Minutes of the 17th GST Council Meeting held on 18 June 2017 - GST - 17th GST Council Meeting

Minutes of the 17 th GST Council Meeting held on 18 June 2017 The seventeenth meeting of the GST Council (hereinafter referred to as the Council ) was held on 18 June, 2017 in Vigyan Bhawan, New Delhi,under the Chairpersonship of the Hon ble Union Finance Minister, Shri Arun Jaitley. The list of the Hon ble Members of the Council who attended the meeting is at Annexure 1 . The list of officers of the Centre, the States, the GST Council and the Goods and Services Tax Network (GSTN) who attended the meeting is at Annexure 2 . 2. The following agenda items were listed for discussion in the 17th Meeting of the Council - 1. Confirmation of the Minutes of the 16 th GST Council Meeting held on 11 June, 2017 2. Approval of draft GST Rules and related Forms for: i. Advance Ruling ii. Appeals and Revision iii. Assessment and Audit iv. E-Way Bill v. Anti-profiteering 3. Fitment/adjustment of GST Rates on certain items i. Applicability of increased turnover limit for Composition Levy to Special Category States ii. IGST on Shipping Vessels iii. Lottery 4. Any other agenda item with the permission of the Chairperson i. High Sea Sales ii. Notifying Sections iii. Exemption under Section 9(4) of the CGST Act, 2017 iv. Fund Settlement Rules v. Authorization of Banks for GST collection vi. Power to be exercised under Sections 37, 38 and 39 of the Central Goods and Services Tax Act, 2017 5. Date of the next meeting of the GST Council Discussion on Agenda Items Agenda Item 1: Confirmation of the Minutes of the 16th GST Council Meeting held on 11 June, 2017: 3. The Hon ble Chairperson welcomed all the Members to the 17 th Council Meeting and invited comments of the Hon ble Members on the draft Minutes of the 16 th Meeting of the Council (hereinafter referred to as Minutes ) held on 11 June, 2017 before its confirmation. 4.1. The Secretary, GST Council (hereinafter referred to as Secretary ) invited the Chairman, CBEC to lay before the Council requests received regarding the Minutes. Chairman, CBEC stated that a written request was received from the Joint Commissioner, Odisha to include the version of the Hon ble Minister from Odisha in paragraph 10.8 of the Minutes as follows: The Hon b1e Minister from Odisha stated that Odia films were exempt in Odisha. He was of the view that the regional film made in the regional language should be exempt under GST to promote regional film industry. 4.2. Chairman, CBEC further informed that a written request had also been received from Shri Alok Gupta, Commissioner, Commercial Taxes (CCT), Rajasthan to amend the version recorded in paragraph 8.6 of the Minutes ... He added that marble was a labour intensive sector which provided employment to lakhs of people and units with turnover of less than Rs.l.5 crore should be taxed at the rate of 18% instead of 28%. with the version as under: He added that marble was a labour intensive sector which provided employment to lakhs of people and mostly MSME units with turnover of less than 1.5 crore are engaged in this and they are not liable to pay excise duty. He suggested that marble should be taxed at the rate of 18% instead of 28%. 4.3. Shri M. Balaji, Joint Commissioner, Commercial Taxes, Tamil Nadu informed that the speech of the Hon ble Minister from Tamil Nadu in the 16 th GST Council Meeting was not recorded in the Minutes and that the version of the Hon ble Minister from Tamil Nadu may be inserted after paragraph 8.16 as under: Paragraph 8.16.1. The Hon ble Minister from Tamil Nadu circulated a written speech during the meeting. He thanked the Council for having agreed to the request of Tamil Nadu regarding the rates of tax on footwear; palmyra jaggery; glass for corrective spectacles and cashew nut. He also commended the decision to levy tax on Textiles at a uniform lower rate of tax. He reiterated that handloom textiles, roasted gram locally known as fried gram , sago, sea shells and handicraft items l ade from them, hand-made jewellery made by goldsmiths from the economically weaker sections, and fishnet and fishnet twine should be Nil-rated; water sold in Refill Cans (bubble top) and small plastic pouches, curry, other spices and mixture of spice powder known as masala powder, unbranded biscuits, beedi,concrete blocks/bricks, and films made in the local language of the State should be taxed at a lower rate; unbranded sugar confectionery, pickles, power driven pumps, fly ash bricks and rate of tax for supply of food and drinks in restaurants without air-conditioning should be brought down to 5%; frames and mountings for spectacles, and attachments of tractors should be taxed at 12%; cess should be restricted to Motor Cycles above 500 cc; and wet grinder, air compressors and weighing machineries, and electrical apparatus irrespective of capacity should be brought down to 18%. The Council agreed to include the speech of the Hon ble Minister from Tamil Nadu in the Minutes. 4.4.1. Shri V.P. Singh, CCT, Punjab referred to the Minutes on page 21 of the detailed Agenda Notes for the I 7 th GST Council Meeting (hereinafter referred to as Agenda Notes ) in respect of textile where the Hon ble Minister from Punjab had requested that tax rate on man-made fibre be kept at 18%, for yam at 12% and for cloth at 5%. He added that it was recorded in the Minutes that the Council decided not to change rates for man-made fibre and yarn while it was not so and that no finality was achieved on the issue. He further added that a detailed proposal was to be sent before deciding on the issue. The Secretary mentioned that there was no such proposal to take a decision subsequently. Moreover, he added that this was a major revenue item and that it would not be possible to change the rate on the same. He further added that the Council did not agree to deciding the rates later. Shri V .K. Garg, Adviser (Financial Resources) to Chief Minister, Punjab stated that there were protests against this levy. The Secretary mentioned that the rationale being given was wrong and explained that there was no additional burden. He further informed that even now, at the yarn stage, the current tax burden was 19% and that in the GST regime, it would be reduced to 18%. Further, it was mentioned that input tax credit could be availed of and that there was no additionality of tax. It was only a question of compliance. He also stated that if other manufacturers were complying with GST, textile traders should also comply and that full credit could not be allowed sinc it would be a huge revenue loss. Further, he stated that if full refund was to be given, then rate should be 12% at fabric stage which would be too high and lead to adverse perception. He added that denying full refund was correct. 4.4.2. The Secretary asserted that man-made fibre and man-made yarn were to be taxed at the rate of 18%. He stated that only on fabric 5% tax was to be levied and this would help in the flow of credit. Moreover, no tax would need to be paid in cash as the said tax could be paid from the Input Tax Credit (ITC) accumulated by the assessee. The Adviser to the Chief Minister, Punjab raised three points in respect of textiles. First, he mentioned that the duty rate of 5% was prescribed for all fabric in the proposed GST regime and that till now, Countervailing Duty(CVD) was 8% if the party took CENVAT credit and zero if CENVAT credit was not taken. He quoted a judgement of the Hon ble Supreme Court in the SRF case stating that exporters are not dealing with CENVAT and by that interpretation, duty became zero. As a result of this, fabric from China, Vietnam, Bangladesh, Sri Lanka and other countries would come to India at 5% whereas Indian business would suffer a duty incidence of 9%, 10% or 11% depending on the final value. He stated that the second issue was that in the case of an integrated manufacturer who made fibre, yarn, fabric and sold the fabric, the value addition was 100% and thathis effective burden would be 5% whereas in the case of a person in Ludhiana who made grey fabric, value addition was 15% and he would pay 18% on the yam resulting in his credit getting wasted. This would result in a situation where the power loom sector would be seriously affected in the new GST structure. He requested to consider it as it was an all India issue. The third point he raised was regarding drawback (DBK) rates on textile exports as 40% of textiles were exported. He wondered what would be the DBK rates on fabric as there would be 5% duty plus embedded taxes. He requested to address the issue regarding export and power loom sector. 4.4.3. The Secretary mentioned that all these points had been considered and that if imports were increasing from China and other countries, basic customs import duty could be raised. However, the Secretary raised an apprehension that there would be problems if imports were from countries with whom India had Free Trade Agreements (FTAs) and those problems were not in respect of textile alone but in respect of all goods. The Chief Economic Adviser observed that on imports, basic customs duty could be increased, however there would be a problem in case of imports from FT A countries. He added that in respect of exports, the current DBK structure could be kept until the impact of GST rates on exports was examined after GST was rolled out. The Secretary mentioned that DBK rates needed to be modified as DBK rates had two components i.e. customs duty and excise duty. He added that in the GST regime, excise duty would be gone and only customs duty was leviable, so only the customs duty portion should be considered for DBK as exporters could get entire Integrated Goods and Services Tax (IGST) refunded. He also added that the second alternative was that an exporter could claim refund of Central GST (CGST), State GST (SGST) paid on all inputs used in export goods and that this mechanism was better than DBK and exporters would have no problem. 4.4.4. The Adviser (Financial Resources) to Chief Minister, Punjab mentioned that there would be a serious problem as there were two types of exporters namely integrated manufacturers and others and that the whole credit would be stuck at the grey fabric level as exporter would be paying only 5%. The Secretary mentioned that there would be no problem to the power loom sector as only about 10% units were integrated units and that their share in the production of fabric was less. The Hon ble Minister from Rajasthan supported the points raised by the Adviser to the Chief Minister, Punjab stating that there should be fibre neutrality for the textile industry so that there was lesser accumulation of input tax credit for smaller units. He added that accumulation of input tax credit would make all the difference and would put the small units at a disadvantage. The Chief Economic Adviser, Government of India, advised to conduct a quick study in the matter of embedded taxes and that action could then be taken accordingly. The Hon ble Minister from Telangana supported the suggestion of the Chief Economic Adviser for a study to be conducted within .3 months in the textile sector. 4.4.5. The Hon ble Chairperson observed that attempts were made to fix the rate of duty of all commodities in the best possible manner, however in case there were any issues with some commodities, the Council could have a retook at them in its meetings post implementation and that action could be taken accordingly. The Hon ble Chairperson further observed that no commodity would collapse within this time. He also mentioned that many organizations were meeting him regularly to reduce the taxes on multiple commodities but decision on changing rates could not be taken arbitrarily and that tax rates would be reviewed after few months of the implementation of GST. 4.5. The Hon ble Minister from Mizoram stated that it was recorded in the Minutes that no clear decision was taken regarding the applicability of increased threshold from 50 lakh to 75 lakh under the composition scheme to the Special Category States. The Secretary stated that there was a separate agenda on this issue. 4.6. Shri R.K. Tiwari, Additional Chief Secretary (ACS), Uttar Pradesh, stated that in paragraph 8.4 of the Minutes, there was an error showing revenue loss to the tune of 50,000 crore which should be 5,000 crore. The Secretary informed that this was a typographical error and it should be read as 5,000 crore in place of 50,000 crore. 4.7. The Hon ble Finance Minister from Uttar Pradesh referred to their request on paragraph 8.17 (vii) of page 15 of the Agenda Notes where items like singhada and makhana were requested to be exempted. The Secretary raised a question whether these goods would fall in the category of dry fruits. The Hon ble Minister from Jammu Kashmir also proposed to exempt walnut and other dry fruits. After discussions, the Hon ble Chairperson and the Council agreed to fix the GST rate at 5% on dried singhada and makhana. 4.8. A few Members of the GST Council then requested for reconsideration of tax rates on some other commodities. The Hon ble Ministers from Assam, Goa and Bihar suggested that since the tax rates had been fixed after much deliberation, the rates could be reconsidered, if required, after implementation of GST. 4.9. In view of the above discussion, for Agenda item 1, the Council decided to adopt the Minutes of the 16th Meeting of the Council with the changes as recorded below:- (i) To include the version of the Hon ble Minister from Odisha in paragraph 10.8 of the Minutes as follows: The Hon ble Minister from Odisha stated that Odia films were exempt in Odisha. He was of the view that the regional film made in the regional language should be exempt under GST to promote regional film industry. (ii) To amend the version of the Hon ble Mini ster from Rajasthan recorded in paragraph 8.6 of the Minutes with the following version- He added that marble was a labour intensive sector which provided employment to lakhs of people and mostly MSME units with turnover of less than 1.5 crore are engaged in this and they are not liable to pay excise duty. He suggested that marble should be taxed at the rate of 18% instead of 28%. (iii) To incorporate the speech of the Hon ble Minister from Tamil Nadu after paragraph 8.16 of the Minutes as follows - The Hon ble Minister from Tamil Nadu circulated a written speech during the meeting. He thanked the Council for having agreed to the request of Tamil Nadu regarding the rates of tax on footwear; palmyra jaggery; glass for corrective spectacles and cashew nut. He also commended the decision to levy tax on Textiles at a uniform lower rate of tax. He reiterated that handloom textiles, roasted gram locally known as fried gram , sago, sea shells and handicraft items made from them, hand-made jewellery made by goldsmiths from the economically weaker sections, and fishnet and fishnet twine should be Nil-rated; water sold in Refill Cans (bubble top) and small plastic pouches, curry, other spices and mixture of spice powder known as masala powder, unbranded biscuits, beedi, concrete blocks/bricks, and films made in the local language of the State should be taxed at a lower rate; unbranded sugar confectionery, pickles, power driven pumps, fly ash bricks and rate of tax for supply of food and drinks in restaurants without air-conditioning should be brought down to 5%; frames and mountings for spectacles, and attachments of tractors should be taxed at 12%; cess should be restricted to Motor Cycles above 500 cc; and wet grinder, air compressors and weighing machineries, and electrical apparatus irrespective of capacity should be brought down to 18%. (iv) To replace, in paragraph 8.4 of the Minutes, 50,000 crore with 5,000 crore. 4.10. ln addition, it was decided to include dried singhada and makhana in the list of 5% GST items. Agenda Item 2: Approval of draft GST Rules and related Forms: 5. Introducing this Agenda item, the Secretary asked Chairman, CBEC to brief the Council on the agenda pertaining to Rules. The Hon ble Deputy Chief Minister from Delhi requested to first take up Rules for E-Way Bill and Anti-profiteering. The Secretary informed the Council that during the officers meeting prior to the 17 th GST Council Meeting, three other rules for Advance Ruling, Appeals and Revisions and Assessment and Audit were also discussed and some modifications were suggested and that the Council may approve these three Rules with some modifications as suggested by the officers and finalized in the Officers meeting. Chairman, CBEC invited Shri Upender Gupta, Commissioner (GST Policy Wing), CBEC to make a presentation on the above-mentioned 5 Rules. Commissioner (GST Policy Wing), CBEC then proceeded to explain the main features and provisions of the 5 Rules and related Forms. The presentation is included at Annexure 3 . 5.1. Advance Ruling Rules 5.1.1. The Secretary informed that during the officers meeting in the morning some changes were made and the modified version of the draft Advance Ruling Rules is at Annexure 4. 5.1.2. The Council approved the Rules and related Forms on Advance Ruling including the changes made therein. 5.2. Appeals and Revision Rules 5.2.1. The Secretary informed that during the officers meeting in the morning, some changes were made and the modified version of the draft Appeals and Revision Rules is at Annexure 5 . 5.2.2. The Council approved the Rules and related Forms on Appeals and Revision including the changes made therein. 5.3. Assessment and Audit Rules 5.3.1. The Secretary informed that during the officers meeting in the morning some changes were made and the modified version of the draft Appeals and Revision Rules is at Annexure 6. 5.3.2. The Council approved theRules and related Forms on Assessment and Audit including the changes made therein. 5.4. e-Way Bill Rules 5.4.1. During the presentation on e-Way Bill Rules, Commissioner (GST Policy Wing), CBEC highlighted the main features and other details like requirement of e-way bill for movement of goods of consignment value exceeding fifty thousand rupees; generation of e-Way bill and its validity with reference to distance; consolidated e-Way bill; cancellation of e-Way bill, etc. The Secretary informed the Council that during the Officers meeting held earlier that day, detailed discussion was held on this Rule and some States were in favour of implementing the e-way bill system from 1 July 2017, while some other States and the Centre were not in favour of implementing it till a fool proof e-Way bill system was developed. The Hon ble Deputy Chief Minister of Delhi raised two points (i) that the limit of 50,000/- was very low and (ii) how many transit points (checks) were to be allowed in intra-State movement.By way of an illustration, he stated that during the course of movement from Narela to Greater Kailash in Delhi, checks at several transit points would create problems for traders. Chairman, CBEC was of the view that thee-Way bill should not be required within the city. The Hon ble Minister from Chhattisgarh stated that the e-Way bill system should not be brought from 1 July 2017. He added that in Chhattisgarh, all physical check posts had been removed and that any matter relating to evasion of taxes should be addressed through enforcement action. The Hon ble Minister from Madhya Pradesh also supported Chhattisgarh s point of view and mentioned that it would be alright to wait for 2-3 months and then decide on its implementation. 5.4.2. The Hon ble Minister from Bihar informed that Bihar had boundaries with Nepal and Bhutan and if there was no e-Way bill system in force, there would be lot of problems and the same issue applied to the North-Eastern States as well. He suggested that till thee-Way bill system was not finalized, check-posts should continue in the States. He further stated that since there was a provision in the Law for the implementation of e-Way Bill and the same had been passed by the respective State Legislatures, implementation of the e-Waybill system could not be ignored. The Hon ble Minister from Goa stated that there would be implementation problems within the smaller States if the e-Way bill system was introduced, as goods may be required to be loaded and removed from different locations within a small state like Goa. The Hon ble Minister from Maharashtra stated that even if this system was not implemented from 1 July 2017, it could be implemented after 6 months. The Hon ble Minister from Kerala stated that thee-Way Bill system at national level might not be ready by I July 2017 and till the time it was finalized, the existing e-Way Bill system in the States should continue. The Hon ble Minister from Andhra Pradesh informed that this system had been in place in Andhra Pradesh for the last 15 years and that absence of e-Way bill would lead to evasion of taxes. The Hon ble Minister from Telangana stated that thee-Way bill system was in place in his State for the last 5 years for inter-State as well as intra-State movement and that they would continue with the present system till the Council finalized a national e-Way Bill system which might take 6 months. He added that keeping a minimum limit of 10 kilometres (for providing details for further transportation) was not practical as there were 73 Municipalities in his State where there was regular movement and the distance limit should be revised. 5.4.3. The Hon ble Minister from Uttar Pradesh stated that they had ane-Way bill system and the same was needed to check goods. The Hon ble Chief Minister from Puducherry stated that when a robust invoice-matching mechanism was being made available by GSTN, the e-Way Bill system was just a duplication and added that it should be considered for evasionprone commodities and inter-State supply only. He added that if it was used for intra-State movement, it would lead to problems. Dr. P.D. Vaghela, CCT, Gujarat stated that thee-Way bill system was a must and that in the Gujarat Chamber of Commerce, many tax payers advocated for thee-Waybill system as mobile physical checking led to more corruption. He added that those States which had such a system should be allowed to continue and intra-city movement could be left out. Ms. Smaraki Mahapatra,CCT, West Bengal supported thee-Way bill system but without intra-city movement. Dr. M.P. Ravi Prasad, Joint Commissioner, Commercial Taxes, Karnataka stated that his State had an e-Way bill system for the last 3 years and that trade had welcomed it. He added that physical checks had been reduced and for this, the e-Way Bill system in his State, i.e. e-SUGAM had received awards. 5.4.4. The Hon ble Minister from Assam stated that Section 68 of the CGST Act provided fore-Way bill and that in its absence, there would be massive evasion of tax and would create the need to bring the static check posts leading to harassment and corruption. He added that intra-city movement could be relaxed. Shri J. Syamala Rao, CCT, Andhra Pradesh stated that in its absence, 20%-30% evaders would drive genuine taxpayers out.Shri TuhinKanta Pandey, Principal Secretary (Finance), Odisha stated that presently the State of Odisha has an e-Way Bill system for inter-state movement and not for intra-state movement and in principle, the State was against the implementation of e-Way Bill system. He explained that when one-to-one invoice matching was available in the system, there was no need for an e-Way Bill. He added that this would increase the compliance burden and that efforts should be taken to reduce compliance burden. He further informed that with effect from 1 April 2017, his State had abolished check posts and there was no problem because of that. If at all it is felt necessary to introduce the system, it should be done later after thorough deliberations, so that unnecessary compliance burden is avoided.The Hon ble Minister from Nagaland stated that the e-Way bill system was required.The Hon ble Minister from Tamil Nadu stated that overall, he was not in favour of the e-Way bill but if it was to be implemented, it should only be done for Business-to-Consumer (82C) trade and for evasion prone commodities. The Hon ble Minister from Rajasthan advised that there should not bee-Way bill system for intrastate movement and that it should be limited to evasion-prone commodities. He also suggested that the limit should be raised to 1,00,000/-. 5.4.5. The Hon ble Chairperson observed that a number of States were in favour of the e-Way bill system, some States were not in favour and some States did not want its implementation from 1 July 2017. He added that there were some requests to raise the limit from 50,000/- to Rs.l,00,000/-. It was informed that in the Officers meeting, there was no consensuson the matter. He proposed that for the time being, a one sentence Rule could be drafted and that States could continue with their own system till a central e-Way Bill Rules were finalized. As regards raising the limit from 50,000/- to Rs.l ,00,000/-, he added that the GST Council could take a decision once the Rules were finalized .The Secretary mentioned that after 1 July 2017, there should not be any need for GST check posts at State borders. The GST Council agreed to the proposal of drafting one sentence Rule by the Law/Rules Committee on above lines and that there would not be any need for check posts in GST regime at State borders. 5.5 Anti-profiteering Rules 5.5.1. Presenting on Anti-profiteering Rules, the Commissioner (GST Policy Wing), CBEC highlighted the main features like constitution of Standing Committee, National Anti-profiteering Authority, etc. The Secretary informed the Council that the Anti-profiteering Rules had been prepared on the recommendation of the GST Council in its 15th Meeting. Starting the discussion on the said Rule, the Hon ble Minister from Bihar wondered as to why retired judges needed to be brought as Chairman of the Authority and why retired officers could not be considered. He opined that judges did not understand the tax complications and suggested that the Authority should be headed by officers and not judges. The Hon ble Minister from Kerala asked what the exact meaning of profiteering was and that benchmark information was required. 5.5.2. The Chief Economic Adviser stated that there were already two meetings on this issue and that a sunset clause of 9 months to one year needed to be provided. He added that this was a transition provision and would lead to harassment and in the long run, it should die. The Hon ble Minister from Goa stated that the narrative should change and we should trust the countrymen. He added that judges came into the picture when something wrong happened and that competent officers could apply their mind much better. Shri Somesh Kumar, Principal Secretary (Finance), Telangana stated that he did not agree with the sunset clause because rates would change frequently. Ms. Sujata Chaturvedi, Principal Secretary and CCT, Bihar suggested that there was no provision for any sunset clause in the Act. 5.5.3. The Hon ble Minister from Uttar Pradesh suggested that officers should be taken in the Authority. The Secretary suggested that retired officers could be taken.Shri R.K. Tiwari, Additional Chief Secretary, Uttar Pradesh informed that ( 1) there was no time limit for the Standing Committee to submit report; (2) constitution of the Standing Committee and Screening Committee and its nomination should be by the Council only and not by the Board; (3) there was no proposal for appeal against the order of the Authority - it should lie with the High Court; (4) Two points (d) and (e) mentioned in draft Rule 14 had been left out on page No. 104 of the Agenda and its responsibility should include recommending for cancellation of registration and (5) Secretary to the Authority should be more broad-based rather than ADG of Safeguards as there could be clash of interest. The Secretary agreed for other suggestions except for Secretary to the Authority by explaining that it would notbe possible to create a new office for Secretary and that ADG Safeguards would only be the Secretary to the Authority and not member Secretary of the Authority. The Council agreed with this. 5.5.4. The Hon ble Minister from Mizoram suggested to define the term Anti-profiteering . CCT, Andhra Pradesh suggested to include third parties such as consumer welfare societies under the ambit of interested parties .He also requested to have more than one Standing Committee and also at State level to ward off frivolous complaints. The Secretary stated that the definition of interested parties was an inclusive one and there was a mechanism to ward off frivolous complaints. The Hon ble Minister from Madhya Pradesh stated that small traders had apprehensions of being harassed by the anti-profiteering provisions. The Hon ble Minister from Haryana suggested that 4 Technical members could bea representative of tax practitioners, a person of eminence, an industry representative and a consumer activist to provide balance to the Authority. The Hon ble Chairperson observed that it would not be proper to have both officers and activists on board since it was necessary to have an effective deterrent effect. He added that activists would bring a plethora of complaints and cited an example of fast track courts, where the experience was not good. He further added that Government officers had some bindings of conduct rules and would be more effective. 5.5.5. Shri Raghwendra Kumar Singh, CCT, Madhya Pradesh stated that there should be suo-motu provisions for initiating investigation where profiteering was observed by the Government. The Hon ble Chairperson stated that this body could comprise of technically qualified people from the State as well as the Centre.The Secretary stated that to have a deterrent effect on profiteering, it was necessary to constitute the Authority as early as possible, headed by a retired or even serving Secretary-rank officer and four other Members.He added that a Search Panel needed to be constituted to suggest names for the Authority so that they could put up names for approval in the next meeting. The Hon ble Minister from Kerala reiterated that anti-profiteering was still not defined and there needed to be clarity on this. Chairman, CBEC, in response, read out the Section 171(1) of the CGST Act which gave the definition of profiteering. The Adviser to the Chief Minister, Punjab stated that profit should be carefully defined as to whether it referred to profit at the product and service level, vertical level or entity level. He added that it was necessary to seehow credit was being allocated to each product and thereafter determine the profitability for each product. The Chief Economic Adviser stated that the anti-profiteering clause was a mistake and the discretion it provided might lead to its abuse and cause harassment. Therefore, it was necessary to circumscribe it. He added that it would be difficult to implement it because of the difficulty in determining what profit was, what profiteering was, etc. He further added that it was necessary to keep the provision simple and add a sunset clause so it did not carry on forever. 5.5.6. The Secretary stated that the intention was not to harass the small trader but a deterrent effect was required without which there were chances of high amount of profiteering taking place. For this, he stated, that a mechanism was needed but also added that he was in agreement with a sunset clause of say two years, after which it could be said that the Authority would become dysfunctional. 5.5.7 The GST Council after detailed discussion approved the draft Anti-profiteering Rule and further authorized the Law Committee to make amendments as may be necessary for including the suggestion as discussed above. The Hon ble Chairperson suggested that the search committee for selection of Chairman and Members of the Authority could be made under the Chairmanship of the Cabinet Secretary and consist of Revenue Secretary, Chairman, CBEC and Chief Secretaries of any two States. The Hon ble Minister from Bihar suggested that the names of two Chief Secretaries could be decided by the Chairman. The Council agreed with this. Agenda Item 3: Fitment/adjustment ofGST Rates on certain items 7.1. Applicability of increased turnover limit for Composition Levy to Special Category States 7.1.1. The Hon ble Minister from Mizoram stated that in the l6th GST Council Meeting, the Council increased the annual turnover threshold to avail the Composition scheme from 50 lakh to 75 lakb, but its applicability to the Special Category States was not decided. He mentioned that for Special Category States like Mizoram, the annual turnover threshold for availing the Composition Scheme should remain 50 lakh and not be raised to 75 lakh. The Hon ble Minister from Assam stated that be would go by the consensus of the other North-Eastern States. The Hon ble Chief Minister from Puducherry requested that his State also be included along with the Special Category States for this provision. The Hon ble Deputy Chief Minister from Manipur also supported the proposal to retain the annual turnover threshold of 50 lakh for Special Category States. The Hon ble Minister from Jammu Kashmir said that though his State was included in the list of Special Category States, he requested that his State may not be included with the Special Category States for this provision and that he would like the annual turnover threshold of 75 lakh to be applicable to his State. He also added that even in the case of the annual turnover threshold of 20 lakh for exemption from registration under GST, he preferred that the same may apply to his State and not the reduced threshold of 10 lakh which was applicable to the Special Category States. The Secretary informed that the threshold limits of 20 lakh and 10 lakh for registration under GST were provided in the Law itself and hence, modification for Jammu Kashmir would need to be done. The Hon ble Chairperson observed that the thresholds of 10 lakh (for registration under GST) and 50 lakh (for Composition) may be applicable only to the other Special Category States and that a special provision could be made for Jammu Kashmir. Shri Shridhar Babu Addanki, CCT, Uttarakhand stated that the turnover threshold of 75 lakh for Composition should be applicable to his State also, though his State was a Special Category State. 7.1.2. After discussion, the Council approved the following - (i) The turnover limit for Composition Levy for CGST and SGST purposes shall be 50 lakh in respect of the following Special Category States namely: 1. Arunachal Pradesh, 2. Assam, 3. Manipur, 4. Meghalaya, 5. Mizoram, 6. Nagaland, 7. Sikkim, 8. Tripura, and 9. Himachal Pradesh (ii) The Council has also recommended that in case of Uttarakhand, the turnover limit for Composition Levy will be 75 lakh. (iii) For the State of Jammu Kashmir the turnover limit for the Composition levy will be decided in due course. 7.2 IGST on Shipping Vessels 7.2.1 Shri Alok Shukla, Joint Secretary (TRU-I) informed the Council that 5% rate of tax on ship was approved during the 14th GST Council meeting held at Srinagar on 18-19 May 2017 and that the same GST rate would apply on imports of ships/vessels/dredger/tankers. He added that against this, the Ministry of Shipping had made a reference, inter alia, stating that the shipping industry would not be in a position to utilize the credits of such IGST for a long period of time and that the new GST regime would put the Indian Shipping Industry in a disadvantageous position as foreign owners who brought ships to India were not burdened with the tax but that only Indian owners were charged with tax in similar situation. He further added that the transportation services of goods (voyage charter) have been brought to tax, however with curtailed input tax credit wherein input tax credit on goods will not be available, which would cause tremendous accumulation of credit with no avenue for set off and that the additional tax burden would adversely affect the Indian shipping industry, competitiveness and viability as the Shipping sector was already under severe stress. He added that the Fitment Committee had examined the reference received from the Ministry of Shipping in detail and proposed two options for the consideration of the Council. These two options are enumerated as follows - i. Whether to allow ITC of GST paid on ships which would provide level playing field to shipping lines which go for outright purchase of vessels/ships/tankers or ii. Whether to exempt 5% CSGT and SGST/ IGST on ships/vessels/dredger/tankers as recommended by the Ministry of Shipping. 7.2.2 The Secretary suggested that Option (i), i.e. allowing ITC of GST paid on ships which would provide level playing field to shipping lines which go for outright purchase of vessels/ships/tankers could be approved by the Council. The Council approved Option (i). The Adviser (Financial Resources) to Chief Minister, Punjab sought a clarification as to how could service tax be paid on the transportation service if the same is included in CIF value of inputs, which is subjected to import duty. It was clarified by Shri Amitabh Kumar, Joint Secretary (TRU-ll) that the service aspect is subjected to service tax in accordance with various pronouncements of the Apex Court. Moreover, under GST, IGST would be levied which is set off as its lTC is available. 7.2.3 In respect of the agenda item on IGST on Shipping Vessels, the Council approved Option (i), i.e. to allow ITC of GST paid on ships which would provide level playing field to shipping lines which go for outright purchase of vessels/ships/tankers. In this context Secretary stated that the issue raised by Punjab was not connected with the proposal under consideration by the GST Council. 7.3 Lottery 7.3.1. Introducing this agenda item, the Joint Secretary (TRU-II) stated that under the GST regime, supply of lottery was to be taxed as goods and the rate of tax on lottery was discussed with the officers of the States where lottery tickets were sold and that the said meeting was attended by officers from the States of Nagaland, Sikkim, Arunachal Pradesh, Mizoram, Assam, West Bengal and Punjab. He further informed that the officer concerned from Kerala was not able to attend that meeting but Dr. Rajan Khobragade, CCT, Kerala had orally conveyed that lottery tickets should be taxed at the rate of 28% of face value. He explained that in view of the Hon ble Supreme Court judgment in the case of Sunrise Associates Ys. Government of NCT of Delhi, sale of lottery tickets had been held to be actionable claim and that actionable claim had been included in the definition of goods as per Section 2(52) of the CGST Act. He added that Clause 6 of Schedule III of CGST Act specified that actionable claim other than lottery, betting and gambling was neither a supply of goods nor a supply of services, and therefore, supply of lottery tickets would need to be taxed as supply of goods. 7.3.2. Joint Secretary (TRU-II), CBEC, also presented the amount received by the organising States in the fmancial year 2015-16 from lottery draws. He also presented the revenue received by three States, namely, Kerala, Maharashtra and Punjab in the year 2015-16 through lottery tax which would now be subsumed under GST. He also briefed the Council on the incidence of Service Tax on lottery distribution. He presented two options for levying GST on lottery, as recommended during the meeting of officers of the State Governments held on 11 June 2017, namely- (i) GST rate of 5% on face value (MRP) of lottery tickets sold, and (ii) GST rate of 28% on MRP of lottery tickets sold less prize pay-out (as published in the official gazette of the State Government). He also stated that, in addition, there was an option presented by the State of Kerala to tax lottery tickets at the rate of 28% of face value (MRP of lottery tickets sold). He stated that under both the options, GST may be levied by the State Governments on the first point of sale by the State Government to the lottery distributor or the sole selling agent appointed by the State Government and to exempt agents/stockists below the distributor. He explained that the lottery organising States (Sikkim, Arunachal Pradesh, Nagai and and Assam) earned royalty and the earnings out of it would be reduced if the rate of tax was high and keeping this in view, the States of North-East had favoured the option of charging tax at the rate of 5% on face value of lottery tickets. He also added that these States got a very small amount of revenue, and therefore, this was an important source of revenue for them. 7.3.3. Starting the discussion on this agenda item, the Hon ble Minister from Nagaland stated that his State was an Organising State of lottery and if the rate of tax on lottery was kept high, it would affect the royalty revenue as the number of buyers of lottery tickets would shrink. He suggested that tax rate on lottery tickets should be reasonable and suggested that it should be 5% on face value of tickets sold. The Hon ble Ministers from Sikkim and Mizoram supported this view. The Hon ble Minister from Maharashtra stated that they had the highest sales/turnover of lotteries and they could support the rate of 5% if it was made compulsory that the prize money pay-out in each case would be 80% of the total amount. The Hon ble Chairperson observed that decision on this issue was not within the jurisdiction of the Council. The Hon ble Minister from Maharashtra then suggested to take the second option. He added that if rate of GST on lottery tickets was kept at 28% of the face value, then lottery sale would decline and illegal gambling etc. would increase. 7.3.4. The Hon ble Minister from Kerala stated that his participation in the Council Meeting was always very positive and he supported the decisions despite his ideological differences on some of them. However, on the issue of lottery, there were serious legal and ethical issues, and therefore, he could not compromise on his stand of charging tax on lotteries at the rate of 28% of face value. He added that if consideration was loss of royalty to North-Eastern States, he would assure giving them double the money from his State but lowering the rate would encourage the growth of lottery mafia, which was not acceptable. He recalled that earlier, such lottery mafia had created social, law and order problems. He added that the mandate of the Fitment Committee was to look at the existing tax rates to recommend GST rates. He suggested that on some items, rates were reduced in deviation from this principle on the ground of changed situation but in this case, the existing rate on lotteries could not be allowed under the GST structure. He stated that lottery was under a Central Act, which did not allow any operator to play in this field other than the State. Section 4 of the Central Act provides that tickets would be printed by the State Government; printing would be done by a security press and the money from sale of lotteries would come to the Consolidated Fund of the State. He stated that a few States had given lottery contract to certain people who violated rules with impunity, which created serious social problems. He also objected to the data put in the agenda notes on the basis of the information given by All India Federation of Lottery Trade and Allied Industries; it was the States who were running lotteries and only the States data could be authentic. He reminded that profit earned from lotteries went to the State treasury for developmental works. He added that in order to curb manipulation, the rate of tax on lotteries should be 28% on face value. 7.3.5. The Hon ble Minister from Sikkim stated that the tax rate of 28% on face value would hit their revenue and reminded that earnings from lotteries and tourism were their main sources of revenue. The Hon ble Minister from Kerala stated that lottery was being run by profiteers and was creating legal and social problems in the State. He reiterated his guarantee regarding giving minimum revenue to the North-Eastern States. He stated that as per his information, lottery agents in anticipation of a lower tax rate, had already selected their officers and appointed sub-agents to take advantage of the situation. The Hon ble Minister from Mizoram observed that the States had diverse interests and had unequal resources. He observed that vendors of lottery in his State had outsourced this activity to agents in West Bengal, Maharashtra, etc. He stated that personally, he was not in favour of lottery but on behalf of his State, he could not accept a very high rate of tax on lottery. The Hon ble Minister from Kerala stated that there was a rampant sub-contracting system going on in lotteries in contravention of the Central Act. He stated that the law enacted in his State had also been set aside by the Hon ble High Court of Kerala and if there was a low rate, it might create serious problems in his State. He added that he was mindful that they were refraining from banning lottery in their State because almost one lakh lottery sellers were differently abled who had one or the other physical deformity and their livelihood needed to be protected. 7.3.6. The Hon ble Minister from Telangana stated that lottery and all kinds of gambling were banned in his State and every State had a right to ban lottery. The Hon ble Chairperson stated that banning of lottery was not in the jurisdiction of the Council. He added that lotteries were being run by private people authorised by the States and the North-Eastern States wanted tax to be imposed on lottery at the rate of 5% on face value and the State of Kerala wanted it at the rate of 28% on face value. He observed that crux of the matter was that if the rate of tax on lottery was kept very high, it would become unremunerative, and therefore, other forms of gambling would start. The Hon ble Minister from Jammu Kashmir stated that it would not be desirable to deduct prize pay-out from the face value for charging tax, as VAT/ GST is on transaction value. He added that it was easy to manipulate the value of pay-out. The Joint Secretary (TRU-II), CBEC, stated that under the Lottery Regulation Act and rules made there under, pay-out for every draw is required to be declared in the Official Gazette. The Hon ble Minister from Kerala observed that prize money was declared in advance but there was manipulation in giving money and there were several scandals regarding lottery draws. He further added that other issues such as pricing of tickets were another activity for unscrupulous elements to exploit. 7.3.7. The Hon ble Minister from Assam stated that one had to be mindful that the rate of tax on lottery could not be the same as that for essential items like cereals, pulses, etc. He, therefore, suggested that the rate of tax should not be 5% but at least 12% or 18%. He added that no item which had negative connotation should be kept in the tax slab of 5%. The Hon ble Chief Minister of Puducherry stated that the dispute was between the State-run lotteries and the State-authorised lotteries. He observed that this was an important source of revenue for the North-Eastern States. He added that in southern India, lottery was banned in many States. He expressed that there was a need to find a middle ground by which the royalty income of the North-Eastern States could be protected and the revenue of States like Kerala was also protected. The Hon ble Chairperson stated that gambling and horse racing were being taxed at the rate of 28% and it might not be desirable to tax lottery at the rate of 5%. Shri V.P. Singh, Excise and Taxation Commissioner, Punjab, stated that his State supported taxation on lottery at the rate of 28% on its MRP minus prize pay-out. The Adviser (Financial Resources) to Chief Minister, Punjab, stated that lottery should be taxed like the insurance sector, where certain amount of premium went towards investment and the amount taxed was the premium amount minus the investment amount. He suggested that conceptually, the tax should only be on value addition. He stated that in lottery, there was an option to apply cess over and above the tax rate. The Hon ble Minister from Maharashtra stated that his preference was to tax lottery at the rate of 18% of face value. The Hon ble Minister from Manipur stated that his State was not running lottery but he supported the Hon ble Minister from Assam and proposed the tax rate of 12%. The Hon ble Minister from Mizoram stated that the tax rate in Kerala could be 28% but it should be 5% in North-Eastern States. The Hon ble Minister from Assam stated that most of the tickets were sold in Kerala and the proposal of the Hon ble Minister from Mizoram would hurt the North-Eastern States. The Hon ble Minister from Kerala reminded that half the amount of tax collected in his State would also go to the Centre. He further observed that since horse racing and gambling were to be taxed at the rate of 28%, lottery should not be taxed at a lower rate. 7.3.8 The Hon ble Minister from Goa stated that his State also got revenue from lottery. However, he supported following the principle of fitment approved by the Council. He cautioned that discussions could not be on the basis of State-wise interest. He observed that taxing lottery at the rate of 5% as that for food grains would convey a very poor message. He stated that a very low tax rate on lottery should not be fixed only on the consideration that a few small States would lose revenue and added that his State would be one such loser. The Hon ble Chairperson stated that the Council needed to explore the views of States other than those stated by the Hon ble Ministers from the North-East and Kerala and he recalled that when the rate of 3% was fixed on gold, Kerala had a better rationale to keep the rate at 5% but the Council considered that an abrupt increase in the rate of tax on gold would lead to large scale smuggling. A similar situation existed in lottery trade and a very high rate of tax would lead to increase in unauthorised activity like underground betting. 7.3.9. The Hon ble Minister from Telangana stated that another experience was that a higher rate of tax would lead to evasion of tax. He observed that Maharashtra had a high rate of tax on horse racing but it had the lowest revenue. He suggested to keep the tax rate on lottery and horse racing at the same rate but at a lower rate. The Hon ble Chairperson stated that it had already been decided that the rates of tax already approved should not be reopened. The Hon ble Minister from Kerala stated that lottery had three elements, namely - commission, prize money and profit (or revenue earned by the State) and observed that the price of lottery as well as prize money would remain the same and only profit margin would come down. This would discourage private players to operate in the field of lottery. He stated that the law to control this activity was no longer in force. The Hon ble Chairperson requested for views of the Hon ble Members on the possible rate of tax on lottery. The Hon ble Ministers from Bihar and Assam supported the rate of tax at 12% on face value of the ticket. The Hon ble Minister from Chhattisgarh supported the rate of tax at 28% on MRP of lottery ticket sold less the prize pay-out. The Hon ble Minister from Jammu Kashmir suggested to tax lottery at a higher rate and also impose cess on it but did not support the proposal to deduct the prize money payout from the price of the ticket. The Hon ble Minister from Jharkhand stated that lottery should preferably be banned but if it was not possible, it should be taxed at the rate of 28%. Shri M.P. Ravi Prasad, Joint Commissioner, Commercial Tax, Karnataki, stated that there was ban on lottery in his State and that he had no views regarding the tax rate. CCT, West Bengal, stated that lottery should be taxed on its face value. The Hon ble Minister from Madhya Pradesh expressed the opinion that lottery should not be allowed and if it had to be taxed, then it should be at the rate of 28% with cess. The CCT, Gujarat, informed that lottery was banned in his State and that he had no views on the issue. CCT, Uttarakhand, stated that lottery was banned in his State and he had no opinion on the rate of tax. Shri H. Rajesh Prasad, Commissioner (VAT), Delhi, stated that the rate of tax should be 28% on face value though his State would prefer to ban it. The Hon ble Chief Minister of Puducherry supported the tax rate of 18% on the face value of the ticket. The Hon ble Minister from Telangana supported the tax rate of 18% and stated that a higher rate would lead to evasion of tax and strengthen the mafia. Shri Onkar Chand Sharma, Principal Secretary (Finance), Himachal Pradesh, stated that the rate of tax should be 28%. The Principal Secretary (Finance), Odisha, stated that they had no views on the subject as there was no lottery trade in his State. Joint Commissioner, Commercial Tax, Tamil Nadu, stated that lottery was banned in his State and he supported the tax rate of 28%. Shri Pravin Srivastava, Chief Resident Commissioner, Tripura, stated that lottery was banned in his State and he had nothing to say on this issue. The Hon ble Minister from Nagai and supported a tax rate of 5%. 7.3.10. The Hon ble Minister from Maharashtra observed that his State was the largest consumer of lotteries and suggested that the rate of tax be 12% or 18% on face value of the tickets. The Hon ble Minister from Sikkim supported the rate of tax at 28% on the MRP of lottery tickets sold less the prize money pay-out. The Hon ble Chief Minister of Puducherry suggested that, to begin with, the rate of tax could be 18% on face value and it could be reviewed later on. The Hon ble Minister from Sikkim stated that the revenue from lottery for his State was about 63 crore which could be affected if it was taxed at a very high rate. He added that socially, such kind of activity could not be eradicated by prescribing a high rate of tax. 7.3.11. The Hon ble Chairperson observed that till now, the Council had already decided other issues by consensus but on this issue, the Hon ble Minister from Kerala had very strong views which needed to be balanced with the views of the North-Eastern States. The Hon ble Minister from Kerala reiterated that he was willing to sign a written guarantee by assuring the same revenue to the North-Eastern States under GST system as they were getting till today. The Adviser (Financial Resources) to Chief Minister, Punjab, stated that as lottery was being sold as goods, the supply would be where the lottery was sold and that the tax revenue would not go to the North-Eastern States. The Hon ble Chairperson stated that the amount of royalty accruing to the North-Eastern States would get affected due to high rate of tax. The Hon ble Chairperson observed that a very high rate of tax could lead to undesirable activities like matka. The Hon ble Minister from Mizoram stated that the discussion was on the basis of the present scenario whereas under the GST regime, the money would be given as a devolution from the Central Government. The Hon ble Chairperson stated that if the rate of tax was higher and collection was also higher, then the devolution to the States would also be more. The Hon ble Chairperson suggested that the rate of tax on lottery could be 18% on its face value and the Council could see its impact for some time. The Hon ble Minister from Kerala vehemently stated that he was unable to be a party to this decision. He added that the main issue was not revenue as majority of the States had banned lotteries but it was the other attendant social problems arising out of this trade. 7.3.12. The Hon ble Chief Minister of Puducherry stated that the State of Tamil Nadu and many other States of South India had banned lottery and the State of Kerala should also follow the same model. The Hon ble Minister from Kerala stated that livelihood of people was connected with lottery and taxing lottery at a high rate would not affect their livelihood but would make lotteries less attractive for manipulators. The Hon ble Minister from Jammu Kashmir suggested that another compromise could be to distinguish between State-run lotteries and State-authorised lotteries and suggested to tax the former at the rate of 12% or 18% but the latter at the rate of 28%. The Hon ble Minister from Kerala expressed agreement at this suggestion. 7.3.13. The Hon ble Chairperson stated that as per the Court judgment, there were clear conditions between the State-run lotteries and the State-authorised lotteries and this could be the principle used to distinguish the lotteries and tax them differently. He suggested to tax the State-run lotteries at the rate of 12% on the face value and the State-authorised lotteries at the rate of 28% on the face value. The Council approved this proposal. The Council also approved the proposal that tax could be levied by the State Governments on the first point of sale by the State Government to the lottery distributor or the sole selling agent appointed by the State Government and to exempt agents/stockists below the distributor. 7.3.14. In respect of the Agenda Item on Lottery, the Council approved the following - (i) The supply of lottery shall attract GST rates as under - a. Lottery run by State Governments - 12% of face value of lottery ticket (Face value to be inclusive of GST) b. Lottery authorized by State Governments - 28% offace value of lottery ticket (Face Value to be inclusive of GST) (ii) Tax can be levied by the State Governments on the first point of sale by the State Government to the lottery distributor or the sole selling agent appointed by the State Government on reverse charge basis and to exempt agents/stockists below the distributor. Agenda Item 4: Any other agenda item with the permission of the Chairperson: 8.1 High Sea Sales This agenda item was not taken up for discussion, and it was deferred. 8.2. Notification of remaining sections of the Central Goods and Services Tax Act, 2017 and Integrated Goods and Services Tax Act, 2017 from 1st July, 2017 and power to GST Implementation Committee 8.2.1. Under this agenda item, the Secretary proposed that the Council may approve the notification of remaining sections of the CGST Act, 2017 and IGST Act, 2017 from 1 July, 2017. He further proposed that the Council may delegate the power to GIC to decide that certain Sections of the Act may not be notified from the said date and that the Council may also delegate the power to GIC to extend the date of notification of Sections, earlier approved to be notified with effect from 19June, 2017, beyond the said date but not later than l July, 2017. The Council approved the same. 8.2.2. In respect of the Agenda Item on Notification of remaining sections of the Central Goods and Services Tax Act, 2017 and Integrated Goods and Services Tax Act, 2017 from 1 st July, 2017 and power to GST Implementation Committee, the Council approved the following: (i) Notification of remaining sections of the CGST Act, 2017 and IGST Act, 2017 from 1 July 2017 and delegation of power to the GIC to decide that certain Sections of the Act may not be notified from the said date; and (ii) to extend the date of notification of Sections, earlier approved to be notified with effect from 19 June 2017 to 22 June 2017. 8.2.3. The decision stated in para 8.2.2. above shall apply mutatis mutandis to SGST Acts as well as UTGST Acts. 8.3. Exemption to supplies of goods or services or both of certain amount from the purview of sub-section ( 4) of section 9 of the Central Goods and Services Tax Act, 2017 etc. 8.3.1. The Secretary requested the Commissioner, (GST Policy Wing), CBEC to explain this agenda item. The Commissioner, (GST Policy Wing), CBEC explained that sub-section (4) of Section 9 of the CGST Act provided that the central tax in respect of the supply of taxable goods or services or both by a supplier who was not registered, to a registered person would be paid by such person on reverse charge basis as the recipient and all the provisions of this Act would apply to such recipient as if he was the person liable for paying the tax in relation to the supply of such goods or services or both. Accordingly, any supply from unregistered supplier to registered recipient would fall within the purview of central tax and the registered recipient will not only be liable for the payment of tax on such inward supplies on reverse charge basis but would also be responsible for the compliance. He added that this would create hardship for such registered recipients as they would be liable for compliance with subsection ( 4) of Section 9 for inward supplies even of petty amount. He further added that omnibus application of the said provision to all inward supplies may be counter-productive and would increase compliance hardship for the registered recipient. 8.3.2. Accordingly, it was proposed that inward supplies of goods or services or both, the value of which was five thousand rupees or less received by a registered person from an unregistered person per day may be exempted from the application of sub-section (4) of section 9 by exercising the power of exemption under Section 11 of the CGST Act. The Hon ble Minister from Bihar supported this suggestion. Joint Commissioner, Commercial Tax, Karnataka stated that his State would not favour such a proposal. The CCT, Gujarat stated that only Government departments making TDS needed to be exempted from this provision. The CCT, West Bengal stated that every Government department needed to be registered and should be exempted. The Secretary agreed to this. The CCT, Andhra Pradesh stated that if an exemption of 5,000 was allowed under Section 9(4) of the CGGST Act per day per supplier, it amounted to a total of 18 lakh per year per supplier and that the threshold for exemption from registration itself was 20 lakh. The Hon ble Minister from Assam and the Adviser (Financial Resources) to the CM, Punjab supported the proposal to keep an exemption of 5,000 per day under Section 9 (4). 8.3.3. In respect of the Agenda Item on Exemption to supplies of goods or services or both of certain amount from the purview of sub-section (4) of section 9 of the Central Goods and Services Tax Act, 2017 etc., the Council approved the proposal of exempting supplies of goods or services up to a limit of 5,000 per day received by a registered supplier from one or more unregistered person per day from the purview of Section 9(4) of the CGST Act. It was also decided that the registered supplier would be required to issue a monthly invoice for other supplies (i.e. the value of which is above 5000/- from one or more unregistered person per day) received from unregistered person as required in terms of section 31(3)(f) of the Central Goods and Services Tax Act, 2017. Similar dispensation would be provided under the SGST Act as well as UTGST Act also. 8.4 Fund Settlement Rules 8.4.1. The Secretary invited Shri Udai Singh Kumawat, Joint Secretary, Department of Revenue (DoR) to make a presentation on the proposed Fund Settlement Rules. The Joint Secretary, DoR explained that the Fund Settlement Committee constituted by the GST Council had prepared the draft Fund Settlement Rules in consultation with officers of the Central and State Governments. He explained the mechanism of fund settlement through a presentation which is included in Annexure 7 . 8.4.2. The Hon ble Minister from Uttar Pradesh said that his officers did not get time to study the Rules in detail and that they would need some more time to offer comments. The Joint Secretary, DoRstated that, comments had been received from Gujarat, Karnataka, Bihar, West Bengal, Maharashtra and Shri G.D.Lohani, Commissioner, CBEC and Member, Law Committee and had been taken into account. The Secretary stated that any further comments on the Fund Settlement Rules could be sent within two days to the Fund Settlement Committee for consideration. 8.4.3. In respect of the Agenda Item on Fund Settlement Rules , the Council approved the Fund Settlement Rules subject to minorchanges that may be required. 8.5. Authorization of Banks for GST collection 8.5.1. Introducing this agenda item, the Secretary explained that banks needed to be authorized to collect GST. The agenda note proposed that the 24 banks that were currently authorized to collect indirect taxes could be authorized for collecting GST throughout the country, since these banks met the requirements cited in Paragraph 85 of the GST Payment Process Report. The 24 banks are as follows: 1. Allahabad Bank 2. Andhra Bank 3. Axis Bank 4. Bank of Baroda 5. Bank of India 6. Bank of Maharashtra 7. Canara Bank 8. Central Bank of lndia 9. Corporation Bank 10. Dena Bank 11. HDFC Bank 12. ICICI Bank 13. IDBI Bank 14. Indian Bank 15. Indian Overseas Bank 16. Oriental Bank of Commerce 17. Punjab and Sind Bank 18. Punjab National Bank 19. State Bank of India 20. Syndicate Bank 21 UCO Bank 22. Union Bank of India 23. United Bank of India 24. Vijaya Bank 8.5.2. The Secretary added that J K Bank had recently been authorized for conduct of Government business by the Reserve Bank of India (RBI) and that it was proposed to authorize J K Bank also to collect GST. 8.5.3. In respect of the Agenda Item on Authorization of Banks for GST collection , the Council approved 24 banks to collect GST and also provisionally allowed J K Bank to collect GST subject to final assessment and approval by the Principal Chief Controller of Accounts, CBEC. 8.6. Power to be exercised under Sections 37, 38 and 39 of the Central Goods and Services Tax Act, 2017 8.6.1. Introducing this agenda item, the Secretary stated that though the Systems were ready for roll-out of GST from 1 July 2017, trade and industry, specifically from the banking, civil aviation and telecom sector had requested for some more time to test the Systems, get themselves familiarised and get assurance about its stability and robustness. He informed the Council that out of the 3 monthly returns (GSTR-1, GSTR-2 and GSTR-3), only GSTR-1 needed to be filed by 10 th of the subsequent month and that the other two would be auto-populated at a later date. However, due to lack of fami liarity of the trade and apprehensions expressed with regard to the system readiness, it was proposed to extend the date of filing of returns GSTR-1 and GSTR-2. The Hon ble Chairperson stated that though GSTN was ready, big businesses and their ERP (Enterprise Resource Planning) software were not ready and needed some more time. It was mentioned that even the GST Suvidha Providers (GSPs) needed time to test the software.Shri Navin Kumar, Chairman, GSTN clarified that till date, about 66 lakh assessees (81% of the total) had migrated and that starting from 25 June 2017, enrolment would be started again for a period of three months. Taking all these points into consideration, it was proposed to extend the deadlines for filing of returns as per the timelines below R e t u rn for Mo n t h of Proposed date f or GSTR-1 Proposed date for GSTR - 2 July 2017 1-5 September 2017 6-10 September 2017 August 2017 16 - 20 Septemb er 2017 2 1 - 25 September 201 7 8.6.2. The Hon ble Chairperson stated that small businesses would have 2.5 months to adapt to the new system and any glitches could be rectified. He added that from September 2017 onwards, the regular cycle would start. The Hon ble Minister from Kerala stated that if GSTR-1 was delayed, GSTR-2 and GSTR-3 would also be delayed, thereby resulting in late payment of tax liabilities. The Secretary stated that a new simple form- GSTR-3B was being proposed to pay tax based on summary of outward and inward supplies which would be submitted before the 20th of the succeeding month.If, at a later date, there was a difference between the auto-generated GSTR-3 and GSTR-3B, the tax liability would be adjusted accordingly. The Hon ble Minister from Kerala wondered if, after 2 months, the return-filing would become normal. The Chairman, GSTN replied that some glitches that were identified would be resolved and that a dedicated helpdesk was handling migration issues and resolving problems faced by assessees. 8.6.3. Shri Saswat Mishra, CCT Odisba stated that 66 lakh assessees had been activated but all of them had not migrated. He added that only about 52% of assesses previously registered with the Central Government and 41% of assessees previously registered with the State Government had obtained an ARN (Application Reference Number). He further added that no training had been provided on the backend system and that master trainers had been imparting training only on the frontend system. 8.6.4. Shri Prakash Kumar, CEO, GSTN stated that so far, only the Income Tax Department provided digital signatures and that it was a new thing for majority of taxpayers under indirect taxes. He further informed that those with a valid registration and PAN could be migrated as per law and that the provisional id that had been provided was nothing but the GST Registration Number and that supplies could be made. 8.6.5. The Hon ble Chairperson stated that once the registration started again from 25 June 2017 and implementation started from 1 July 2017, then there would be enough time for things to settle down. The Secretary added that this extra time would help trade and industry to acclimatize themselves with the System. 8.6.6. In respect of the agenda item on the power to be exercised under Sections 37, 38 and 39 of the Central Goods and Services Tax Act, 2017 , the Council approved the following- (i) For the first two months of GST implementation, tax would be payable based on a simple return (Form GSTR-3B) containing summary of outward and inward supplies, to be submitted before the 20th of the succeeding month. Law Committee shall prepare the FORM GSTR-3B; (ii) Invoice-wise details in the regular Form GSTR-1 shall be filed for the months of July 2017 and August 2017 as per the timelines below- Ret u rn for Month of Proposed d a te for GSTR-3B Propo s ed date for GSTR-1 Proposed date for GSTR-2 P r oposed date for GSTR-3 July 2017 20 Aug 2017 1-5 Sept 20 17 6-10 Sept 2017 11 - 1 5 Sept 2017 August 20 17 20 Sept 2017 1 6-20 Sept 2017 21 - 25 Sept 2017 26 - 30 Sep t 20 17 (iii) To provide a sense of comfort to the taxpayers and give them time to attune themselves with the requirements of the new system, no late fees and penalty shall be levied for the interim period, if the returns are filed by the extended period. 8.7. Other Items- Fitment of certain items 8.7.1. The Hon ble Minister from Tamil Nadu expressed gratitude to the Council for having considered favourably some requests from his State. He further urged the Council to examine the rates of certain goods and services such as unbranded sugar confectioneries, roasted gram locally known as fried gram , sago, Wet grinder and Air Compressors, fishnet and fishnet twine, sanitary napkins, etc. He added that the rate of tax for supply of food and drinks in small restaurants should be brought down to 5% and that a distinction needed to be made between AC restaurants serving liquor and other AC restaurants that do not serve liquor. He mentioned that the fireworks industry which was largely located in Tamil Nadu was labour-intensive and was, at present, out of the purview of Central Excise and that the proposal to levy tax at the rate of 28% might harm this sector and also pave way for the market being flooded with imported fireworks. He accordingly requested that the rate of tax on fireworks be reduced from 28% to a lower rate keeping in mind that it was a highly labour intensive industry. The Hon ble Minister from Bihar requested that palm and date jaggery and all kinds of non-intoxicating neera be exempted from tax in view of the immense potential for small entrepreneurs and the beneficial effects of neera on health.The Hon ble Minister from Kerala stated that there needed to be a final round of discussion on fitment. The Hon ble Minister from Telangana suggested that the infrastructure projects of drinking water supply, housing, irrigation projects and Road Buildings (R B) works taken up by the State Government, which are essential for improving the quality of living, may be taxed at the rate of 5%. The Hon ble Chief Minister from Puducherry and the Hon ble Ministers from Jammu Kashmirand Rajasthan also requested for reconsideration of fitment of certain items. The Hon ble Chairperson stated that States could keep sending their representations on fitment and that these would be considered. 8.7.2. The Hon ble Minister from Goa stated that tourism would be affected if the current rate of 28% for hotel rooms costing 5,000 per day and above prevailed and that hotel rates were cheaper in other South East Asian countries. The Hon ble Chief Minister from Puducherry stated that hotel rooms costing between 5,000 per day and 10,000 per day should attract a rate of 18% and that hotel rooms costing more than 10,000 per day should be taxed at the rate of 28%. The Hon ble Minister from Rajasthan stated that room of 5,000/- plus was not a luxury. He requested to reconsider the rate of GST on hotel rooms and services and to reduce it to 18% from 28% for room tariff up to 10,000/-. The Chairperson proposed that hotel rooms costing 7,500 per day and above could be taxed at 28% and those where room tariff was 2,500 and above but less than 7,500 per day could attract tax rate of 18%. It was also proposed that supply of food/drinks in air-conditioned restaurants in 5-star or above rated hotels could be taxed at the rate of 18%. The Council agreed to these proposals. 8.7.3. In respect of the Agenda Item on fitment of certain items, the Council approved the following: - (i) GST Rate on hotel rooms where tariff is 2,500 and above but less than 7,500 per day shall be 18% (ii) GST Rate on hotel rooms where tariff is 7,500 and above shall be 28% (iii) GST Rate on supply of food/drinks in air-conditioned restaurant in 5-star or above rated Hotel shall be 18% 8.8. Other Items- Eligibility for Composition Scheme 8.8.1. Initiating a discussion on this agenda item, the Secretary introduced a list of nine items which were proposed to be excluded from the Composition Scheme. The Hon ble Minister from Rajasthan stated that marble slabs should be allowed to avail of the Composition Scheme and requested for removing this from the negative list for Composition. Shri M. Balaji, Joint Commissioner, Commercial Taxes, Tamil Nadu requested to remove fireworks from the negative list. The Hon ble Minister from Jammu Kashmir suggested that except for tobacco and pan masala, the negative list should be done away with. Shri Arvind Subramanian, Chief Economic Adviser supported this proposal. 8.8.2. In respect of the Agenda Item on eligibility for Composition Scheme , the Council approved the following - (i) Manufacturers of the following goods shall not be eligible for the Composition Levy: a. Ice cream and other edible ice, whether or not containing cocoa (21 05 00 00) b. Pan masala (2106 90 20) c. Tobacco and manufactured tobacco substitutes (24) 8.9. Other Items- Connectivity issues 8.9.1. The Hon ble Minister from Mizoram stated that they were facing problems in migration due to connectivity issues with BSNL and NlC. The Hon ble Chairperson stated that a meeting needed to be organized with BSNL of all the North-Eastern States to discuss connectivity issues. 8.10 Other Items -Delegation to GST Implementation Committee (GIC) 8.10.1 The Secretary informed that before the roll out of GST on 1 July 2017 and after the roll out, many urgent decisions may be required to be taken, which require approval of the Council. It may not always be possible to call meetings of the Council again and again at short notice. Therefore, the GST Council may delegate powers to GST Implementation Committee to decide on urgent matters, and the decisions taken in GIC would be circulated amongst the Council Members and their views/ comments sought within 2 days. After suitably incorporating comments/ views of the Council members, the decision would then be implemented after obtaining the approval of the Hon ble Chairperson of the Council. Such decisions taken by GIC with the approval of the Hon ble Chairperson of the Council would be put up for information of the Council in the next Council meeting. 8.10.2 The Council approved the proposal contained in para above. Agenda Item 5: Date of the next meeting of the GST Council: 9. The Hon ble Chairperson suggested that the next meeting of the Council could be held on 30 June 2017 on the eve of the roll-out of GST followed by dinner. He added that this being a historic occasion, it was proposed to have a function in the Central Hall of the Parliament which would be attended by the Hon ble President of India, the Hon ble Prime Minister of India and all the Hon ble Members of the Parliament, to which Members of the GST Council would also be invited. 10. The meeting ended with a vote of thanks to the Chair. (Aurn Jaitley) Chairperson, GST Council