implemented the way it has been carried out i.e. once the leftover States amended their laws, notify the provision prospectively or whether this amendment should be carried out retrospectively w.e.f 01.07.2017. PC, GSTPW stated that if the Council chooses the latter option, it would require an amendment in law and it may also lead to giving refunds to those tax payers who might have paid interest on gross basis. Dy.CM of Bihar stated that he felt that it was coercion since the interest charged should be on cash part and not the credit part. Most of the tax payers did not know about this liability since they paid the late fee which was being calculated by the system and the interest was to be calculated by them on self-assessment basis. He further stated that it was only after the tax officers started attaching the bank accounts for recovery of interest liability that they came to know that the interest is to be paid on gross basis. He opined that the interest should be on net basis and this amendment should be carried out retrospectively. This opinion was seconded by the Hon'ble member from Gujarat. Tamil Nadu was of the view that levy of interest on delayed payment of taxes to be made on net cash tax liability should be given effect retrospectively from 01.07.2017. The Secretary reminded the Council that one amendment was approved by the GST Council in its 38 th Meeting and the States were requested to amend their laws. He requested all the States that the respective State laws ~\ should be amended to charge interest on net basis with retrospective effect and till then the . recovery shall also be on net basis. The Council recommended that interest should be calculated on net basis and the amendment should be done retrospectively. 13.4 Agenda No. 5A(v) was taken up next by PC, GSTPW which was regarding waiver of filing of FORM GSTR-1 by taxpayers who had availed the special composition scheme for services under notification No.2/2019-Central Tax (Rate) dated 07.03.2019. PC, GSTPW informed that this was needed to ensure that credits based on GSTR-1s of such suppliers, are not available to the buyers of goods/services from suppliers availing of the special composition scheme. He also informed that as the utility of opting in FORM CMP-02 became available to such taxpayers only on September 2019 and such taxpayers who had filed GSTR-3B in the interim were unable to opt to pay tax under the said notification. PC, GSTPW informed that this proposal was agreed to in the Officers' Committee meeting held on 13.03.2020. He informed that it would be implemented through a notification under section 148 of the CGST Act. 13.5. The next agenda item taken was Agenda No. 5A (vi). PC, GSTPW informed that this was discussed in detail in the Officers' Committee held on 13.03.2020. He stated that this proposal was with respect to filing of annual returns in FORM GSTR-9 and GSTR-9C (Reconciliation Statement) for Financial Year 2018-19. He stated that so far only 2017-18 Annual return (FORM GSTR-9) and reconciliation statement (FORM GSTR-9C) are closed. He mentioned that from GSTR-9 returns, ₹ 3,172 crore as additional tax and ₹ 575 Cr. interest thereon got collected while from GSTR-9C, only ₹ 391 crore additional tax and ₹ 81 Cr. interest got collected. PC, GSTPW stated that the GST Council in its 37 th Meeting held at Goa had made filing of GSTR-9 and GSTR-9C optional for the tax payers having aggregate turnover of less than 2 Crore. He stated that from such tax payers, appx. ₹ 580 crore tax along with interest got collected through GSTR-9 and that if this exemption was raised to a turnover of ₹ 5 crore, still 85% of money from GSTR-9 and 87% of money from GSTR-9C would have been recovered. However, increasing the threshold would reduce the compliance burden to 6,87,000 taxpayers instead of 12,42,000 taxpayers. He further informed that since the 37 th GST Council decided that this return filing by tax payers with turnover of less than ₹ 2 crore was optional, 30 lakh tax payers who were below this specified threshold still filed GSTR-9. He also informed that the compliance burden on account of GSTR-9 and 9C has been one of the biggest issues regarding GST regime. PC, GSTPW stated that this proposal was discussed at length in the officers meeting held on 13.03.2020 and there was no consensus on the issue. The Hon'ble Member from Kerala stated that certainly compliance burden would reduce but leakage will increase and the system should not be trampled in this manner. Annual return presently is the only point of check since GSTR 1 and GSTR-3B are not linked or matched. He did not think it was right to exempt 6 lakhs plus tax payers from this check point. If the system that was discussed during the presentation by Shri Nandan Nilekani was implemented, maybe then this can be dispensed with. Otherwise this is the only scrutiny of annual returns with tax payments. The Hon'ble Deputy Chief Minister of Haryana stated that under the income tax the limit is ₹ 2 crore and therefore the same limit may be kept under GST also. The Secretary to the Council stated that the limit of ₹ 2 crore in Income Tax was for getting accounts audited by Chartered Accountants. In the GST system, every month there were 2 returns and invoice level details. The proposal is aimed at reducing the compliance burden particularly on the small tax payers and these tax payers are already filing their monthly returns. They have to approach Chartered Accountants for filing their returns. One major criticism of the GST regime has been that this has increased the compliance burden (filing monthly returns, accountant fees etc.). Replying to the issue raised by Hon'ble member from Kerala that this might lead to leakages, Secretary replied that this was only for 2018-19 and if it was found that the behaviour of any of the taxpayer is doubtful then he can be directed to file the annual returns. Hon'ble Member from Kerala replied that the problem is that the burden is on the officers. Introduction of any new system requires learning by the tax payers and now that the tax payers have learnt how to work with the GST system, this move will render all the effort put in the past to nothing. The annual return is the only document to serve as a check point to check fraudulent ITC. Annual return is only the addition of individual GSTR-1s and reconciling with GSTR-3B. This did not reduce any terrible compliance burden but only undoing of all the effort put in till now. Hon'ble Member from Bihar stated that tax payers cannot file the annual returns and reconciliation statements without the help of Chartered Accountants. The turnover of ₹ 5 crore is not a big amount. To reduce the compliance burden and when the revenue implication is not huge, the benefit has to be given to the small and medium tax payers. The decision for the yea₹ 2019-2020 can be made later but for the yea₹ 2017-18 and 2018- 19, the relief to the tax payers should be given. The Hon'ble Member from Chhattisgarh enquired as to what was the merit of retaining GSTR 9 and increasing the threshold in respect of GSTR-9C. Keeping GSTR 9C at earlier limit might be desirable which was also the suggestion. PC, GSTPW replied that going forward, there was a proposal that GSTR 9 and GSTR 9C may be combined. The major cost for the tax payers comes out of the fees paid to the auditing Chartered Accountant/Cost Accountant. He informed that in fact, based on an analysis done, below ₹ 5 crore limit, the additional tax recovered from each tax payer was ₹ 13,000 per tax payer whereas the compliance cost was appx. ₹ 50,000. Tamil Nadu had supported and welcomed the ameliorative measures taken for ease of doing business by enhancing the turnover limit upto ₹ 5 crore for filing annual returns in Form GSTR-9 and reconciliation statement in Form GSTR-9C. It was finally agreed that relief be given to taxpayers below a certain threshold i.e. ₹ 5 crore for filing GSTR-9C for 2018- 19 as hardly any additional revenue accrues on account of filing of these returns. It was also decided that the due date for filing of annual return in FORM GSTR-9 and the reconciliation statement in FORM GSTR-9C be extended to 30 th June, 2020. Further, it was decided that no late fees be levied for delayed filing of the annual return and the reconciliation statement for the FY 2017-18 and 2018-19 for taxpayers with aggregate turnover less than ₹ 2 crores since in any case filing of these forms had been made optional for them. 13.6. With respect to the proposal for amendment in CGST Rules 2017 [Agenda No. 5A (vii)] it was stated by the PC, GSTPW that this had been deliberated in depth in the Officers' Committee meeting on 13.3.2020. Broadly, there was broadly consensus among the Officers . 13.7 Thereafter, the PC, GSTPW stated that the proposed amendments [Agenda No. 5A (viii)] to the CGST Act were also discussed in detail in the Officers' meeting and there was agreement in respect of amendments in section 16 and section 75 (12). He explained that it is proposed to insert an explicit condition in Section 16 to the effect that ITC on invoices or debit notes may be availed only when the details of such invoices have been furnished in the details of outward supplies by the concerned supplier. He further explained that further Section 75(12) is proposed to be amended to provide for recovery of tax on liability declared in FORM GSTR-l also so that tax can be recovered on supplies for which FORM GSTR-3B was not filed. He informed that Hon'ble High Court of Madhya Pradesh had already upheld this view. He informed that a since GSTR -1 is proposed to be linked to GSTR-3B, it was important that GSTR-ls are regularly filed by the tax payers and that these amendments would encourage the GSTR-l filing. 13.8 With respect to the proposed amendment in sections 35 /44 of the CGST Act, he informed that the proposal is to remove the requirement of filing of reconciliation statement by Chartered Accountant or Cost Accountant. Further, the reconciliation statement would not be separately required and will be merged with the Annual return and the same may be mandated for a particular class of person only. 13.9 He further stated that there was no consensus with respect to amendments proposed in sections 109/110 relating to the constitution of GST Appellate Tribunals. He mentioned that the amendments have been proposed since the Madras High Court had quashed the existing provisions on the grounds of judicial imbalance. He explained that the Tribunal Bench with one judicial and two technical members was held against the principles laid down by Courts in relation to Tribunals. Simultaneously, Hon'ble Supreme Court has, in case of Kudrat Sandhu V s. Union of India, prescribed guidelines relating to selection, qualifications etc. of the Tribunal members which would apply to Members of the GST Tribunal also. PC, GSTPW stated that accordingly, this proposal for amendment in constitution and qualifications, method of selection of members etc. was brought to the Council. He stated that this was discussed in the Officer's Meeting on 13.03.2020 in detail. The discussions were on the issues like who would be the technical member in those States which have only one Bench, proposed selection committee comprising of Supreme Court Chief Justice or any other Judge. He further stated that the suggestion from number of States was that selection Committee should be headed by the Chief Justice of concerned High Court. Hon'ble member from Chhattisgarh proposed that there can be 5 members of the tribunal, the judicial members can be 3 and out of the remaining two, one can be from the concerned State and one from Centre. Hon'ble Member from Uttarakhand mentioned that with regard to the recommendation of Law Committee regarding constitution of appellate tribunal and benches thereof, at agenda item 5A(viii), the State of Uttarakhand was of the view that rather than giving representation to either of two technical members i.e. technical member from State or Centre, to address the issue of technical members outnumbering the judicial members in the respective benches, it would be preferable to give representation to technical member from Centre, besides a President/Judicial Member in the National Bench and the regional benches and likewise to a technical member from States, besides a Judicial member in the State benches and the area benches. This would not only resolve the issue of equal representation in the respective benches but also give an assured representation to both the administration i.e. Centre and State in the GST Appellate Tribunal. Hon'ble member from Uttar Pradesh stated that it should be left to the State Government to decide what the State Government decides. Hon'ble member from Kerala stated that in case there has to be only one technical member, it has to be a technical member from State only. This was also seconded by Hon'ble Member from Odisha. Hon'ble member from Haryana stated that as suggested by Chhattisgarh, increasing the number of members would not be a problem. If there cannot be five members, there can be four members, two technical members (one from State and one from Centre) and two judicial members. There can also be a senior lawyer who can be designated as a judicial member. Tamil Nadu expressed strong reservations against the proposed amendments to sections 109 and 110 of the CGST Act with reference to the appointment of technical members in the GST Tribunals. These amendments seek to replace two technical members by one, leaving the option to choose a Central Technical member or State Technical Member to the Government of India. Tamil Nadu was of the view that the National Bench of the Appellate Tribunal and its Regional Benches may consist of Judicial Member and a Technical Member (Central) and in State Bench of the Appellate Tribunal and its Area Benches must consist of Judicial member and a Technical member (State). The Secretary stated that the background to this whole issue was that couple of months ago there was a Constitutional Bench of five judges which gave a judgment in the case of Kudrat Sandhu which set aside rules relating to various tribunals like CESTAT, ITAT. The Supreme Court gave guidelines based on which new rules were framed. Even Attorney General of India was consulted during the framing of these mentioned rules. JS, DoR explained that the judgement said that the selection cannot be done by the executive but by a committee where the judicial members should have at least equal representation as the executive, it also laid down the qualifications required. He added that in the proposal of having two members in a Bench, in case there are two benches in one State, then one bench can have a technical member from State and the other Bench can have a technical member from Centre. If there is only one bench, then the technical member can be filled on a rotational basis, once from the State and the next time from Centre so that parity can be maintained. The problem with a four-member Bench in Tribunal is that it becomes administratively difficult, due to higher number of members. Today, most of the tribunals like CAT have only two members. As the number of members increase, it also becomes difficult to reach decisions. Hon'ble member from Delhi did not support the idea of rotation. Hon'ble member from Chhattisgarh stated that judicial majority may be maintained but one technical member from State should be present and the State should not be ruled out since the proposed amendment to Sections 109/110 says Technical Member (Centre) or Technical Member (State). Chairperson replied that the intention was not to rule out the State but only to keep parity. JS, DoR added that in case there are four benches in one State, two benches can have Technical Members from State concerned and two Technical Members can be from Centre. The Secretary added that for tribunals like ITAT, CESTAT etc, as per the Kudrat Sandhu judgement, the selection panel was to be headed by a Supreme Court judge and getting an appropriate judicial member is a challenge since availability and numbers of judicial members is difficult. GSTA T is one Appellate Tribunal having benches in various States and therefore, the selection has to be done by a Supreme Court Judge who has to be nominated by the Chief Justice of the Supreme Court. Filling up the judicial member posts in other tribunals where the number and benches are less compared to the proposed structure in GST, is already difficult, Hon'ble member from Gujarat also supported this view that even filling up the posts reserved for High Court judges is difficult. Hon'ble member from Bihar also supported the idea of rotation of technical members. Hon'ble Member from Delhi stated that at National and Regional level the technical member can be from Centre and at the State level, the technical member should be from State. JS, DoR stated that even at the State level, the bench constituted would be the State bench of the National Tribunal (GSTA T) and therefore the proposed system of rotation of technical members. The Secretary stated that there is only one National Appellate Authority with benches at various places like CAT which has only one President with benches in various States. Chief Commissioner, State tax, Gujarat mentioned that this was debated in the Officer's Meeting on 13.03.2020 and this debate is resulting in delaying the decision and cases are piling up. This issue had to be resolved. He stated that the Supreme Court judgement states two things (a) any member, especially judicial member cannot be appointed by the executive and judiciary has to be involved in the appointment process, (b) judicial members cannot be in minority in a bench. He suggested a formulation that since this is a National Tribunal; the Central branch at Delhi will decide only the Place of Supply issues and rest will be taken by State Benches in different States with more than one bench in a State/place as per requirement. The two issues that have to be decided are (i) What should be the composition of the bench (ii) Selection Committee. Regarding the first issue he submitted that, for bigger States with huge businesses, more than one Bench is required. If there are four members who are posted in one place then it need not mean that all four will be adjudicating on the same bench, and on the same issue. The Business Rules may be framed to have two members, one judicial and one technical in one bench the size may be varied to include more, and for smaller States/ for smaller benches with an odd number of technical members, then the first opportunity should be given to the State to fill and then on rotation basis, technical member from Centre may occupy. Coming to the issue of Selection, as rightly proposed the judicial members have to be selected by Judiciary. If a panel makes a selection of a judicial member to the Tribunal, the same panel might also have to select the technical member as well which needs to be examined. Except for National Level Bench, for the selection to a State Level Bench, if there could be a committee at the State level with the Chief Justice of the concerned High Court instead of the judge of Supreme Court, then the issue can be resolved. Hon'ble Member from Haryana stated that technical member from Centre was required to complete 20 years of Group A service and technical member from State was required to complete 25 years of service. Haryana had an age limit of 40 years to get into the service and therefore, will have very few qualified people. He requested that this limit may be brought down to 20 years. Finally, the Chairperson to the Council stated that the matter needed detailed examination which will be done before a final view is placed before the Council. 13.10 Coming to the proposed amendment to Section 16 of IGST Act, PC GSTPW explained that this proposal was to prescribe LUT route as the default route for Zero rated supply of goods or services i.e. without payment of IGST. Till the time amendment was made, exemption of IGST in case where place of supply is outside India, may be considered. He further explained that it is, however, proposed to provide that the Government may notify a class of suppliers or supplies where the zero rated supply could be made on payment of IGST. He also stated that currently both the routes do not lead to same quantum of refund like refund of ITC on Capital goods was not allowed yet. He stated that the same will be discussed in Law Committee later so as to provide full zero rating to the exporters. PC, GSTPW informed that another proposed change in Section 16 of the IGST Act, 2017 was that zero rating of supplies made to a SEZ developer / unit be restricted only to such supplies which are meant for authorized operations only (and not all operations as it is today). He further explained that yet another change proposed in the same section was to make realisation of foreign exchange remittances in case of export of goods within the time period prescribed under Foreign Exchange Management Act (FEMA), 1999 a condition for benefit of refund i.e. the refund given on zero rated supplies will need to be returned back by the exporter if the remittances are not realised within the prescribed time limits. Principal Commissioner, GSTPW explained that this would address the issue of any fake exports or overvalued exports. 13.11. With respect to amendments proposed under section 151 and 152, Commissioner, Commercial Taxes, Tamil Nadu desired that Section 151 in its existing form may be retained for the purposes of collection of statistics while a new section 151A may be inserted to capture the intent of this proposal. The PC, GSTPW submitted that the suggestions from CCT, Tamil Nadu will be taken into consideration, and will be finalised in consultation with the Union Law Ministry. 13.12. The remaining proposed amendments to the GST Act have been discussed as part of Table Agenda items 11(iv) and II(viii). 13.13. With respect to the next Agenda item [5A (ix)] on 'Know Your Supplier' and Information Return [Agenda Item 5 (x)] PC, GSTPW informed the Council that the same had been agreed to in the Officers' meeting held on 13.03.2020. He explained that as a Trade Facilitation measure, a new facility called 'Know Your Supplier' is proposed which would enable every Registered person to have some basic information about the supplier with whom they conduct or proposed to conduct business. He further stated that many a times, the recipients have claimed that they did not know the credentials of the suppler and the transactions done were done in good faith. PC, GSTPW stated that in the proposed scheme of 'Know your Supplier , on entering the supplier's PAN/GSTIN, requisite information about the supplier would become available to any registered person, based on which a reasonable judgement can be made whether to transact with such parties or not. 13.14. As regards the proposal relating to [Agenda item 5A(x)] notification of NPCI, TRANSUNION CIBIL LIMITED and AMPI under Section 150(1)(P) of the CGST Act, 2017, PC, GSTPW explained that the same would enable the GST Authorities to get regular data from them in the prescribed format. He explained that further as recommended in the 2 nd National GST Conference, information returns are also proposed from banks in the prescribed format. 13.15 With respect to Agenda item No. 5A (xi) for enabling Aadhaar based authentication of the registered persons PC, GSTPW stated that the proposed amendments relate only to new taxpayers since the date of implementation of authentication process for existing taxpayers was awaited from GSTN/lnfosys. He informed that the Budget for 2019-2020 provided for Aadhar based authentication of persons seeking GST registration. He stated that the GSTN was still developing the utility and roll out for new tax payers can be done in April 2020 and accordingly, those rules were proposed to be notified. Hon'ble Member from Bihar enquired as to what was the difficulty in authentication the existing tax payer using Aadhaar. Since most of the tax payers were the existing tax payers and new tax payers had already become alert with regard to fraudulent activity, authenticating only the new tax payers may not be of much help. The Secretary replied that Infosys was told much earlier to authenticate both the categories but they replied that for new tax payers, the roll out can happen from April 2020 and longer timelines were given for existing tax payers. There is also another Table Agenda to seek in principle approval of the Council to give additional man power to GSTN. His proposal was that the timeline given by Infosys in the presentation earlier in the meeting regarding authentication of existing tax payers with Aadhaar, linking GSTR-l with GSTR-3B, GSTR-2A to GGSTR-3B, Spike Rules should be modified to make activities completed by end of July. For this purpose, if additional manpower and any other support is required, they should be provided with it. He mentioned that the Chairperson had told Infosys that their proposals would be discussed with the Council and the decision would be communicated to them. The Chairperson stated that the timeline given by Infosys that these proposals would be rolled out by January 2021 was not reasonable given that they will be provided with additional manpower and other resources. She felt that it would be proper to set the deadline as July 2020 instead of January 2021. This also provided for some time for the system to settle down. Hon'ble member from Bihar enquired whether Aadhaar authentication was mandatory for refunds. The Secretary replied that wherever Aadhaar had been made mandatory like LPG subsidy, scholarship etc. as per Supreme Court Judgement, some exceptions have to be made for persons without Aadhaar, they will be subjected to further due diligence. The authorities will be empowered by law to authenticate using Aadhaar and in case the person does not have/provide, alternative verifications will be made. The Chairperson mentioned that RBI Rules provide for Other Valid Identity (OVI). Some banks in Assam had shut down Jan Dhan accounts of Chai Bagan workers since they could not provide Aadhaar for authentication. Direct Benefit Transfer (DBT) was not possible without Jan Dhan accounts. OVI can include voter identity card or any such identity proofs. The Secretary mentioned at as per the proposal in this Agenda Item, the proviso to Section 25(6A) says that 'if an Aadhaar number is not assigned to the registered person, such person shall be offered alternate and viable means of identification in such manner as Government may, on the recommendations of the Council, prescribe'. CEO, GSTN added that for the new tax payers, the module has been built and tested. They were now working on the field visit/ those who don't provide Aadhaar. The application for the authentication of the existing tax payers was being built. In the meantime, there were 1.64 crore persons in the GST system who were promoters, authorized signatory etc. Their Aadhaar seeding statuses in bank accounts were taken from CBDT. 13.16 With respect to the Agenda item No. 5A (xii) for issuance of clarification in respect of appeal in regard to non-constitution of Appellate Tribunal it was conveyed by PC, GSTPW that it was being clarified by way of a proposed circular that the limitation for filing an appeal in the Appellate Tribunal would begin from the date the said tribunal is constituted which was based on Removal of Difficulties Order dated 03.12.2019 issued by the Government on the recommendations of the Council. The PC, GSTPW then took up Agenda Item 5A(xiii) and stated that based on discussions in law committee, core group meetings and consultations with GSTN following was proposed with regard to the e -invoice scheme: a. Certain class of taxpayers like an insurance company or a banking company, a financial institution, non-banking financial institution, GTA, passenger transportation service providers as IRCTC referred in sub rule (2), (3), (4) and (4A) of rule 54 of CGST Rules, 2017 may be exempted from requirement of e-invoicing; b. Amendment of rule 48 to exclude credit note, debit note, export invoice, lSD, self-invoice under section 31 (3)(f) of CGST Act, 2017 in case of RCM supplies etc. for the purpose of obtaining Invoice Reference Number (IRN); c. Date of implementation of e-invoicing may be extended to 1 st October, 2020 for the taxpayers whose aggregate turnover in a financial year exceeded one hundred crore rupees only. 13.17. He informed that the proposal had been agreed to in the officers meeting held on 13 March 2020. Similarly, with respect to Agenda 5A(xiv) the Council agreed to defer the implementation of QR code on B2C invoices to 1 st October, 2020 and also exempt certain class of taxpayers like insurance or a banking company, financial institutions, non-banking financial institutions, GTA, passenger transportation service providers as IRCTC referred to in sub rule (2),(3),(4) and (4A) of rule 54 of CGST Rules, 2017 and OIDAR service providers, from capturing dynamic QR. Further, PC, GSTPW informed that the NPCI would be invited for the next meeting of the GST Council so that they can present their roadmap for introducing QR code for B2C invoices. 13.18. The next Agenda item No. 5A(xv)pertaining to extension of due dates for filing FORM GSTR-1, GSTR-3B, and GSR-7 for the month of January 2020 in respect of the Union Territory of Ladakh to 31 st March, 2020 was agreed. Member from J K requested the Chairperson to allow similar extension for all returns to be filed by taxpayers in J K for the period July 2019 to February 2020, till 24 th March 2020 so that revenue can be realised in the current financial year. The same was also agreed. 13.19. Further, the Agenda item No. 5A(xvi) proposing for continuation of the current system of staggered returns in Form GSTR-3B and GSTR-1 for 6 months till September 2020 was also agreed in view of the proposed linking of GSTR 3B-GSTR 1 as presented by Infosys as part of the transition plan to new return system. 13.20. The next Agenda item 5A(xvii) was for prescribing a special procedure for the newly merged UTs of Dadra Nagar Haveli and Daman Diu, the transition for which would be completed by 31 st May, 2020. PC, GSTPW informed that the same was agreed to in the Officers' meeting held on 13.03.2020. The next Agenda 5A (xviii), for extending the time limit to finalise the e-wallet scheme upto 31.03.2021 and extending the existing exemptions from IGST and cess on the imports made under AA/EPCG/EOU schemes upto 31.03.2021, was also approved. 13.21 In respect of Agenda Item 5B, the deliberations recommendations of the Law Committee, in the matter of representation by Construction Federation of India on the orders of the Hon'ble High Court of Delhi dated 31.5.2019 in writ petition No. 6536 of 2019 by M/s. Hindustan Construction Company Ltd., were placed before the Council. The GST Council took note of the same. 14. For Agenda item 5A , the Council approved:- i. to defer the issue related to taxability of' economic surplus' earned by brand owners of alcoholic liquor for human consumption; ii. the circular clarifying challenges faced in apportionment of ITC in cases of business reorganization under section 18(3) of CGST Act read with rule 41(1) of CGST Rules; iii. not to exempt interest and penalty for the period from 13.10.2017 to 09.10.2019 for imports under advance authorization scheme; iv. to levy interest on net basis under provisions of section 50 of the CGST Act for delayed payment of tax (retrospectively w.e.f. 1 st July, 2017), and to carry out necessary amendments in law for the same; v. waiver of filing of FORM GSTR-1 by taxpayers who have availed the special composition scheme under notification No. 2/2019-Central Tax (Rate) dated 07.03.2019 and to give effect to such waiver by issue of notification under section 148 of the CGST Act; vi. to give relief to taxpayers having threshold of less than ₹ 5 crores from filing GSTR-9C for FY 2018-19, to extend the due date for filing of annual return in FORM GSTR-9 and the reconciliation statement in FORM GSTR-9C for FY 2018- 19 from 31st March, 2020 to 30 th June, 2020 and that no late fees be levied for delayed filing of the annual return and the reconciliation statement for the FY 2017- 18 and 2018-19 for taxpayers with aggregate turnover less than ₹ 2 crores; vii. the amendments proposed in Rules 92, 96 and 96B and concomitantly in FORM GST RFD-01 and in principally approved the amendments proposed in Rules 43, 86 and 89also; viii. the amendments proposed in Sections 16,35,44,75(12),83, and sections 151 and 152; amendments proposed in sections 109/110 relating to constitution of GST Appellate Tribunal were not approved and it was decided to refer the several principles laid down in the case of Kudrat Sandhu vs. UOI before finalization; ix. The new facility of 'Know Your Supplier' to enable every Registered person to have some basic information about the supplier with whom they conduct or proposed to conduct business.; x. Information Return notification of NPCI, TRANSUNION CIBIL LIMITED, AMFI and banks to enable the GST Department to seek data from them in the prescribed format; xi. notification/ rule for enabling AADHAR based authentication in GST w.e.f. 01.04.2020 only for new taxpayers as date for existing taxpayers is yet to be decided; xii. the circular clarifying that the period of limitation for filing an appeal in the Appellate Tribunal would begin from the date the said tribunal is constituted; xiii. the extension in date of implementation of e-invoicing by six months (i.e. e-invoicing will be implemented from 01.10.2020) and to exempt certain class of taxpayers like insurance or a banking company, financial institutions, non-banking financial institutions, GTA, passenger transportation service providers as IRCTC referred to in sub rule (2), (3), (4) and (4A) of rule 54 of CGST Rules, 2017 from implementing e-invoicing; xiv. to defer the implementation of QR code on B2C invoices to 1 st October, 2020 and also exempt certain class of taxpayers like insurance or a banking company, financial institutions, non-banking financial institutions, GT A, passenger transportation service providers as IRCTC referred to in sub rule (2), (3), (4) and (4A) of rule 54 of CGST Rules, 2017 and OIDAR service providers from capturing dynamic QR code on their invoices; xv. extend due dates for filing FORM GSTR-1, GSTR-3B, and GSR-7 for the month of July 2019 to January 2020 in respect of the Union Territory of Ladakh to 24 th March, 2020; xvi. to continue the existing system of furnishing FORM GSTR-1 and FORM GSTR- 3B till the month of September, 2020; xvii. special procedure under GST for the merger of UTs of Dadra Nagar Haveli and Daman Diu, the transition for which would be completed by 31 st May, 2020; xviii. to extend the time limit to finalise the e-wallet scheme upto 31.03.2021 and to extend the existing exemptions from IGST and cess on the imports made under AA/EPCG/EOU schemes upto 31.03.2021 14.1. For Agenda item 5B , the Council took note of, the deliberations agreed to the recommendations of the Law Committee, in the matter of representation by Construction Federation of India on the orders of the Hon'ble High Court of Delhi dated 31.5.2019 in writ petition No. 6536 of 2019 by M/s. Hindustan Construction Company Ltd. Agenda Item 6: Creation of the State and Area Benches of the Goods and Services Tax Appellate Tribunal (GSTAT) for the State of Uttar Pradesh 15. The Secretary introduced the agenda and stated that in terms of Section 109 of the CGST Act, 2017; Goods and Services Tax Appellate Tribunal (GSTAT) were being constituted by the Government on the recommendation of the GST Council. The Appellate Tribunal having National / Regional Benches at National level and the State / Area Benches at State level, to hear appeals against orders passed by the Appellate Authority or by the Revisional Authority. (Enclosed in Agenda circulated for reference). 15.1. While the proposal of states and UTs for creation of State and Area Benches of Goods and Services Tax Appellate Tribunal was considered in the 35 th and 37 th meeting of the GST Council, the proposal for the State of Uttar Pradesh could not be considered as the Hon'ble High Court of Allahabad, Lucknow Bench had quashed the proposal of State Government for setting up of State Bench in Allahabad and 4 Area Benches in Ghaziabad, Lucknow, Varanasi and Agra. The Department of Revenue had proposed to file SLP against the said judgment of the Allahabad high Court, Lucknow Bench. 15.2. Hon'ble High Court of Allahabad vide its judgement dated 16.01.2020 in Writ Tax No. 942 of 2018 had inter-alia directed that the issue of creation of GSTAT Benches for the state of Uttar Pradesh be taken up by the Central Government as well as the GST Council, as expeditiously as possible. 15.3. Accordingly, proposal for creating State Bench of Good and Services Tax Appellate Tribunal for the State of Uttar Pradesh in Allahabad and 4 Area Benches in Ghaziabad, Lucknow, Varanasi and Agra was placed before GST Council for consideration. 16. For Agenda item 6 , the Council approved the proposal for creating State Bench of Good and Services Tax Appellate Tribunal for the State of Uttar Pradesh at Allahabad and 4 Area Benches at Ghaziabad, Lucknow, Varanasi and Agra. Agenda Item 7: Quarterly Report of the NAA (National Anti-profiteering Authority) for the quarter October to December 2019 for the information of the Council 17. The Secretary introduced the Agenda item pertaining to various issues related to the National Anti-profiteering Authority (NAA) and placed the quarterly performance report of National Anti-profiteering Authority along with performance reports of DGAP, Screening Committee and State Level Screening Committee for the 3 rd quarter (September, 2019 to December, 2019) of the financial year 2019-20 before the Council for information. 17.1. In terms of provisions of clause (iv) of Rule 127 of the CGST Rules 2017, National Anti- Profiteering Authority (NAA) was required to furnish a performance report to the GST Council by 10 th of the closing of each quarter. Anti-profiteering provisions are contained under Section 171 of the CGST Act, 2017 which empowered NAA to determine as to whether benefit of reduced rate of tax or the Input Tax Credit (ITC) had been passed on to the recipient by way of commensurate reduction in the prices and in case of failure, NAA might order reduction in prices, commensurate benefit to recipient, impose penalty and cancel registration, in suitable cases. 17.2. The performance report of National Anti-profiteering for the 3 rd quarter ending December, 2019 of Financial Year 2019-20 was as under: Performance of National Anti-Profiteering Authority : Op. Balance No. of Investigation Reports received from DGAP during the quarter Disposal of Cases (during Quarter) Closing Balance Total Disposal during quarter No. of cases Where Profiteering established No. of cases Where Profiteering not established No. of cases referred back to DGAP 84 36 46 31 02 13 74 18. For Agenda item 7 , the GST Council took note of the performance of the National Anti-profiteering Authority for the 3rd quarter September, 2019 to December, 2019. Agenda Item 8: Deemed ratification by the GST Council of Notifications, Circulars and Orders issued by the Central Government 19. The Secretary asked Principal Commissioner, GST Policy Wing, CBIC to place the agenda before the Council. The PC, GSTPW, CBIC stated that in the 38 th Meeting held on 18.12.2019, the Council had ratified all the notifications, circulars and orders issued before 14 th December, 2019. He thereafter made a presentation (attached as Annexure 8) listing out all the notifications, rate and non-rate, of CGST, UTGST, IGST and Compensation Cess, Circulars and removal of difficulty orders issued after 14.12.2019 till 08.03.2020, under the GST Laws by the Central Government as available on www.cbic.gov.in . 20. For Agenda Item 8 , the Council granted deemed ratifications to the notifications, circulars and Orders as in agenda item and the presentation (attached as Annexure 8) made during the Council Meeting, which are available on www.cbic.gov.in Act / Rules Type Notification/Circular/Order Nos CGST Act/CGST Rules Central Tax 73 of 2019 to 8 of 2020 Central Tax (Rate) 27 of 2019 to 01 of 2020 UTGST Act Union Territory Tax (Rate) 27 of 2019 to 01 of 2020 IGST Act Integrated Tax 01 of 2020 Integrated Tax (Rate) 26 of 2019 to 01 of 2020 Circulars Under CGST Act, 2017 128 of 2019 to 131 of 2020 ROD Orders Under CGST Act, 2017 100 of 2019 Orders Under CGST Act, 2017 01 of 2020 20.1. The notifications, Circulars and Orders issued by the States which are pari materia with above notifications, Circulars and Orders were also deemed to have been ratified. Agenda Item 9: Decisions of the GST Implementation Committee (GIC) for information of the Council 21. The Secretary asked Principal Commissioner, GST Policy Wing, CBIC to present the Agenda before the Council. Thereafter, PC, GSTPW, CBIC stated that the GST Implementation Committee (GIC) took decisions between 19.12.2019 and 13.03.2020. Further, due to the urgency involved, certain decisions were taken by GIC after obtaining approval amongst GIC Members by circulation. Thereafter, he made a presentation (attached as Annexure 8 ) on the decisions taken by Members of the GIC post 38 th GST Council Meeting. 22. For Agenda item 9 , the Council took note of the decisions of the GST Implementation Committee between 19.12.2019 and 13.03.2020. Agenda Item 10: Decisions/recommendations of the 9 th and 10 th IT Grievance Redressal Committee for information of the Council 23. Introducing this Agenda item, the Secretary requested Shri Dheeraj Rastogi, JS, GST Council to apprise the Council of the issue. JS, GSTC stated that after the 38 th GST Council meeting two meetings of the ITGRC were held, the 9 th ITGRC on 2 nd December 2019 and the 10 th on 22 nd January 2020 to resolve grievance of the taxpayers arising out of technical and non-technical issues. (Minutes of the Meeting attached as Annexure A of this agenda Item). The gist of the proceedings of the 9 th and 10 th ITGRC, as per Agenda Item was as follows: 9th IT GRC Meeting 02 nd December 2019 23.1. Ninth meeting of the IT grievance Redressal Committee (ITGRC) was held on 02 nd December 2019 to resolve grievance of the taxpayers arising out of technical and nontechnical issues. (Minutes of the 9th Meeting of the ITGRC was attached as Annexure X of the agenda Item 10). There were total 4 Agenda items placed before the 9 th ITGRC, as follows: a. In Agenda 1 , total 279 cases of TRAN-1/TRAN-2/TRAN-3 had been examined by GSTN and presented before the committee. Out of these, 256 cases were sent by Nodal officers and 23 were court cases. b. In Agenda 2 , in pursuance of decision in 32 nd GST Council Meeting, regarding extended scope of ITGRC, GST Council Secretariat had received another 28 cases in response to extended scope of ITGRC and analysis of these cases was also presented before the committee. c. In Agenda 3 , in accordance with the mechanism/process approved in 8th ITGRC that ITGRC would take up the non-technical cases identified as 'Category A cases' in Annexure 3 of 6th ITGRC and Agenda 3 of the 8th ITGRC. Out of these Category A cases of 6th and 8th ITGRC, three cases which appeared in subcategory Al of the Annexure 3 of 6 th ITGRC were placed before the committee as table agenda. Additionally, the case of M/s Shiv Vanijya was also received just before the scheduled time of the 9th ITGRC Meeting. Hence, it was also included in the table agenda. d. In Agenda 4 , As per Hon'ble High Court of Delhi order dated 28.11.2019 in WPC 9575/2017 and CM No 38987/2017 filed by Sales Tax Bar Association (STBA), Constitution of Public Grievance Committees (PGC) at local and Commissionerate level had to be done. After detailed discussion, the 9 th ITGRC decided and recommended as under: - Recommendation for Agenda 1: In respect of TRAN-1 cases: 1. To Allow 25 cases of TRAN-1 pertaining to Subcategories A1 and A3 of technical glitch as per Annexures indicated in column No. 3 and 4 of Table 2 of Minutes for filing of TRAN /TRAN 2 in accordance with the Law Committee recommendations regarding consequential benefits related to filing of TRAN 1 and TRAN 2. ii. To Allow GSTN to withdraw 07 cases of Subcategory A2 and A4 as mentioned in Table 2 of Minutes without any decision and directed GSTN to present the same in the next ITGRC Meeting. iii. Not to Allow remaining 63 cases of TRAN-1 pertaining to Category 'B' as per Annexures indicated in column No.3 and 4 of Table-3 of Minutes in absence of any evidence of technical/system errors in these cases, as was decided in similar cases in past eight IT -GRC meetings. In respect of TRAN-2 cases: i. To allow 47 cases of TRAN-2 pertaining to Subcategories A1 and A3 of technical glitch as per Annexures indicated in column No. 3 and 4 of Table 4 of Minutes; for filing of TRAN 2 in accordance with the Law Committee recommendations regarding consequential benefits related to filing of TRAN- 2. ii. To allow GSTN to withdraw 02 cases of Subcategory A2 as mentioned in Table 4 of Minutes without any decision and directed GSTN to present the same in the next ITGRC Meeting. iii. Not to Allow remaining 113 cases of TRAN-2 pertaining to Category 'B' as per Annexures indicated in column No.3 and 4 ofTable-5 of Minutes in absence of any evidence of technical/system errors in these cases, as was decided in similar cases in past eight IT -GRC meetings. iv. To allow GSTN to withdraw 04 cases (which were approved earlier in 2nd ITGRC) so as to re-examine in detaiI and present in next ITGRC with detailed comments. In respect of TRAN-3 cases: i. Not to allow 18 cases of TRAN-3 listed as per Annexure-4 of the Minutes to avoid any unwanted tinkering with the GST portal. Recommendation for Agenda 2 i. To Allow reopening of portal for 08 cases of Subcategory A1 (Annexure 5 to the Minutes) as per Extended Scope of ITGRC decided in 32 nd GST Council Meeting and subsequently the mechanism/process approved in 8 th ITGRC. ii. Not to allow re-opening of portal for Category A2 (04 cases), A3 (01 case), A4 (05 case) (total 10 cases) as the criteria's laid down by 32 nd GST Council Meeting were not fulfilled. However, jurisdictional Commissioners of States/CBIC could resubmit appropriate cases to ITGRC after correcting the deficiencies as discussed or take any other remedial steps as per law. iii. Cases of Category B2 (03 cases) and D (01 cases ) (total 04 cases ), having reported technical error or were not fulfilling parameters as recommended by 32 nd GST Council were recommended for forwarding to GSTN for further analysis in terms of circular dated 03.04.2018 and placing before the next meeting of ITGRC, if found fit. iv. Cases at Category B3 (04 cases) had been presented in the 1 st to 8 th ITGRC v. and recommended by ITGRC, hence no action required. Cases at Category C (02 cases) had been presented in the 1 st to 8 th ITGRC but not recommended by ITGRC and now again forwarded by CGST/SGST tax authorities without recommendation , hence Committee directed that State/CBIC tax authorities be asked to re-examine these cases, if required, and forward, only if they fulfil, the parameters/conditions as decided in 32 nd GST Council Meeting. Recommendation for Agenda 3: Allowed reopening of portal for 04 cases of Agenda 3 also as per extended scope of ITGRC decided in 32nd GST Council Meeting and subsequently the mechanism/process approved in 8th ITGRC. Recommendation for Agenda 4: Recommend that GST Policy Wing and GSTN may jointly prepare a suitable agenda and place before the ensuing GST Council to comply the order of Hon'ble Court. 10 th IT GRC Meeting - 22nd January 2020 23.2. Tenth meeting of the IT grievance Redressal Committee (IT-GRC) was held on 22 nd January 2020 to resolve grievance of the taxpayers arising out of technical and non-technical issues. (Minutes of the Meeting attached as Annexure Y of the agenda Item). There were total 2 Agenda items placed before the 9 th ITGRC, as follows: a. In Agenda 1 , Total 63 cases of TRAN-1 (18 Cases) /TRAN-2 (45 Cases) had been examined by GSTN and presented before the committee. Out of these, 50 cases were sent by Nodal officers and 13 were court cases. b. In Agenda 2 , In pursuance of decision in 32 nd GST Council Meeting, regarding extended scope of ITGRC, GST Council Secretariat had received another 04 cases in response to extended scope of ITGRC and analysis of these cases was also presented before the committee. 23.3. After detailed discussion, the 10 th ITGRC decided and recommended as under: - Recommendation for Agenda 1; Pertaining to technical glitches in filing TRAN-1 TRAN-2 cases. In respect of TRAN-1 (18 Cases); the ITGRC recommended i. To allow 08 cases of TRAN-1 pertaining to Subcategories AI, A2 and A4 of technical glitch as per Annexures indicated in column No.3 and 4 of Table 2 of Minutes for filing of TRAN 1/TRAN 2 in accordance with the Law Committee recommendations regarding consequential benefits related to filing of TRAN 1 and TRAN 2. ii. Not to allow remaining 10 cases of TRAN-1 pertaining to Category 'B' (Subcategories B1, B2 and B5) as per Annexures indicated in column No.3 and 4 of Table-3 of Minutes in absence of any evidence of technical/system errors in these cases, as was decided in similar cases in past nine IT -GRC meetings. In respect of TRAN-2 (45 Cases); the ITGRC recommended i. To allow 03 cases of TRAN-2 pertaining to Subcategories A2 and A3 of technical glitch as per Annexures indicated in column No.3 and 4 of Table 4 of Minutes for filing of TRAN 2 in accordance with the Law Committee recommendations regarding consequential benefits related to filing of TRAN 2. ii. Not to allow remaining 42 cases of TRAN-2 pertaining to Category 'B' (Subcategories B3, B5, B7, B9, B10) as per Annexures indicated in column No.3 and 4 of Table-S of Minutes in absence of any evidence of technical/system errors in these cases, as was decided in similar cases in past nine IT -GRC meetings. Recommendation for Agenda 2 (04 cases); ITGRC recommended 1. To allow reopening of portal for 02 cases of Subcategory A 1 (Annexure 6) as per Extended Scope of ITGRC decided in 32nd GST Council Meeting and subsequently the mechanism/process approved in 8th ITGRC. ii. To defer the 01 case of Subcategory A2 (Annexure 6) and it was recommended to send back to jurisdictional Commissionerate, CBIC and GSTN for resubmission with proper and full details along with the views of CBIC. It was also suggested by the committee that other cases of similar nature may also be sent back to jurisdictional Commissionerate/States for proper details and similar verifications as discussed at para 17.2.2 of Minutes. iii. To defer the 01 case of Subcategory A4 (Annexure 6) and it was recommended to send it back to the jurisdictional Commissionerate/State for proper and full details of High Court order as required under the extended scope of ITGRC or take any other remedial steps as per law. 23.4. The decisions/recommendations as per attached Minutes of the 9 th and 10 th ITGRC were placed for information of the Council. 24. For Agenda item 10 , the Council took note of the decisions/recommendations of the 9th and loth Meeting of the IT Grievance Redressal Committee. Agenda Item 11: Any other Agenda item with the permission of the Chairperson 25. Introducing this Agenda item, the Secretary stated that there are 12 Table Agendas to be taken up for discussion and asked the Principal Commissioner, GST Policy Wing to initiate the discussion. 25.1 The Table Agenda 11(i) with respect to the Lottery scheme for B2C supplies was discussed in the Officers' meeting on 13.03.2020. At the outset, PC, GSTPW stated that the objective was to expand the tax base so as to include the last mile value addition in GST, which was considerable. The Hon'ble Deputy Chief Minister of Delhi felt that the scope of the scheme should be broadened and should not be restricted only to digital payments. He also felt that it should be made State-specific. He said that their scheme of Bill Banao Inaam Pao of the Delhi government in the VAT era was hugely successful. It was, therefore, decided to defer this proposal for further detailed examination. 25.2. PC, GSTPW explained that amendments in the existing refund circular 18.11.2019 under Table Agenda item 11(ii) had been agreed to in the Officers' meeting which included the following: i. No refund of accumulated ITC on account of reduction in GST Rate ii. Refund of unutilized ITC to be restricted to the ITC available in GSTR-2A of the relevant period iii. Provision for providing HSN/SAC Code in the statement of invoices to be furnished with the refund of unutilized lTC, wherever applicable iv. Clubbing of Financial Years for filing refund v. Manner of calculation of refund, in cases of refund of tax provided at S. No. (i) to (I) of para 3 of Circular No. 125/44/2019-GST dated 18.11.2019. 25.3 As regards Table Agenda item 11(iii), the PC, GSTPW informed the Council that he had given a detailed presentation in the Officers meeting held on 13th March 2020. He again explained proposal of Spike Rule for curbing fake invoicing and fraudulent passing of ITC to the Council. PC, GSTPW informed that it was proposed that physical verification of premises and Financial KYC of persons wanting to obtain registration may be made compulsory. The same may be required to be completed before obtaining the registration or within six months of obtaining the registration. In case a person opts to get his verification done within six months of obtaining the registration, he would get it in the same manner as currently provided but it is proposed to put restriction on the quantum of ITC that can be passed by such a registered person. He explained that the proposed restriction is to the extent of rupees 3 lakhs ITC per month. He further explained that proposal is to allow him to pass on the additional lTC, beyond the limit set, on deposit of 20% of additional amount proposed to be passed in cash ledger. Further, it is proposed that no refund would be allowed to taxpayers for the period during which the verification / KYC had not been completed. PC, GSTPW further explained that the taxpayer on his own may also opt for a full financial KYC and physical verification of premises and such restrictions and limitations shall cease to apply after positive verification. The Council agreed to the Spike Rule proposal in principle and directed that finer modalities may be finalized by the GST Policy Wing in consultation with the GSTN in due course of time. 25.4. Introducing the Table Agenda Item 11(iv) relating to the proposed amendments to the GST Act, PC GSTPW stated that it is proposed to amend Section 83 of CGST Act to remove the ambiguity arising out of interpretation of the phrase during the pendency of proceedings in Section 83. He informed that various High Courts have taken a view that in case of attachment of property pursuant to a search under section 67 of the Act, its present form section 83 empowers attachment only till the time search is completed and that such attachment cannot continue during the period of investigation. PC, GSTPW stated that it was proposed to amend Section 83 to provide for provisional attachment where proceedings under Chapter XII, Chapter XIV or Chapter XV had been initiated. He further explained that currently, this power was with the Commissioner but that several States had requested that since there is only one Commissioner, this power should be delegated to an officer authorized who is not below a certain rank. Hon'ble member from Bihar enquired about the change in the power of attachment in this amendment. PC, GSTPW replied that language correction in the provision had to be made since regarding the phrase during the pendency of proceedings in Section 83, the Courts had held that once the officer enters the premises, the search operation begins and the attachment can continue till the search operation is completed. This defeated the very purpose of attachment. The proposal was that attachment could continue till the time the demand got decided or one year, whichever was earlier. Hon'ble Member from Bihar stated that the delegation should not be done to lower levels beyond a point to prevent misuse of the power. The Chairperson mentioned that it could be one rank below the Commissioner i.e. Joint Commissioner. PC, GSTPW further explained that the current provisions allow the attachment of property of only the taxable person and that the proposed amendment is to allow attachment of property of the beneficiary (mastermind) also since in most of the cases of fake invoices specially, the registered taxable person hardly has any assets. The draft of the amendment will be finalized with the consultation of Union Law Ministry. Other proposed amendments as part of Table Agenda 11(iv) related to amendments in Section 129 Section 130 and consequently in section 74 and section 107 of the CGST Act. PC, GSTPW explained that it was proposed to delink the transit check section 129 from other provisions as similar provisions existed in same form in VAT era also and further that these amendments were presented in the Officers Meeting and agreed to. 25.5. PC, GSTPW further presented the proposal contained in Table Agenda Item 11(v) to issue notification and circular clarifying issues related to corporate debtors under the provisions of the Insolvency and Bankruptcy Code, 2017 and who were undergoing the corporate insolvency resolution process, same was also discussed and agreed to in the Officers' meeting held on 13.03.2020. He explained that this would enable such Companies to comply with the provisions of GST laws during CIRP (Corporate Insolvency Resolution Process) period. It was agreed to. 25.6. The next Agenda item 11 (vi) brought up by PC, GSTPW was the proposal to issue removal of difficulty order for extending the time limit for revocation of cancellation of registration. He explained that the same was being done on the request of Government of Tamil Nadu and that also had been agreed to in the Officers' meeting on 13.3.2020, where it was agreed to that in all cases where cancellation orders were passed upto 14.3.2020, the aggrieved may be allowed to file application for revocation of cancellation till 30.6.2020. 25.7. Introducing Agenda item 11(vii), the Secretary stated that the GST Council in its 27 th Meeting held on 4 th May, 2018 decided that GSTN will be converted into a 100% Government-owned entity by transferring 51 % equity shares held by the Non-Government institutions to the Centre and states equally. The Union Cabinet in its Meeting held on 26 th September, 2018 approved the proposal to convert GSTN into a fully-owned Government Company with 50% equity of the Company to be held by the Central Government and the balance 50% to be held by States and Union Territories. Further, the GST Council in its 31 st Meeting held on 22 nd December, 2018 and the Department of Revenue (DOR), Government of India vide its Letter No S-31011/5/2018-ST -1-DoR dated 17 th January, 2019 both had approved the revised shareholding pattern of GSTN as per ( Annexure-1 to the Agenda). 25.7.1. Pursuant to Share Transfer Notices issued by the Empowered Committee Non-Government Institutions, the respective Transferees (Centre and States) were required to acknowledge the receipt of the above Share Transfer Notice and communicate their acceptance through Purchase Notice to the respective Transferor(s) within 30 days from the receipt of Share Transfer Notice. Post acceptance of the offer to purchase the share, Centre, State Governments Union Territories Government were required to pay share purchase consideration to them accordingly. The Status was as follows: a. The State Governments of Tamil Nadu, Sikkim and Chhattisgarh have not yet communicated their acceptance till date and thereafter need to make the payment for share transfer in their favour as well. b. The following Governments have accepted the proposal; however, the payment was still pending from them: S No. Governments S No. Governments 1. Government of India 10 Government of Uttarakhand 2 Government of Gujarat 11 Government of Assam 3 Government of Tamil Nadu 12 Government of Kerala 4 Government of Rajasthan 13 Government of Jharkhand 5 Government of Sikkim 14 Government of Uttar Pradesh 6 Government of Andhra 15 Pradesh Government of Chhattisgarh 7 Government of Bihar 16 Government of Arunachal Pradesh 8 Government of Nagaland 17 Government of Telangana 9 Government of Mizoram 25.7.2 Accordingly, it was proposed that: a. State Governments of Tamil Nadu, Sikkim and Chhattisgarh may accept the above offer; and b. Central Government and 16 other State Governments as listed above may be requested to make payment of their respective share purchase consideration and execute necessary documentations including Shareholders' Agreement and send the same to GSTN in order to expedite the matter of conversion of GSTN. 25.8. Next, Table Agenda No.11 (viii) was taken up for discussion by PC, GSTPW. It was explained that the proposal) was for amendment in the CGST Act so as to explicitly include the transactions and activities involving goods and services or both, by, to its members, for cash, deferred payment or other valuable consideration along with an explanation stating that for the purpose of this section, an association or a body of persons, whether incorporated or not as taxable supply w.e.f 01.07.2017, It is also proposed that such an association or a body of persons, whether incorporated or not and member thereof shall be treated as distinct persons under section 7(1) of the CGST Act. Consequently, para 7 of Schedule II of the CGST Act is proposed to be deleted. It was informed that this had become necessary to make this retrospective amendment in view of pronouncement in this regard by the Hon'ble Supreme Court in a case involving levy of service tax on supplies of taxable services by the Clubs to its Members. PC, GSTPW informed that this had also been agreed to in the Officers' Committee meeting held on 13.03.2020. 25.9. The next Agenda item taken up was Table Agenda 11 (ix). PC GSTPW explained that the same was for complying with the directions of the order of Hon'ble High Court of Rajasthan in the matter of Rajasthan. Tax Consultants Association vs Vol and Ors. (D.B. Civil Writ No.15239/20 17). The matter was placed before the GST Council for deliberation and decision. The Council agreed that under GST law there was no provision for waiver of interest for delayed filing of returns. 25.10. PC, GSTPW took up the next Table Agenda item 11 (x) for refund of ITC of the tax paid on capital goods, in cash, for registered taxpayers with annual aggregate turnover upto ₹ 30 crores. He explained that this proposal has been brought up with a view to improve India's ranking in 'Paying Taxes' category of World Bank's 'Ease of Doing Business' index where in India has been scoring 'NIL' in absence of any provision to allow cash refund of credit taken on Capital Goods. Council took note of the fact that the proposal to allow cash refund of credit taken on Capital Goods to case study company having ₹ 30 Cr. Turnover would entail huge revenue outgo of ₹ 15000 Cr. at minimum for getting a jump of 7 ranks. The members opined that at the current stage where there is a shortfall even for paying agreed compensation to the States, such a proposal cannot be agreed to. 25.11 Introducing the Table Agenda 11 (xi), the Secretary stated that he agreed with the idea floated by Shri Nandan Nilekani that there was a need to do incremental changes rather than a big-bang shift to 'New Return system' to allow time to trade of adjusting to the change. He also stated that the filing process had stabilized, trade was already used to the present system of filing of GSTR-3B and GSTR-1 and also compliance was improving. With this background, he invited Shri Manish Sinha, Joint Secretary (TRU-II) to make a short presentation before the Council for improvement and simplification of existing returns for transition to the new return model as well as covering the issue of time bound implementation of long pending CRs arising out of changes in Law/ Rules through onetime special measure. The presentation made by JS (TRU-II) is at Annexure-8 . He, stated that the purpose of incremental change was to ensure that the invoices declared in GSTR- 1 got converted into liability and taxes got collected on the same. Another change required was that credit would become available only on the reported invoices i.e. invoices reported in GSTR-1. These incremental changes ensured that the present return design itself acquired the main attributes of the new design and came close to it. He also stated that one of the challenges faced by quarterly taxpayers (turnover less than ₹ 1.5 Cr) was their inability to upload details of invoices on which credit was to be passed to other monthly or quarterly taxpayers. Further, he supported the implementation of ideas such as spike rule, Aadhar linking of registration to control the menace of dummy dealers and credit on fake invoices etc. Accordingly, he placed the following points before the Council for discussion and approval: a. A process would be designed where liability entered in FORM GSTR-1 would be auto-populated in FORM GSTR-3B for both monthly and quarterly taxpayers. It would be auto-populated for monthly taxpayers in the first phase and thereafter for quarterly filers. In the initial phase, such liability would be auto populated and would be kept editable. Further, gaps between liability of GSTR-1 (which was auto- populated in GSTR-3B) and liability furnished in FORM GSTR-3B would be communicated to tax administrations through MIS reports. The field would be configurable having facility for editing the auto-populated liability such that going forward in time, downward revision could be reduced in stages. b. In all cases, credit would be made available to the taxpayers only for those invoices which had been uploaded by their suppliers in their GSTR-1. As the first step for achieving this, date of filing for GSTR-1 would be made available in GSTR-2A immediately. c. As proposed by Mr. Nandan Nilekani in his presentation, credit in GSTR-2A shall be auto-populated in GSTR-3B. As GSTR-2A was a dynamic document which consisted of all the details of all the invoices (without a time limit), a new sub-statement (GSTR-2B) would be generated which would consist of all the invoices for which credit would be available in the current month, as on due date. Once the system stabilized, credit enhancement would be restricted to 10% of the credit populated. This limit would be configurable and might be further reduced from 10%, as desired. d. It would be desirable that the ITC credit on import of goods would also be autopopulated in GSTR-3B. Initially, all auto-populated data might be kept editable. e. Monthly filers shall continue to file their GSTR-1 monthly. f. Quarterly filers would have an option to file their GSTR-1 monthly also and an IT facility would be created for the same. This effectively would give them a facility for continuous upload of documents in month one and two of any quarter for passing on the ITC credit to monthly buyers. The third month return of a quarterly filer, which was essentially a quarterly return, shall continue to be mandatory and shall not contain details of invoices declared in month one and two. No late fee should be levied for the first two months of a quarter for quarterly filers. g. The limit for opting in for quarterly filing would be maintained at aggregate turnover of ₹ 1.5 Crore. h. Filing of FORM GSTR-1 was proposed to be staggered: i. FORM GSTR-1 for taxpayers with turnover more than ₹ 1.5 Crore upto 10 th of subsequent month ii FORM GSTR-1 for taxpayers with turnover less than ₹ 1.5 Crore upto 13 th of subsequent month i. The primary purpose of FORM GSTR-1 was to upload B2B data, providing details of exports and amendment of original invoices declared earlier. Currently, the law provided that FORM GSTR-1 was to be filed by all taxpayers. It was observed that approximately 40% of the taxpayers filing GSTR-1 were either 'Nil' filers or making pure B2C supplies. These taxpayers who otherwise did not serve the core purpose of GSTR-1 had to mandatorily log on to the GST portal and file a nil GSTR- 1 return. This was unnecessary compliance for small taxpayers and led to clogging / hanging of the GST portal. Therefore, these two categories might be exempted from GSTR-l filing. j. Essentially, the liability of filing FORM GSTR-1 might be restricted to only those taxpayers who were performing any of the actions: a. Making B2B supplies b. Making exports c. Making amendments k. A separate functionality was required to be developed to give taxpayers opportunity to file a 'Nil' GSTR-1 at the time of filing of their GSTR-3B. Thus, they would be freed from the compliance of filing of GSTR 1. l. Nil filing of FORM GSTR-3B and FORM GSTR-1 would be through SMS. Initially, this facility would be available for GSTR-3B. m. 'Spike rule' and Aadhar validation, initially for the new taxpayers and then for the existing taxpayers, were essentially elements for plugging loophole in the system leading to loss of revenue and therefore were part of the transition strategy which might be implemented expeditiously. Implementation of 'spike rule' might need classification of registration in classes such as new and existing taxpayers and different spike rules for them might be prescribed for different class of taxpayers. 25.11.1 The GST Council thereafter discussed the details of the incremental approach and agreed to it in view of express benefits rather than adopting a big-bang shift to 'New Return system' as the trade was already used to the present system of filing of GSTR-3B and GSTR-1. The Council also deliberated and further approved that Shri Nandan Nilekani would attend the next 3 meetings of the GST Council and update the V council of the status of implementation as well as assist the Council in taking appropriate decisions on technology related issues. The Council also agreed to the proposed deployment of additional manpower (60 in number) on T M basis, and that expeditious approvals needed to be given, both on procurement of additional hardware and hiring of manpower so that the return filing experience of the taxpayers and removal of technical glitches could be carried out urgently. 25.12. The next Table Agenda item 11 (xii) was placement of ad hoc exemption order issued in respect of exemption from IGST for import and re-export of guns/ equipment V from Sri Lanka under Section 25 (2) of Customs Act, 1962 before the GST Council was for information. The Council took note of the same. 26. For Agenda item 11 , the Council: - i. Deferred the incentive scheme for consumers to increase invoice compliance in B to C supply for more detailed examination. ii. Approved issuance of Circular clarifying certain refund related issues. iii. Approved physical verification and KYC of persons willing to take registration within first six months and corresponding spike rule. iv. Approved proposed amendments in the CGST Act, 2017, subject to vetting by the Union Law Ministry. v. Approved the proposal to issue notification and circular clarifying issues related to corporate debtors under the provisions of the Insolvency and Bankruptcy Code, 2016. vi. Approved the proposal to issue Removal of Difficulty Order, as a one-time measure, for extending the time limit for revocation of cancellation of registration. vii. Took note of the proposal detailed in para 25.7.2 above and directed the GST Council Secretariat to issue necessary advisory/direction to all the concerned in order to complete the transaction at the earliest. viii. Approved amendment in the CGST Act, subject to vetting by the Union Law Ministry, so as to include the supply of goods and services or both, between an association or a body of persons, whether incorporated or not, to its members, for cash, deferred payment or other valuable consideration under the ambit of GST. ix. Took note of the order of Hon'ble High Court of Rajasthan in the matter of Rajasthan Tax Consultants Association vs UoI and Ors. (D.B. Civil Writ No. 15239/2017 x. Did not approve the proposal for refund of ITC of the tax paid on capital goods, in cash, for registered taxpayers with annual aggregate turnover upto ₹ 30 crores. xi. Approved the following: : a. To adopt and implement the incremental approach of linking the present system of filing of GSTR-3B and GSTR-1, as presented in the Agenda Item 2 and Table Agenda 11 (xi) rather than a big-bang shift to 'New Return system'. b. To support the timely implementation of various initiatives, the Council approved the proposed deployment of additional manpower (60 in number) on T M basis and assured that both on procurement of additional hardware and hiring of manpower, expeditious approvals would be given however the return filing experience of the taxpayers and removal of technical glitches should be carried out urgently. c. To implement these initiatives by the 31 st of July, 2020. xii. Took note of ad hoc exemption order issued in respect of exemption from IGST for import and re-export of guns/ equipment from Sri Lanka under Section 25 (2) of Customs Act, 1962 Agenda Item 12: Date of the next Meeting of the GST Council 27. This agenda item was not taken up for discussion. 28. The Meeting ended with a vote of thanks to the Chair.