Minutes of the 42nd Meeting of the GST Council on Oct 5th & 12th, 2020 - GST - 42nd GST Council Meeting

Minutes of the 42 nd Meeting of the GST Council on Oct 5 th 12 th , 2020 Agenda Item 1 - Confirmation of the Minutes of the 42 nd GST Council Meeting held on 05 th 12 th October, 2020 The 42 nd meeting of the GST Council (hereinafter referred to as the Council ) was held on 05 th 12 th October, 2020 through video conference under the Chairpersonship of the Hon ble Union Finance Minister, Smt. Nirmala Sitharaman (hereinafter referred to as the Chairperson). A list of the hon ble Members of the Council who attended the meeting is given at Annexure-1 2. A list of officers of the Centre, the States, the GST Council and the Goods and Services Tax Network (GSTN) who attended the meeting is given at Annexure-3 4. 2. The following agenda items were listed for the discussion in the 42 nd Meeting of the Council: 1. Confirmation of the Minutes of GST Council Meetings. i. 40 th meeting of the GST Council held on 12 th June, 2020 ii. 41 st meeting of the GST Council held on 27 th August. 2020 2. Deemed ratification by the GST Council of Notifications, Circulars and Orders issued by the Central Government 3. Decisions of the GST implementation Committee (GIC) for information of the Council 4. Timelines in respect of TRAN- 1/TRAN-2 declarations based on the discussions of 13 th meeting of IT Grievance Redressal Committee held on 01.09.2020 5. Update on Return Enhancement and Advancement Project (REAP) in-principle approval of overall architecture 6. Issues recommended by the Law Committee for the consideration of the GST Council i. Extension of the GSTR-1/3B system of return filing and change in due date for quarterly taxpayers upon introduction of the new GSTR-2B functionality ii. Issues related to Annual Return for Financial Year 2019- 20 iii. Steps taken to improve compliance behavior of taxpayers for making furnishing of GSTR-1 mandatory before furnishing GSTR-3B. iv. Amendment to FORM GSTR-1 and notification 12/2017-Central Tax, dated 28.06.2017 for improving data quality to enhance tax administration v. Agenda Note regarding refund to be disbursed in same PAN and Aadhaar linked bank account on which registration has been obtained under GST. vi. Proposal for amendments to CGST Rules, 2017 vii. Limitation period for taking cognizance or institution of prosecution under GST 7. Issues recommended by the Fitment Committee for the consideration of the GST Council i. Agenda Note on the representation received from HADMA seeking (GST rate of 12% on Ayurveda/Unani/Siddha (AUS)-ingredients based sanitizer 8. Issues of Goods and Services Tax, Network (GSTN): i. Status of receipt of Advance User Charges (AUC) from States and CBIC ii Need for moving resources from CR model to T M model for important developments iii. Status update on conversion of Goods and Services Tax Network (GSTN) into 100% Government-owned Company 9. Agenda Note for continuation of cess beyond the transition period 9A. GST Compensation Options - Ways of meeting the Shortfall 10. Review of Revenue position 11. Enabling UPI and IMPS as a payment option for payments of Goods Services Tax 12. Status report of creation of GRC Zone-wise (CBIC) and States / UTs as on 04.09.2020 13. Performance Report of the NAA (National Anti-profiteering Authority) for the 1 st quarter (April to June, 2020) for the information of the Council 14. Any other agenda item with the permission of the Chairperson i. Minutes of the Meetings of GoM on IGST Settlement held on 22.09.2020 01.10.2020 ii. GST on launch of small satellites by Indian enterprises 15. Date of the next meeting of the GST Council Preliminary discussion 3. The Hon ble Chairperson invited the Union Finance Secretary and ex-officio Secretary to the GST Council (hereinafter referred to as the Secretary) to begin the proceedings. The Secretary welcomed the Hon ble Chief Minister, the Hon ble Minister of State (Finance), the Hon ble Deputy Chief Ministers and the Hon ble Members to the 42 nd Meeting of the GST Council. 3.1. After preliminary discussions, the Hon ble Chairperson asked the Secretary to take up the individual Agenda Items for consideration of the Council. Agenda Item 1: Confirmation of the Minutes of GST Council Meetings 4. The Secretary informed that the 1 st Agenda item, was the confirmation of the Minutes of the 40 th and 41 st Meetings of the GST Council (hereinafter referred to as Minutes) held on 12 th June, 2020 and 27 th August, 2020 respectively He stated that the Minutes were circulated to all the States in advance and comments have been received from the following States suggesting the following changes. i. The State of Puducherry suggested that: a. in Para 6.5 of the minutes recorded for the 40 th GST Council meeting in line 4 to replace the presently recorded version (Several rounds of meetings were held amongst which one was held in the presence of Hon ble Union Finance Minister and it was agreed that this issue will be resolved) with the following version Several rounds of meetings were held in this regard. One such meeting was held in the presence of the Hon ble Union Finance Minister and it was agreed that this issue will be resolved . b. in Para 9 of the minutes recorded for the 41 st GST Council meeting, in lines 46 and 47, to replace the presently recorded version (Further he brought up the issue that every State was getting 51% revenue share whereas Puducherry was getting only 26% whereas it was entitled to 51%) with the following version Further he brought up the issue that every State was getting 41% revenue share whereas puducherry was getting only 26% whereas it was entitled to 41% . ii The State of Kerala suggested that: a. in Para 40 of the minutes recorded for the 41 st GST Council meeting, to replace the presently recorded version (the Hon ble Member from Kerala staled that he disagreed with the assessment made by the Finance Secretary in dealing with the situation. When the economy is in recession, or in contraction, the theory suggests that the Government should expand the expenditure) with the following version The Hon ble Member from Kerala strongly disagreed with the assessment made by the Finance Secretary in dealing with the situation. He stated that barring one or two states all others who spoke said that the center should do the borrowing. Haying felt the sense of the house, this aspect should be discussed first and he took strong exception to the discussions centering on Covid related revenue loss and non-Covid related revenue loss. When the economy is in recession, or in contraction, the theory suggests that the Government should expand the expenditure. b. in Para 59 of the minutes recorded for the 41 st GST Council meeting, to replace the presently recorded version (the Hon ble Member from Kerala stated that the best course of action would be to give some time to the States to communicate the option they choose to exercise.) with the following version The Hon ble Member from Kerala stated that the best course of action would be to give some time to the States to examine the options. 5. For Agenda Item 1(i) and 1(ii) , the Council approved the Minutes of the 40 th GST Council meeting and 41 st GST Council meeting with the changes suggested by Puducherry and Kerala as detailed in para 4 above. 6. After confirmation of the minutes of the 40 th and 41 st meetings of the GST Council, the hon ble Ministers from the States / UTs of Puducherry, Punjab, Kerala, Telangana, Haryana, Maharashtra requested the Chairperson that the GST compensation issue should be discussed first while rest of the agenda items could follow The Secretary clarified that compensation issue was listed as Agenda item 9A. He sought permission of the Chairperson and the Hon ble Ministers to first discuss Agenda item 9 on continuation of cess beyond transition period and then Agenda Item 9A. It was agreed upon and the meeting started with discussion on Agenda No.9. 7. However, the minutes are presented below in sequence of the Agenda Items 2 to 14 for the convenience of ease of reference. Agenda Item 2: Deemed ratification by the GST Council of Notifications, Circulars and Orders issued by the Central Government 8. The Secretary asked Pr. Commissioner, GST Policy Wing. Sh. Yogendra Garg to place the Agenda before the Council, PC, GSTPW introducing the Agenda briefed the Council that the Agenda is regarding deemed ratification of Notifications. Circulars and Orders in relation to decisions already taken by GST Council and if deemed fit may be ratified and approved by the Council. He slated that in the 40 th GST Council meeting held on 12-6-2020, the Council had ratified all the notifications, circulars and orders issued before 10-6-2020. He thereafter made a presentation ( Annexure 5 ) listing out ail the notifications, rate and non-rate of CGST, UTGST, IGST and Compensation Cess Circulars and Removal of Difficulty orders issued since 10-6-2020 till 25-9-2020 under the GST Laws by the Central Government as available on www.cbic.gov.in 9. For Agenda item 2 , the Council ratified the following: i. the notification, circulars and Orders as in Agenda Item and the presentation (attached as Annexure 5 ) 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 From Notification No. 48/2020- Central Tax, dated 19.06.2020 to Notification No. 73/2020- Central Tax, dated 01.10.2020 Notification No. 04/2020- Central Tax (Rate), dt. 30-09-2020 UTGST Act Union Territory Tax Notification No. 02/2020 Union Territory Tax dated 24.06.2020 and Notification No. 04/2020 - Union Territory Tax (Rate) dated 30.09.2020 IGST Act Integrated Tax 1. Notification No. 04/2020 - Integrated Tax dated 24.06.2020 2. Notification No. 05/2020 - Integrated Tax dated 24.06.2020 3. Notification No. 04/2020 - Integrated Tax (Rate) dated 30.09.2020 Circulars Under the CGST Act, 2017 141/11/2020 - GST ROD Orders Under the CGST Act, 2017 01 of 2020- Central Tax ii. the notifications, Circulars and Orders issued by the States which are parimateria with above notifications, Circulars and Orders. Agenda Item 3: Decisions of the GST Implementation Committee (GIC) for information of the Council 10. PC, GSTPW, CBIC informed that the GST Implementation Committee (GlC) took various decisions between 27.05.2020 and 08.09.2020. Further, due to the urgency involved, certain decisions were taken by GIC after obtaining approval amongst GIC Members by circulation. He made a presentation (attached as Annexure 5 ) on the decisions taken by GIC. 10.1 The Hon ble Deputy CM of Delhi on the decision of GIC with respect to sharing of information with the Comptroller and Auditor General of India commented that this information should he sought directly from GSTN instead of CAG approaching each State separately. He suggested that after getting approval from the States, GSTN should make the information available directly to CAG. He stated that an SOP be made by the Council for both CBIC and the States on the modalities of information sharing. He added That CAO is first approaching the States and then States arc seeking information from GSTN and then sharing it with CAG. This will make the whole process cumbersome. He suggested that instead. GSTN should be authorised and with due approval of the Slates, GSTN should be allowed to share information with CAG. He further stated that CAG was presently asking for information from the NCT of Delhi, so the issue needs to be addressed urgently. 10.2 The Secretary to the GST Council acknowledged that suggestion of the Hon ble Deputy CM of Delhi was good and stated that it should be done the way suggested. He added that in consultation with CAG, they had established certain protocol as to how information from the Central Government will go. Now as per the suggestions given by the Hon ble Member, the same will be incorporated and then in principle approval can be taken with regard to the nature and manner of data sharing, so that whatever is decided for Central Government, the same can be placed before the Council and based on that, data sharing can be done with CAG. He informed the Council that the Deputy CAG had met him some time back and placed similar request that going to all the States separately for data will be cumbersome and hinder proper audit. He emphasised that proper audit was must to ensure timely corrective action on the observations of CAG. 10.3 The CEO, GSTN, clarified that there were two aspects, one being selection of cases where audit will be done and for that data can be taken centrally. Second is once the cases are selected then they need to approach the particular jurisdiction and look at the files. He informed that now the Central Government authorities have created User-ID and password for the CAG Officers so that they can access the information. Suppose the CAG authorities want to look at the entire refund processing, they can see from start to end for those cases which have been selected by them. Same thing they want for the States as well. He informed that for 30 Model-2 States. GSTN was in the process of creating a similar kind of access mechanism wherein the States create the access User- id s and passwords and give to CAG for accessing data required. 10.4 The Secretary, GST Council summing up the discussion stated that today s meeting could be taken as authorisation for making similar mechanism for the States as had been done for the Centre after extensive discussion with CAG for data sharing with CAG. wherein after approval from the States, the User-Id and password can be given to CAG for enabling access and retrieval of data for the individual cases they want to look at. 10.5 The Hon ble Deputy CM of Delhi again stressed that approval of the State in this process was must. 10.6 The CEO, GSTN clarified that the User-id and password will be made available to the State Nodal Officer so that when the CAG team comes for audit it can be handed over by the State Nodal Officer for access of data and then be taken back once audit is complete. So, the control rests with the States. As it is approved today by Council, GSTN will work on the same and have the functionality ready at the earliest. 10.7 The Hon ble CM of Delhi appreciated the same. 10.8 The Commissioner. Commercial Taxes, Karnataka submitted that as a Model 1 State, CAG had already sought their data through the backend. So they were already accessing their system and as Model 1 State they did not have access to the GSTN system. So as far as Model 1 States were concerned, CAG could continue to access their system much like their officers accessed it. 11. For Agenda Item 3 , the Council took note of the decisions of the GST Implementation Committee between 27.05.2020 and 08.09.2020. Agenda item 4: Timelines for TRAN-1 and TRAN-2 based on 13 th meeting of ITGRC 12. The Secretary of the Council asked the Convener, Law Committee to brief the Council on the agenda. The Convener, Law Committee explaining the agenda informed that in 13 th ITGRC meeting, it was observed by the ITGRC that Rule 117(1A) of CGST Rules 2017 had been amended vide Notification No. 02/2020-CT dated 01.01.2020 extending the due date for submitting the declaration electronically in Form GST TRAN- 1 upto 31.03.2020, in respect of taxpayers who could not submit the said declaration by the due date on account of technical difficulties on the common portal and in respect of whom the Council had made a recommendation for such extension. Similarly, due date of filing TRAN-2 had been extended upto 30.04.2020. In view of the spread of pandemic COVID-19, these timelines stood extended to 31.08.2020 vide CBIC Notification No. 35/2020-CT dated 03.04.2020 read with Notification No.55/2020-CT dated 27-06-2020. 12.1 He further informed that the ITGRC in its meeting held on 01.09.2020 had recommended 26 cases (12 cases received from Nodal Officers and 14 eases received on account of Court cases) for opening up of the portal to file revised TRAN- 1/TRAN-2. Further, another 31 cases viz. 9 Court cases and 22 cases received from Nodal Officer (received by nodal officers before 31.03.2020) were under examination by the GSTN. He informed that the ITGRC had observed that as due date for submitting the declaration electronically in Form GST TRAN-1 under present provisions of Rule 117(1A) was already over on 31.08.2020, it therefore appeared that ITGRC could not take up any fresh case for discussion and recommendation unless the Rule was amended. In view of the above, the ITGRC requested that this issue might be referred to Law Committee before bringing it to GST Council for appropriate recommendation. 12.2 The issue was deliberated by Law Committee in its meeting held on 09.09.2020, wherein it was decided that the timeline under Rule 117(1A) should not be extended, as any extension of time limit under Rule 117(1A) may adversely affect the stand taken by the Government in the Special Leave Petition 7425-7428/2020 filed by the Revenue in the case of Brand Equity Treaties Limited in the Hon ble Supreme Court. 12.3 The Secretary apprised the Council that this Agenda involves two parts: (a) The ITGRC had recommended 26 cases (12 from Nodal Officers and 14 Court cases) in its 13 th meeting held on 01-09-2020 for opening up of the portal to tile revised TRAN- 1 /TRAN-2. (b) The cases pending with GSTN as on 01-10-2020 including 9 Court cases and 22 cases received from Nodal Officer (received by nodal officers before 31.03.2020) totaling to 31 cases. He explained that though the due date for submitting the declaration electronically in Form GST TRAN- 1 under present provisions of Rule 117(1A) was over on 31.08.2020 but these 26 cases, having technical glitches while filing TRAN-1/TRAN- 2 and recommended by the ITCRC, may be considered so that the portal can be opened for these cases. This would give legal backing for enabling opening up of the portal in respect of these 26 cases recommended by ITGRC. 12.4 For the cases mentioned at 12.3(b) above, he requested the Council that the issue may be kept open and the same can he brought back to the Council. He informed that many of these taxpayers are approaching Courts to get transitional credit and that there is a need to be cautious as whatever is done with regard to these cases would have legal implications. 13. For Agenda item 4, the GST Council took note of the above and accorded its approval for 26 cases duly recommended by 1TGRC in its 13 th meeting held on 01-09-2020 for opening up of the portal to file TRAN-1/TRAN-2, if they had faced technical glitch Agenda Item 5: Update on Return Enhancement and Advancement Project (REAP) in-principle approval of overall architecture 14. The PC, GSTPW made a presentation ( Annexure 5 ) and briefed the Council that in the 39 th GST Council meeting held on 14.03.2020, it was decided that instead of an entirely new return system, enhancements were to be carried out in the existing system and achieve the same objective. The Return Enhancement and Advancement Project (REAP)undertaken by the GSTN essentially involved, inter-alia, that the liability got auto-populated from the GSTR- 1, the credit got auto-populated from GSTR-1 of the suppliers and ultimately an auto populated return is generated. 14.1 Briefing the Council PC, GSTPW highlighted that following features had already been enabled under REAP: i Nil filing of GSTR 3B by SMS ii. Nil filing of GSTR-1 by SMS iii. Auto population of liabilities from GSTR-1 to GSTR- 3B for Monthly Taxpayer iv. Auto drafted ITC Statement (GSTR-2B): Elaborating on this point. PC, GSTPW stated that auto drafted ITC statement in GSTR-2B was now available. The Secretary explained that one of the major issues during discussions in the Council was invoice matching. In GSTR-2B details of all the suppliers invoices could be seen and on that basis his ITC was being computed leading us to the final goal of invoice matching. He slated that GSTR-28 was an important step in that direction. Fie reminded the Council of the presentation made by Sh. Nandan Nilekani in the 39 th GST Council meeting held in March wherein he was requested that by end of July, certain important milestones be achieved, and this was one of them. This should prove beneficial for taxpayers as they would know the exact ITC available to them on the basis of invoice matching and also for the tax administration as any undue utilisation of tax credit will be red flagged for necessary action and follow up. So, it was good for the taxpayer and good for the tax administration and should definitely boost tax collection. v. Enhancement of existing comparison report of auto-drafted and filed values for GSTR-3B vi. Matching Tool for matching GSTR-2B and the Purchase register: To this point the PC, GSTPW elaborated that matching tool is now available using which the taxpayer could match his purchase register to GSTR-2B and find missing invoices. He stated that a communication tool is under development which would enable taxpayers to send the details of missing invoices to his suppliers for making necessary corrections/declaration. vii. Import data as part of GSTR-2A download and GSTR-3B auto-population: To this point PC, GSTPW added that earlier import data from customs was on self-entry basis and now it was also flowing from the system automatically into the GSTR-2B. viii. Delinking of credit/debit notes with invoices in GSTR-1/GSTR-6 ix. Providing detail of invoice considered for computation in Table 8A of GSTR-9: To this point, PC. GSTPW elaborated that in GSTR-9, ITC was auto populated for the entire year but the taxpayer did not know as to which invoices were captured and there was a difficulty in reconciliation which had now been made resolved. Giving the roadmap, graphically depicted in the presentation ( Annexure 5 ) the PC, GSTPW stated that finally everything will be linked, and taxpayer would get an auto drafted GSTR-3B from the system. The ultimate goal is that everybody needs to declare only their GSTR-1 that is their own invoices and once e-invoice was achieved for everybody, even GSTR-1 will also be automatically prepared and from this GSTR-3B will also be prepared. This would ensure that the compliance cost and burden go down significantly and barring reverse charge supplies arid ITC reversals, practically everything will be done by the system. 14.2 He further highlighted that the only area where work was yet to be done was regarding the earlier approved quarterly return with monthly payments which was proposed to be rolled out as part of the new return system for smaller taxpayers with turnover less than ₹ 5 crores. He informed that such taxpayers arc about 89% in number and contributed only about 13% to the total tax revenue. PC, GSTPW stated that a similar QRMP system with a slightly different approach is now proposed to facilitate these small taxpayers. He highlighted that the major issue was computation of the tax liability every month after taking into account the outward supplies, inward supplies and ITC computation and filing of return because it may require some external assistance. He stated that under the proposed scheme all the small taxpayers having turnover less than ₹ 5 crores will have an option of either self-assessing their tax liability, or auto generating their challans of 35 percent of the cash liability of the last quarter. Thus, based on past tax liability, monthly tax liability would be allowed to be paid Instead of assessing the tax liabilities, Only at the end of the quarter, they would need to tile their return and assess the correct Liability. This way instead of filing GSTR-38 and GSTR- 1 every month, they would he required to be filed only quarterly which will lead to substantial reduction in the compliance costs. The Secretary, GST Council added that the taxpayers are actually paying 35% during first two months of the quarter on the basis of the last quarter cash payment and in case, during the third month, he has to pay more because of greater tax liability for the quarter, then he will not be required to pay interest on the tax liability for the first two months as he had already complied with the 35% requirement. This would substantially reduce his compliance burden as instead of filing monthly return, he is filing quarterly returns. He added that the total number of taxpayers with turnover less than Rs. five crores is almost 89% and for making these monthly payments, these people will not need to visit any accountant or professional anymore, so to that extent it will be a big relief. 14.3 The PC, GSTPW stated that the taxpayer will not need to refer back to his taxes and the system will pick up and generate the challan. He stated that the quarterly filers will be required to file their GSTR-1 also quarterly only. He stated that the challenge in quarterly GSTR-1 currently available for taxpayers having turnover less than ₹ 1.5 Crore is that some of the large buyers or buyers making exports demand that invoices supplied to them should be declared on monthly basis. The smaller taxpayers arc therefore forced to either go for monthly compliance or lose their customers. He informed that keeping this difficulty in mind, a facility is proposed so that the taxpayers can report invoices of such buyers on monthly basis while report the rest on quarterly basis. Further he proposed that QRMP be made available from 01.01.2021 for which the option be made available from 01.12.2020. He informed that in order to facilitate these small taxpayers, what is proposed is that they are migrated automatically by default to QRMP Scheme and they can opt out during December 2020-January 2021 till 31 st January 2021 and the same will be publicised. With this, he placed the following proposal for in- principle approval of the Council: i. For month M 1 and M2 of the quarter they will file only one challan PMT-06 for their liability (net of ITC) ii. Option to estimate tax liability or pay 35% of cash paid in last quarter iii. Continuous invoice filing facility (1FF) to be made available in M1 and M2 He stated that once GST Council granted in principle approval to the same, the Law Committee would work out the legal framework. 14.4 The Secretary GST Council reiterated that this was proposed to he brought from 01.01.2021 and that it had two components. One part being Technology which was already being worked out and they were confident that this would be done in time. The other part was legal for which certain changes in the Rules would have to be made which Law Committee will work out, so the taxpayers should get the benefit of QRMP right from the fourth quarter of this Fiscal Year. 14.5 The Hon ble Member from Goa lauded the proposal and stated that it was long due and he was waiting for invoice matching to be there. He complimented the officers for formulating this proposal and opined that they should move ahead with it immediately for it to be implemented from 01.01.2021. He reiterated that it was long overdue and congratulated the officers for having worked on it despite the pandemic. He hoped this will help to plug leakages and firm tip revenues. 14.6 The Hon ble Dy. CM of Gujarat stated that it had always been discussed that the Forms and Returns must be made as comfortable and easy as possible. He opined that the Law Committee had not yet finalised the Return form and the format of the same must he widely publicised to CA s and professionals and feedback must he sought on it. He stated that it should be put up in public domain through website and feedback from Trade associations and stakeholders be sought on whether it is really comfortable and easy and only then should Law Committee finalise the same so that there is no need of any change in future. 14.7 To the point made by the Hon ble Dy. CM of Gujarat, the PC, GSTPW explained that no returns or forms were being changed and that the proposal was only to allow for monthly payment to small taxpayer for which he will have to pay a challan of 35% of his cash payment of last quarter and that he will have to file quarterly returns. for which the form remains the same. The Secretary, GST Council added that GSTR- 1 and GSTR-3B forms remained the same and only their frequency was being altered. This proposal would require changes in the GST Rules which the Law Committee will look into and these will be brought before the Council before 31.12.2020 for it to be made functional from 01.01.2021. Nonetheless he assured the Hon ble Deputy CM that in case any changes were made in the forms, they would consult the same with stakeholders and obtain their feedback. 14.8 The Hon ble Deputy CM of Gujarat suggested that they must strive to ease/simplify the forms as these prove to be quite complicated for the small taxpayers who are being allowed to file returns quarterly. A simple and easy form must be made available for these taxpayers. He thanked the Secretary for accepting his suggestion on stakeholders feedback. 15. For Agenda Item 5 , the Council granted in principle approval to the Quarterly Return and Monthly Payment Scheme (QRMP) to be made available from 01.01.2021 as proposed and directed that the Law Committee should work on the legal framework for the same expeditiously. Agenda Item 6: Issues recommended by the Law Committee for the consideration of the GST Council 16. The Secretary then asked PC, GST Policy Wing Sh. Yogendra Garg to take up this Agenda Item. The PC, GSTPW, initiated the discussions with a presentation ( Annexure-5 ) and briefed the Council that all the proposals in this Agenda were discussed and recommended by Law Committee. 16.1 Taking up the Agenda item 6(i) he stated that in the existing returns system consisting of GSTR 1-2-3. since GSTR 2 and GSTR 3 were kept in abeyance. GSTR-1 and GSTR-3B need to be prescribed time and again. He informed that the existing extensions were valid till 30 September 2020. The GST Council in its 39 th meeting held 14 th March, 2020 had already decided on incremental approach to new return system by enhancing existing return system and that as explained in the previous agenda item, the said project would get completed by 1 st April 2021. Therefore, the proposal was that GSTR-3B and GSTR-1 be prescribed till 31 st March 2021 and at the same time Law Committee would work on ensuring that the legal framework law gets aligned with GSTR-1 and GSTR-3B system which are going to be the final returns system, so that further extensions are not required. He further stated that second part of the proposal was that the due date of quarterly GSTR-1 is the last day of the month succeeding the quarter which would cause difficulty to the buyers in availing ITC on time since now GSTR-2B has been made available which gels generated on the 14 th of the succeeding month. He explained that there was a need to align the due date and it is proposed that due date for quarterly GSTR-1 be made 13 th of the month following the quarter so that GSTR-2B of the quarter involve all those invoices also. The Council approved the said proposal at 6(i). 16.2 Taking up the next Agenda Item 6(ii) the PC, GSTPW stated that it was regarding annual return / reconciliation statement for 2019-20. He reminded the Council that for the annual returns for 2017-18 and 2018-19 based on the stakeholder s suggestions, certain tables had been made optional. Now, out of those optional Tables, two items i.e. details of ITC availed on capital goods and Tables 8A lo 8D (ITC data) were proposed to be made mandatory as part of 2019-20 return cycle. For 2020-21 cycle he stated that they will be anyway developing a new form because of lots of enhancements which had taken place. He stated that the second decision point was that the Council had made the annual return for 2018-19 optional for taxpayers with turnover upto ₹ 2 crore and 9C was mandatorily required to be tiled by taxpayer having turnover of above R.5 crore, bitt looking at the difficult times that the taxpayers have gone through due to COVID related Iockdown, further enhancement in turnovers in this regard could be considered. He explained that just less than 2 percent of the taxpayers had turnover of greater than ₹ 20 crore and who contributed 84 percent of the tax. The PC, GSTPW, placed for the consideration of the Council whether they should maintain the same threshold that is ₹ 2 crore for GSTR- and ₹ 5 crore for GSTR-9C or should they be looking at any enhancement to give relief to more tapayer5. 16.3 The Secretary added that in this proposal some analysis had been done and it was discussed in Law Committee and the Council can take a final view on this. He stated that Forrn-9C particularly requires some professional help. It was also necessary because whatever extra credit one had taken, had to be reconciled through 9C. He informed the Council that whatever tax came from 9C mechanism last year, majority of it came from those who having turnover more than ₹ 20 crore. So the proposal was that if turnover for mandatory GSTR 9C could be increased from ₹ 5 crore to ₹ 20 crore it would provide a big relief to the taxpayers and a larger number of taxpayers would not have to worry about filing 9C. Further he stated that through data analytics if supposing they Found large gaps and somebody had taken more credit than due to him and if his turnover was Less than 20 crores, they could always ask for more information. The Secretary opined that this kind of balanced approach will protect the revenue and case the compliance burden. He requested the Council to approve the proposal. 16.4 The Hon ble Member from Kerala stated that when they had increased the limit last time lie had opposed it justifying that the annual return was a very important instrument to check tax evasion. Now virtually they were giving it up in the name of easy compliance. He added that the extra effort to plug tax leakage has a compliance cost. They had already raised the limit and raising it further was not a balanced approach at all and therefore, he was not in favour of the proposal.16.5 The Hon ble CM of Puducherry stated that the present status for filing of annual returns GSTR-9 and 9A was that it was optional for taxpayers with aggregate turnover less than ₹ 2 crores and the filing of GSTR-9C was mandatory for those with turnover greater than ₹ 5 crore. In his view, filing of reconciliation statement in form GSTR-9C with annual turnover of more than ₹ 5 crore had to be continued, In the sense, he agreed with the view expressed by the Hon ble Finance Minister of Kerala that when they give exemption relaxations, it gives room for evasion and the reconciliation statement definitely will help to avoid evasion of tax. Therefore, check and balance will be there and according to him the present system of ₹ 2 crores and ₹ 5 crores be continued. 16.5. Hon ble Member from West Bengal stated that in his presentation to the GST Council, Sit Nandan Nilenkani mentioned about significant leakage of revenue and bigger question was, as to how do we reform this structure so that this leakage could be minimised. Of course now auto population was being proposed which was one of the key points that three hundred crores of invoices were to be uplinked every month, according to the original plan, He stated that GSTR-1 was working line but GSTR-2 which as supposed to be auto populated was not working. He enquired from the senior officers whether these changes would bring down significant amount of leakage which is primarily due to input tax credit where fraudsters create companies and those companies are non-existent shell companies and they create ITC on them because the system does not have the auto population and matching of invoices there. What arc the fundamental changes which will help in reducing the ITC fraud due to the inefficiency or lacunae in the system, how do we do that? If we can get an answer to that. if it was not possible now, if something could be produced to show how this could happen, it would be big service in the collection of tax. 16.6 The Secretary sought the permission of the Hon ble Chairperson to respond to the Hon ble FM of West Bengal stating that they had brought several proposals to achieve that goal of plugging leakages. In a sense that some of the proposal had been brought in this Council Meeting and some had been approved in the last two council meetings. One of the points mentioned by the Hon ble Member about people creating companies, fly by night operators, issuing invoices and disappearing had been restricted through introduction of GST registration through Aadhar authenticatIon. Now it was not that easy that somebody gets some PAN card or sonic documents from somewhere and floats a company, issues invoice and disappears. In order to get a registration, one will have to give Aadhaar and if somebody does not give Aadhaar number then in that particular case his premises has to be physically inspected. He was very glad to state that almost 90 percent of the new registration had been through Aadhaar based mechanism. Further he added that GSTR-2B auto-population and matching had been implemented. He requested the Hon ble FM that instead of taking tune here in the next Council meeting they could actually come up with the presentation on the steps taken thus far to curb leakages minimise ITC leakages, the achievements on that front and the way forward and it could be discussed in detail. 16.7 The Hon ble Member from West Bengal submitted that what the Hon ble Deputy CM of Gujarat had said with regard to stakeholder consultation and inputs, in his experience having been on both sides of the story, he found, was a very constructive suggestion. There were two sides of the story one is those who create the shell companies and run away and the other is honest taxpayer who are made to go through such a rigour. The bigger ones find ways and means through chartered accountant and smaller ones arc unable to do so. Fie suggested that as pointed by the Hon ble Deputy CM of Gujarat, stakeholder consultation was very important He noted that it was here that they had repeatedly been making the mistake, not only in this tax but taxation in general. 16.8 The Secretary agreed that stakeholder consultation was very important and they would include it in every major decision. He brought to the notice of the Council that a major step had been taken from 1 st of October wherein electronic invoice (e-invoice) had been made mandatory for all companies having turnover more than ₹ 500 crore For B2B supplies. He noted that they were given a lot of time, lot of discussion took place and finally from 1 st October it was initiated and during the last 3-4 days, each day 6 to 7 lakh invoices were being filled electronically. He stated that the mandatory limit for e-invoices today was ₹ 500 crore and this Council had already approved that from 1 st of January all companies having turnover of more than ₹ 100 crores will he required to generate e- invoice and ultimately, they will gradually bring down this limit, so That smaller companies are also able to generate e-invoices. Finally, the day everybody starts generating e-invoices. the whole concept of GSTR-1 will no more be relevant and the invoice matching to that extent would be perfect the return can be pre populated because all the invoices are electronic. The taxpayer can simply verify and make the payment. He added that they were adopting a gradual approach so that industry was also able to adjust. In this approach, bigger taxpayers are being included first as once they are able to adjust to the new system, the medium and small industries also will be able to follow up on the same. 16.9 The Hon ble Deputy CM of Delhi stated that the driving force of this proposal, he presumed was change in the definition of MSME. He further stated that he was of the opinion that the 5 lakh taxpayers falling between aggregate turnover of ₹ 5 crores to ₹ 20 crores were already getting their accounts audited, even IT audit was already being done for them. If they were already getting their audit done, they had to merely file return and subsequently with auto population tool this could be done. Therefore, he opined that there was no need to relax it further as ₹ 5 crore limit was already set, it should be allowed to continue and they should not touch it and for the taxpayers with turnover above ₹ 5 crore, it was not a big deal as they were already getting their accounts audited. 16.10 The Secretary, with the permission of the Hon ble Chairperson, staled that the older limit could be retained and accordingly no change may be done. The PC, GSTPW, added that as part of this agenda (ii), a clarification that annual return being optional for taxpayers with less than Rs. .2 crores aggregate turnover, was optional for composition dealers as well, my be issued. The Council approved the proposal to that extent. 16.11 The PC. GSTPW taking up Agenda 6(iii) briefed the Council that for auto- population and any matching what was most important is that their outward supply statement, GSTR-1 was flied. Currently the behaviour was very different though the behaviour had been changing ever since rule 36(4) was introduced in terms of which the credit availed cannot he more than 110% of the tax as per invoices declared by the supplier. Re stated that still there was a gap of about 20% between GSTR-313 and GSTR 1 filing. For the auto generation of liability in GSTR 3B under REAP project proposed from 1 st of April, it was very important that GSTR 1 filing becomes disciplined and GSTR-1 is filed before GSTR-3B is filed. So, it is proposed that measures be taken to ensure that GSTR-1 is flied before GSTR-3B. He explained that what is proposed is that there is going to be a system check and late fee collected from 1 st of April 2021 if GSTR 1 is not filed. He further stated that it was very important as the Secretary also mentioned that once GSTR-1 is filed then the entire returns can be auto-populated. Of course, when e-invoice reaches the last level, the GSTR-1 itself will become redundant but till such time it was important that GSTR-1 was filed. The other measures which Council had approved in the meeting held in December last year was to bring in system check that e- way bill is blocked if GSTR-1 are not filed. He further stated that both kinds of behaviour are there that some file GSTR-1 and not file GSTR-3B and vice versa. He added that if the Council approves the proposal in this meeting, the trade would get six months advance notice. 16.12 The Secretary said that lie said requirement will come into effect from 1 st of April 2021 and this was very important. As the Hon ble FM of West Bengal had mentioned about ITC leakages and resulting loss of revenue, these steps regarding filing of GSTR-1 prior to GSTR-3B must be taken. And in case GSTR-1 is not filed for 2 months their e-way bill would be blocked. He added that they were giving enough time so that trade and industry can adjust before it is rolled out from 01-04-2021. 16.13 The PC, GSTPW stated that quite a large number of large taxpayers and compliant taxpayers were already tiling and more than two third of the paying taxpayers were already following this behaviour, He further stated that for the late fee on delayed furnishing of GSTR-1, currently there is an impression that on GSTR-1 there is no late fee though there is a late fee in law. The same is not being populated in the next month s GSTR-3B and not being thus collected also unlike the late fee for delayed submission of GSTR-3B. The proposal is that from I3 of April 2021, GSTR- 1 late fee also appears in the next GSTR-3B. Another proposal for auto-population along with this is that of interest on the delayed payment of tax. He informed that the Council had already decided that interest will be on net basis. Therefore, it is proposed that from 1 st of April, the late payment interest would also auto populated in GSTR-3B so that it can be collected with tax payment itself. It will also bring in more discipline in GSTR-3B filing. No change in law was required and these all were procedural changes. Further, he informed that since GSTR-3B can contain liability of earlier months also, there will be a facility to modify and add interest. 16.14 Taking up the next Agenda Item 6(iv) on changes in HSN requirement, the PC, GSTPW, stated that tax administration had been struggling to generate the sectoral data. A conscious decision was taken that in the first two-three years of the GST to not burden taxpayers with HSN requirement. Currently, for taxpayers having aggregate turnover upto ₹ 1.5 crore no HSN is to be given, from R.s. 1.5 to ₹ 5 crore aggregate turnover it is only 2 digits and above ₹ 5 crores it is 4 digits. But this is leading to misuse besides challenge in getting sectoral data. Quoting the example of stainless-steel, PC,GSTPW, stated that people don t declare the correct heading as they declare only 2 digit or 4 digit and the distinction cannot be made between costly grades and cheap grades leading to evasion of tax. He explained that the proposal was that from 1 st of April 2021, 6 digit HSN for goods and service be made mandatory for all taxpayers above ₹ 5 crore aggregate turnover while for those below ₹ 5 crore aggregate turnover 4 digit code will be mandatory only on B2B supplies. In addition, power to prescribe a class of supplies where the 8-digit HSN/SAC must be mentioned so that sensitive items like chemical weapons or evasion prone goods like stainless steel etc. can be effectively monitored. He also proposed to modify GSTR-1 to add Rate of Tax in Table 12 so that combined with the HSN the correct sectoral data can be obtained which would help in taking correct policy view. 16.15 Taking up the next Agenda Item 6(v) the PC, GSTPW stated that in the last three years investigation had shown that refunds were taken into accounts opened on the basis of rake documents. So when tax administration went alter people after finding fake refund by monetisation of fake credit, they were unable to trace them. Accordingly, it is proposed that re Fund be given only in the account which had been validated vis-a-vis with the Aadhaar and PAN of the claimant. It would ensure that the refunds were going into authenticated account belonging to registered taxpayer and not in the account of some operators of fake credit. Further, as was approved in earlier Council meetings, the refund applications would be Aadhaar validated so, one knows that it is corning from genuine person. 16.16 Moving to the next Agenda Item 6(vi) pertaining to amendment in CGST rules the PC, GSTPW, stated that in Covid period they had stopped blocking e-way bill. The current rule was that if two consecutive GSTR3Bs were not filed the e-way bill gets blocked. Since, conditional relaxation in filing of GSTR3B was given in lockdown period, blocking of e-way bills had been stopped w.e.f. 25 th March 2020. He informed that there was demand from some of the State Administrations that such suspension of blocking should be made part of the rules. So, it was discussed in the Law Committee and the recommendation was a proviso may be added in Rule 138E that from 20.03.2020 to 15.10.2020 no e-way blocking he carried out and that from 15.10.2020 blocking will be reinitiated for taxpayers having aggregate turnover above ₹ 5 crore. He informed that for taxpayers having aggregate turnover below ₹ 5 crores, we would watch the behaviour and then take an appropriate call. He further stated that like they allowed GSTR-3B and GSTR-1 nil filing through SMS now the composition taxpayers who have no liability in a particular quarter also will be able to do NIL filing through SMS. He further highlighted some technical changes as mentioned in his presentation (Annexure 5) for approval of the Council. 16.17 Moving to the next Agenda Item 6(vii) pertaining to inclusion of GST laws in Economic Offences (Inapplicability of Limitation) Act 1974 the PC, GSTPW stated that this was very important as in CrPC there was a time limit for prosecution. He stated that in the Economic Offences Act (Inapplicability of limitation) Act, 1974 aIl the existing laws are listed there but die GST laws are not there. He informed that in some cases, people being arrested in GST offences were given bail on day one saying that GST Officers do not file prosecution application within the limitation period. The proposal is that all the Central GST Acts that is CGST Act. lGST Act the UTGST Act and the Compensation Cess Act be put in the Annexure to this Act. He further informed that most of the States also have similar acts and they also needed to carry out the similar amendments. Wherever a State doesn t have such an Act, a proviso as per draft can be inserted in the SGST Act itself. 16.18 Member CBIC Sh. Vivek Johri added that significance of changes carried out through this amendment is that, otherwise, the general limitation which was applicable under Cr. PC would also apply to all GST offences and that will prevent us from filing prosecution in time and taking action. 17. For Agenda Item 6 , the Council took the following decisions: i. Approved extension of the present GSTR- 1/3B return filing system till March, 2021; ii. Approved changing the due date for furnishing GSTR- 1 by quarterly taxpayers till 1 Y of the month succeeding the quarter; iii. Granted in principle approval to make legal changes to replace GSTR-1/2/3 related provisions with the present GSTR-1/3B return filing system. iv. Empowered the Law Committee to deliberate upon the amendments required in the GST Acts and Rules accordingly. v. Approved issuance of clarification with respect to waiver of annual return in FORM - 9A for composition tax payers. vi. Approved measures to ensure GSTR.-1 filing mandatory before GSTR-3B from 01.04.2021 through Waiver of GSTR- 1 late fee if same is filed before GSTR-3B Blocking of e-way bills to be enabled on system from 01.04.2021 if two consecutive GSTR-1 s are not filed vii. Approved to populate GSTR-1 late fee in next GSTR-3B viii. Approved to populate interest for late payment of tax also in next GSTR-3B from 01.04.2021 ix. Approved facility to add interest if part of the liability being declared in GSTR-3B pertains to earlier tax periods. x. Approved making 6 digit HSN for goods and 6 digit SAC for services mandatory for taxpayers above ₹ 5 Cr. turnover w.e.f 01.04.2021 xi. Approved making 4 digit HSN/SAC compulsory on B2B supplies by taxpayers below ₹ 5 Cr. turnover w.e.f 0 1.04.2021 xii. Amend Rules to empower to notify 8 digit HSN on notified class of supplies by all taxpayers xiii. Approved modification of GSTR- 1 to include Rate in Table 12 to have better sectoral data w.e.f 01.04.2021 xiv. Approved grant of refund only in a PAN Aadhaar linked Bank account of the claimant. xv. Approved Aadhaar revalidation at the time of filing refund application. xvi. Approved waiver of blocking of e-way bill during COVID period from 20.03 .2020 to 14.10.2020 - to be given legal backing through a proviso in CGST Rule 138E xvii. Approved blocking to be reinitiated from 15.10.2020 for taxpayers with turnover ₹ 5 crore, xviii. Approved Nil filing of CMP-08 through SMS from a date to be notified-change in CGST Rule 67 xix. Approved change in Rule 142(1 A) making communication of demand ascertained by the officer in FORM DRC-01A optional xx. Approved changes in forms-RFD-01, GSTR-5 (non-resident) to include reverse charge liability, GSTR-5A (OIDAR) to include place of supply and Provision for declaring fee in DRC-1,2,7,8,9,24,25 ASMT-16 xxi. Approved inclusion of GST Laws in Schedule to Economic Offences (Inapplicability of Limitation) Act. 1974 so as to exclude from said limitation and inclusion SGST Act in the Schedule of respective Acts or if such an Act is not there, then to insert proviso to Section 134. Agenda Item 7: Issues recommended by the Fitment Committee for the consideration of the GST Council. 7(i): The representation received from HADMA seeking CST rate of 12% on Ayurveda / Unani / Siddha (AUS)- ingredient based sanitizer. 18. The Secretary introduced the Agenda Item 7(i) to the Council and asked the Joint Secretary, TRU-1 (Co-Convener of the Fitment Committee) to present the agenda before the Council. 18.1 The JS. TRU-1 stated that a representation dated 27 th July, 2020m was received from the Haryana Ayurvedic Drugs Manufacturers Association (HADMA) regarding Ayurveda / Unani Sidha (AUS) ingredient-based sanitizers, having Tulsi, Neem, aloe vera or other similar ingredients, claiming that the said goods were Ayurvedic medicines and, therefore, merit classification under HS Code 3004 90 11 and should attract GST at the rate of 12%. The contention was that the clarification in Press Release dated the 15 th July, 2020 did not apply to AUS ingredient-based sanitizers. Their main argument was that AUS ingredients-based sanitizers should be treated differently from alcohol-based sanitizers for the put-pose of GST levy, since AUS ingredients based sanitizers fall under category of Ayurveda medicines and required license under the Drugs and Cosmetics Act 1940. 18.2 Subsequently, HADMA filed CWP No, 11474 of 2020 before the Hon ble Punjab and Haryana High Court, praying for accepting their above-mentioned contention regarding AUS ingredient-based sanitizers. as well as relief from enforcement action by GST authorities on this account. The Hon ble High Court, in its Order dated the 11 th August, 2020 disposed of the said petition with the observation that It is hoped that the same shall be taken up for consideration by the GST Council at the earliest, considering the issue involved. The Hon ble High Court directed that the representation of HADMA dated 27 th JuIy, 2020 be placed before the GST Council for consideration. 18.3 The JS TRU explained the contentions of HADMA. The representation of HADMA dated 27 th July, 2020 was placed before the GST Council as per the Order dated 11-08-2020 of the Hon ble High Court of Punjab and Haryana. The JS, TRU further explained the details of Press release dated 15-07-2020, WCO reference from Covid- 19 medical supplies and other details to the GST Council. He stated that the Fitment Committee had examined the issue and recommended that Ayurveda / Unani / Siddha (AUS) ingredients-based sanitizers were classified under tariff item 3808 94 00 and attracted 18% GST mid as such there should be no distinction between them and alcohol- based hand sanitizers. 18.4 The Hon ble Ministers from Delhi and Kerala expressed their agreement with the recommendations of the Fitment Committee. The Hon ble Deputy Chief Minister from Gujarat also supported the recommendation. The Hon ble Minister from Tamil Nadu stated that same rate should be there for all types of sanitizers otherwise it might lead to misclassification disputes. The Hon bIe Minister from Uttar Pradesh stated that the present GST rate of 18% on all types of sanitizers should continue. The Deputy Chief Ministers from Bihar, Haryana and the Hon ble Minister from Rajasthan also agreed with the recommendation. The Hon ble Chief Minister from Puducherry also supported the proposal that GST rate of 18% should continue on all types of sanitizers. Thus, the GST Council, after considering the representation of HADMA dated 27 th July, 2020, agreed with the recommendations the Fitment Committee on this issue. 19 For Agenda Item 7(i), the GST Council recommended that the Ayurveda /Unani / Siddha (AUS) ingredient-based sanitizers be classified under tariff item 3808 94 00 with 18% GST and as such there should be no distinction between them and alcohol-based hand sanitizers. Agenda ltem 8: Issues of Goods and Services Tax Network (GSTN): 8(i): Status of receipt of Advance User Charges (AUC from States and CBIC 20. The Secretary of the Council asked the CEO, GSTN to brief the Council on the agenda. The CEO, GSTN stated that as per the Revenue Model of GSTN approved by the Empowered Committee of State Finance Ministers (EC) in its meeting held on 30 th August 2016, the GST System Project was being implemented by GSTN as per approval of the Cabinet and the cost incurred on the project (Capex and Opex) along with GSTN s own expenses was to be shared equally by the CBEC (now CBIC) and States in the form of User Charges to be remitted by them in two (2) instalments in a Financial Year on a half-yearly basis by 1 st March and 1 st September of the year. 20.1 He further informed that as per the approved Revenue Model, GSTN had raised demand for the payment of A UC to the Central and State Governments for the 2018-19, 2019-20 and 2020-21. The Advance User Charges of FY 2018-19 was received from all States and Centre, except from the States of Punjab and Telangana. GSTN had been following up for the same with the concerned states. Further, the follow up for Advance User Charges of 2019-20 was also being made continuously, including by way of informing the status to the GST Council. Also, the first instalment of Advance User Charges for FY 2020-21 was payable by 1 st June 2020 and second Instalment was payable by 1 st October 2020. However, in view of the current situation, few states had expressed concerns that they might not be able to release funds to GSTN within specified time, and had requested for extension of time without interest. 20.2 The Secretary stated that the CBIC had paid its first instalment of ₹ 132.22 Crores towards AUC for FY 2020-21. Submitting the status of pendency of AUC as on 29-09-2020, he specifically pointed out the following; (a) The States of Telangana, Punjab and others who had not paid the AUC for FYs 2018-19 and 2019-20 were requested to pay their dues at the earliest. (b) For FY 2020-21, the first installment for payment of AUC was due on 01-06- 2020 and the second installment for payment of AUC was due on 01-10-2020. Many States and the UTs had not paid the AUC for FY 2020-21. Some of the States had requested for extension of time without interest. Hence, he requested the GST Council to give consent for extension of due date for payment of AUC for FY 2020-21 (both first and second installments) till 31-03-2021 without levying any interest. 21. For Agenda Item 8(i) , the GST Council took note of the above and accorded its approval for extension of the due date For payment of AUC for FY 2020-21 (for both first and second instalments) till 31-03-2021 without levying any interest. Further, the States who had not paid the AUC for FYs 2018-19 and 2019-20 are requested to pay their dues at the earliest. Agenda Item 8(ii): Need for moving resources from CR model to T M model for Important developments. 22. The CEO, GSTN explained the agenda that the proposal of Software development under actual identified resources utilization model, commonly known as Time and Material (T M) basis, to implement the changes identified under roadmap for incremental improvements to existing Returns (Linking of GSTR-1/GSTR-2A/2B with GSTR-3B) was placed before the GST Council in its 39 th meeting held on 14 th March 2020. Consequently, Council approved the proposal of incremental enhancement of existing Returns on a T M basis starting with 60 personnel to carry out development. GSTN also approved 30.5 resources under T M model for critical changes of Back office. Front Office and Registration module of GST System. which had been named LEAP Project. These were not really additional resources being paid for but movement of resources from normal CR model of change implementation to T M model of change implementation. 22.1 He further explained that the main difference in T M model and normal CR model is that in T M model payment is calculated in terms of man-days of resources identified which were deployed exclusively for the project. It was for GSTN to closely monitor the running of the project and ensure that the manpower was fully utilised. At present GST, which had fast evolving law, needed this agile mode of IT development under T M model, GSTN was now experienced enough to use T M model of development mid deliver projects faster in CR model payment was made for individual CR and effort was estimated for each step in the development and payment was for effort in the development. On the other hand, huge time was spent on estimation of efforts, impact assessment etc. and then designing involving to and fro movement between GSTN and Infosys till agreement was arrived at the effort estimation and thereafter the software was developed. 22.2 The CEO, GSTN further informed that the GSTN and Infosys started T M model in the month of April for changes in Returns and related CRs and named this as REAP (Return Enhancement and Advancement Project). Accordingly, following approvals were requested from the GST Council: (i) that the methodology of getting the work done on T M basis, would be followed For developing above mentioned changes along with other critical changes which had direct impact on revenue. Overall 45 resources (30 in REAP and 15 in LEAP Project) starting from 1 st Oct 2020 till 30 th June 2021 would be utilised for the same over and above the existing resources; and (ii) to extend REAP LEAP Projects with existing resources from 1 st Oct 2020 till 30 th June, 2021. 223 Further, the Secretary apprised the Council that the agenda proposed methodology of getting the work done on T M basis through 45 additional resources for developing the software changes mentioned in para 5 of the Agenda Item 8(ii) from 01- 10-2020 to 30-06-2021 over and above the existing resources. He also sought extension of REAP AND LEAP Projects with existing resources from 01-10-2020 to 30-06-2021. 23. For Agenda Item 8(ii), the GST Council look note of the above and accorded its approval to the proposal contained in Agenda Item 8(ii). Agenda Item 8(iii): Status update on conversion of Goods and Services Tax Network (GSTN) into 100% Government-owned Company 24 The CEO, GSTN stated that the GST Council in its 27 th Meeting held on 4 th May 2018 had decided that the GSTN will he 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 had approved the proposal and the present status of conversion of GSTN into 100% Government-owned Entity. 24.1 He apprised that the Union Government and 24 States / UTs had paid the amounts while the payment was pending from 07 States as on 16-09-2020. After the payment to the non-Governmental institutions for the shareholding by the remaining States, further processes were required to be done to convert GSTN into 100% Government-owned entity. 24.2 He stated that there was an urgency to complete the process as early as possible and following were placed before the Council for information and directions: (a) The present status of conversion of GSTN in to 100% Government-owned entity. (b) The 07 States as listed in (Annex-2 of the Agenda) may be requested to make payment of their respective share purchase consideration and execute necessary documentations including Shareholder s Agreement and same the same to GSTN in order to expedite the matter of conversion of GSTN. 24.3 During the discussions the GSTN updated that as on 03-10-2020, out of the 07 remaining States, 03 States viz. Tamil Nadu, Telangana and Arunachal Pradesh had made the payments to Non-Government Institutions for share transfer, The officials from Andhra Pradesh Government stated that Andhra Pradesh Government stated already paid requisite amount on 03.10.2020 for their share purchase consideration. 24.4 Further, the Secretary apprised the GST Council that after payment by the 04 States as mentioned above, only three States viz. Rajasthan, Chhattisgarh and Sikkim were remaining for payment of their respective share purchase consideration to Non- Government Institutions. The officials from Rajasthan Government stated that they had moved the proposal to Finance through Budget which could not be cleared in Assembly and they would pay as soon as it was approved by the Assembly. The Secretary suggested that tile amount of ₹ 8.23 lakhs was not much, and requested for exploring other methods (Head of Account) for early payment. 25. For Agenda Item 8(iii), the GST Council took note of the agenda and requested the concerned States to make early payment of their respective share purchase consideration to non-Government institutions. Agenda Item 9: Extension of levy of GST Compensation Cess beyond transition period. 26. The Secretary requested the Joint Secretary, DoR to present the agenda and initiate the discussion. The JS, DoR began his discussion by quoting Section 8(1) of the GST (Compensation to States) Act 2017 which provided for levy of Compensation Cess on supply of goods and services for the purposes of providing compensation to the States for loss of revenue arising on account of implementation of the Goods and Services Tax for a period of five years or for such period as may be prescribed on the recommendations of the Council. To ensure that the total cess is sufficient to cover the compensation requirement during the entire transition period, the ley of cess would have to be extended beyond initial period of five years. He informed that the Learned Attorney General of India, in his opinion in Note dt 26-08-2020. had recommended that the continued levy and collection of the cess beyond the period of five years could take place only in the event there has been a shortfall in the payment of compensation to the States during the 5 year transition period. In other words, the GST Council would recommend the continuance of the cess beyond the transition period of 5 years only in a situation of shortfall during the transition period, which would necessitate the raising of hinds for paying the compensation to the Stales after the 5 year period is over. 26.1 In light of the above, the Secretary requested the GST Council to take a view and consider the recommendation that the levy of compensation cess be extended beyond the transition period of live years for such period as may be required to meet the gap. Further, the exact period for which the cess would be extended beyond June 2022 would he worked out and brought before the Council subsequently. 26.2 The Hon ble Minister from Kerala welcomed the proposal. The Hon ble Minister from West Bengal stated that this proposal was very good and that it would not burden whoever borrowed. lie submitted that the Compensation Cess collected beyond the transition period may be used for paying off interest and the principal amount and accordingly, the period for which the levy has to be effected beyond the transition period ought to be decided. The Hon ble Minister from Punjab also praised the proposal and submitted that the end date should not be defined and the levy should be extended till full compensation is settled. The Hon ble Minister from Karnataka welcomed the proposal calling it both imperative and inevitable. The Hon ble Chief Minister of Puducherry stated that as there is a provision in law, it is agreed upon to extend. Due to the extension of levy of the compensation cess beyond five years, the States would not lose anything. This was also in accordance with the commitment made by the then Union Finance Minister and Chairman of the Council Late Shri Arun Jaitely. The Hon ble Minister from Madhya Pradesh also supported the proposal. The Hon ble Minister from Uttar Pradesh thanked the Chairperson for this proposal and supported it. The Hon ble Minister from Goa congratulated the Chairperson for taking such a practical decision, During this period of global pandemic, India was far better than many other countries, on account or the steps taken by the Hon ble FM. The slow-down was mostly due to the pandemic and not due to any reason on account of the Union of India. The GST architecture was working very well and as the economic activity picks up the revenue will become very good. The Hon ble Minister from Odisha supported the proposal. 27. For Agenda Item 9 , the Council took note of the suggestions made by the Hon ble Ministers and approved to extend the levy of Compensation Cess beyond June 2022 till the entire shortfall is covered. The extension has to be reviewed from time to time. Agenda item 9A: GST compensation options - ways of meeting the shortfall as discussed on 5 th October, 2020. 28. The Secretary asked the Joint Secretary, DoR to initiate the discussion on the Agenda item. The Joint Secretary, DoR stated that after the discussion on ways to meet shortfall in cess collection in the 41 st meeting of the GST Council held on 27-08-2020, States were given two options to meet their GST compensation shortfall for current FY from market borrowing. The details of the two options were communicated to States by the Department of Expenditure, Government of India. Thereafter, 21 States opted for Option-1 while Puducherry indicated that it would accept Option-1 if accepted by all States, He further stated that the States while giving the option have also made several suggestions and given their views which are tabulated in Annexure to the Agenda Item. No State has yet opted for the Option-2. 28.1 The Secretary stated that based cii these suggestions, the Department of Expenditure had agreed to modify Option-1 as under: (i) Projected growth of 10% would be reduced to 7% and the amount under Option-1 would then be about 1.1 lakh crore. (ii) The interest on borrowing will remain the first charge on the Fund. The repayment schedule will be spread out during the period of extension of cess beyond transition period so that the part of the cess collection, remaining payment of interest and repayment of debt is released to the States against arrears of compensation. 28.2 The Secretary stated that the States which had not yet given their options may indicate their views on Option-1 in the meeting. He further emphasized that the Department of Expenditure had communicated that this borrowing of 1.1 lakh crore is in addition to the increase in the borrowing limit from 3% to 5%. He stated that there should not be any doubt regarding the headroom for the States as this borrowing is in addition to the 5% already available to the States. He further stated that in case a State were not able to borrow the entire amount up to 5% in the present year, it also could be extended to next year as per the special dispensation scheme as communicated by the Department of Expenditure. With the above details, he submitted the Agenda Item to the Council for discussions. 28.3 The Hon ble Minister from Chhattisgarh informed that the Hon ble Chief Minister of Chhattisgarh had expressed that the State was not able to accept either of the options provided. He stated that instead of limiting to two options, the matter could have been left open for any State to give any proposal regarding borrowing on their account or any other mechanism by which the shortfall in cess collection could be met. He further stated that keeping in view the principles of cooperative federalism and Section 18 of the Constitution (One hundred and First Amendment) Act 2016, it was not proper to seek opinion on a matter which had already hen decided and incorporated in the Constitution (One Hundred and First Amendment) Act 2016 and that the GST (Compensation to States) Act 2017 does not make any differentiation in the shortfall in revenue either on account of implementation of GST or due to Covid-19 or any other reason. He urged that the GST Council must live by the letter, word and spirit of the Constitution. The Hon ble minister further stated that the international rating agencies also consider the debts taken by the States to be the cumulative debt of the country when they downgrade or upgrade a country s economic rating. He further stated that the majority should not be the deciding factor, instead, the principles enshrined in the Constitution, considered decisions and judgment that all members had taken since the inception of the concept of GST to the passing of the GST Act should work. He stated that the Centre should come forward to carry out its bounden Constitutional duty in times of stress by being the agency taking the loan which would be serviced by the extended Cess collections beyond June 2022. instead of just being a guarantor. 28.4 The Hon ble Minister from Rajasthan stated that he agreed with the views of the Hon ble Minister from Chhattisgarh. He stated that during the debate on GST in the Parliament, doubts were expressed regarding availability of compensation to the States and the draft Act was amended to remove the word may and insert the word shall in its place. He stated that it was a constitutional duty of the Centre to compensate the States and not giving compensation to the States was harming the States, more so during the Covid-19 pandemic. 28.5 The Hon ble Deputy Chief Minister of Gujarat thanked the Chairperson for finalizing and offering two options to the States for handling the compensation shortfall, especially during the current Covid scenario and the slowdown in the economy and when the revenues of both the Centre and the States had fallen. He further stated that since all the recommendations of the States regarding the options provided were considered by the Centre, such as reducing the assumed growth rate from 10% to 7%, interest payment to be made from cess collections, the States would not be burdened by the borrowing. He further stated that a decision should be taken soon, and the process be started immediately to enable the States to get the amount as per the option chosen by them. 28.6 The Hon ble Minister from Tamil Nadu stated that in the FY 2020-21, for the period till July 2020, compensation of 12,258.94 crore is due to be paid to the State and it was a matter of grave urgency that the GST compensation payments are made immediately to enable them to continue the battle against Covid-19. He further stated that it is for the Centre to find the necessary funds to compensate the States if there was a shortfall in the cess collection. He suggested a via media in the 41 st Meeting of the GST Council, that the Centre could mobilize resources and borrow the funds required in the GST Compensation Fund. The loan could be serviced through an extension of the GST cess for few years beyond 2021-22. He informed that the Hon ble Chief Minister of Tamil Nadu had written to the Hon ble Prime Minister in this regard. He further stated that in the last meeting held on 27.08.2020, the Centre had proposed two options in which an artificial distinction was being drawn between GST implementation based losses and Covid induced losses. 28.7 He added that as per the note circulated earlier, under the operative Sections of the GST Compensation Act 2017, the compensation is payable for the entire shortfall in revenue collection, even if it is not on account of GST implementation. Further, this position had been clarified by the Attorney General and was asserted by the Centre. It was also stated that the balance shortfall would be made good in the subsequent years. He stated that even for the current financial year, partial release of compensation may be done. He also stated that the States had pointed out in the meeting conducted by the Union Finance Secretary, that the assumption of 10% normal growth in Option-1 was a highly unrealistic and unwarranted. Instead, revenue gap of the States must be assessed based on the appropriate proportion of the total anticipated loss this financial year under Option-1. He further stated that in such circumstances, given that there are only limited options his State chooses Option- with a hope that it would be reworked to reflect the highest proportion of the actual loss in revenue. 28.8 The Hon ble Minister from Madhya Pradesh thanked the Chairperson for considering the suggestion of the State about reducing the assumed growth rate from 10% to 7%. He stated that under Option-1, even after the State borrows ₹ 4,500 crore, a further sum or about ₹ 2295 crore would be due. He stated that Madhya Pradesh had also suggested that after the period of cess collection is over, after the payment of interest on borrowing, cess collections should be used for paying the pending compensation amount before the principal on the borrowing is paid. 28.9 The Hon ble Minister from Karnataka stated that there was a need to shift to the solution of the problem, which is unprecedented and was never envisaged by the predecessors. He stated that the whole country was in dire economic and health emergency. He further stated that the proposals brought before the GST Council had further instilled the confidence among the States and showed the commitment of the Centre and the Union Finance Ministry and now it is for the States to come forward to work towards the solution as enough discuss ion had taken place. He further requested the Chairperson to negotiate with RBI for a special concession on interest and special period for extension of repayment. He further stated that if the proposal did not go through because of flic one issue of who should he borrowing, then there is a risk of receiving no compensation for all the States. 28.10 The Hon ble Chief Minister of Puducherry stated that he had sent a letter to the Hon ble Chairperson or 05.09.2020 in which he highlighted that it was the statutory obligation on the pail of the Centre to pay the GST compensation to the States and in case of any shortfall in compensation cess, it was the responsibility of the Centre to borrow from the market and pay to the States. He stated that making the States to borrow from the market was not agreed in previous GST Council Meetings namely, 7 th , 8 th and 10 th . Without prejudice to the above proposal, only if all the States agree for the first option, Puducherry also prefers first option but, unfortunately, a picture had been given in the note that Puducherry agreed for the 1 st option. The Hon ble Chief Minister further stated when the Constitution (One Hundred and First Amendment) Act 2016 was passed in the Parliament and thereafter implemented, the States had given up their right to tax in view of the assurance given by the Centre to compensate the States for five years and the autonomy of the States to tax had been taken away. Now that the States are reeling under service economic crisis as had been explained by other Hon ble members, the compensation should he paid to the State exchequer for meeting the Covid-19 challenges and for fulfilling various liabilities and welfare schemes for the people. He further stated that in the two options given by the GST Council, a growth rate of 10%, further revised down to 7%, was assumed. A notional growth rate might not work for all the States and the actual growth rate for each States should be taken, as different States have different growth rates. He stated that apart from Ld. AGl s opinion, the Constitutional obligation and statutory liability is on tile Centre, as the assurance was given by the then Chairman of the GST Council. on record in the minutes of the meeting; that when there was a shortfall and when the cess was not accumulating, the Centre would go for open market borrowing to compensate the States. He further stated that the Centre should go for market borrowing as it was the liability of tite Centrai Government to do it and it was mitch easier for them, and the Centre should not tell the States to borrow. Further the Union Territories of Delhi and Puducherry would face additional complexities also. He further stated that there had been a strong tradition of arriving at consensus in the GST Council meetings under the then Chairman as well as the present Chairperson by seeing the larger interest of the nation and the people of the country. He suggested that the Centre should approach the RBI for borrowing and give the money to States as it was a much easier method than States going for borrowing. 28.11 The Hon ble Deputy Chief Minister of Tripura stated that he agreed with view of the Hon ble Minister from Gujarat regarding being pragmatic and moving forward. He also agreed with the views of the Hon ble member from Karnataka that it was a practical solution that the loan would be repaid from the cess collections of the extended period and it is important to gel the fund in time. He requested the Chairperson to initiate the opening of special window with the Reserve Bank of India, so that the States who are willing to borrow could go ahead with the borrowing proposal. 28.12 The Hon ble Minister from West Bengal stated that in the letter sent to the States it was mentioned that it would be better for the States to borrow instead of the Centre because of the following: ( ) Impact on rating from credit agencies- He mentioned that the debt-to-GDP ratio, which is a benchmark used by credit rating agencies, is arrived at by looking at the aggregate debt of the Centre and the States as a proportion of GDP. Hence, there would be no difference whether States or the Centre borrow. (ii) increase in fiscal deficit -He mentioned that the credit agencies would look at the fiscal deficits of the States as well as the Centre. (iii) Macro-economic implications - He pointed out that the macro-economic implications would be there for States as well as the Centre. He further stated that the Centre had a better headroom i.e. the capacity to borrow and the States which were already mowed down in debt, did not have capacity to borrow. He stated that the Centre can monetize its fiscal deficit while the States cannot. The Centre also had a special window with the RBI, whereas the States do not have such a special window to borrow. He further stated that the Centre would have an advantage of borrowing at G-sec rate whereas the States get a competitive rate around 2% higher than the G-Sec rate. He stated that the State Bank of India s report said that only 8 States had capacity to borrow, while the rest did not. He further mentioned that the Centre had sovereign guarantee whereas the States do not, in the same manner in which the word sovereign guarantee is used. He mentioned that the artificial differentiation between Covid-19 and non-Covid-19 situation as delineated in the borrowing options would not be possible as the Covid-19 situation was a reality. 28.13 The Hon ble Minister from West Bengal further stated that history should be looked at, and that it was Shri Arun Jaitley, then Leader of the Opposition who said on 20 th December 2013 that the BJP did not support GST because they did not rust the then Central Government to compensate the States. Further, on 18 th February 2017, the then Secretary of the GST Council was asked why the Act should not clearly say that the Parliament shall compensate in five years, instead of the present reading of the Act. The then Secretary went on record to say that the Centre could raise resources by other means for compensation and this could be recouped by continuation of cess beyond five years. He further mentioned that the Chairperson stated on March 14 th 2020 that it was the solemn commitment to the States and the Centre is duty bound to give compensation to the States. The Hon ble Minister informed that when he was the Chairman of the Empowered Committee, the States had given up 70% of taxing capacity under only one condition that the Parliament shall compensate the States for a period of five years. Fie stated that a letter was sent from the Hon ble Chief Minister of West Bengal to the Hon ble Prime Minister, saying the Centre should borrow and the States would cooperate by extending the Cess so that the Centre does not have to pay anything on its own apart from the cess collection irrespective of how long it would take. Fie further stated that the options could have been given in advance. He said that both options specified that the States have to borrow. In Option-1, with an artificial differentiation made where the interest and principal would be paid from the cess collection. In Option-2. to borrow a sum of ₹ 2.5 Iakh crore of estimated revenue loss where the interest would be paid by the States from their resources. He appealed to the Chairperson that given the Centre s capacity to borrow and the headroom available to the Centre, the borrowing should not be done at the cost of the States. He mentioned that the Reserve Bank of lndia has supposedly said that it was much easier for the Centre to borrow. He concluded with a positive note that economy would pick up, as it was seen in September 2020 revenue collection, and entire compensation can be paid from cess collection. 28.14 The Hon ble Minister from Punjab slated that the State of Punjab lost 25% of its revenue base which was subsumed when GST was launched and no other Stale would have lost so much of revenue. He further stated that extending payment of compensation beyond the transition period was not permissible by the law as on date. He referred to the opinion of the learned Attorney General which stated that the Stales were entitled to receive full compensation during the transition period in accordance with the provisions of the Act irrespective of the shortfall. As on date, there is no provision in the GST (Compensation to States) Act 2017 for extending the period of five years for payment of compensation to States. He further mentioned that Section 8(1) of the Act would only entitle an extension with regard to period of the levy and collection of cess beyond the period of five years for the payment of compensation to the States and this would not permit the extension or deferment of the period of five years for the payment of compensation to the States. He stated that in his opinion, it was only in the case where all the States together agree for a deferment or extension with regard to payment of compensation to them, could one adopt such a course of action. He stated that he had written to the Chairperson on the subject and wanted to know whether the compensation law would be amended to provide compensation in the revised manner and if so, could this amendment be retrospective starting from April 2020. 28.15 He further stated that the state of economy was not good, and the States fisc was stretched like never before and hence measures need to be taken to settle the past dues of compensations. He stated that this would collectively match with the 25% of the revenue gap for the current year and hence the compensation cess collected should be disbursed without any further delay. He further mentioned that the Council could go ahead with the interim plan of borrowing for requirements up to December 2020 and by that time, the proposals could be fine-tuned. He stated that the Centre was expanding the first part of borrowing in Option- 1 by another about ₹ 13,000 crore with the provision of IGST settlement of 2017-18 providing additional revenue of ₹ 13,000 crore. With GST picking up in September 2020 and cess crossing ₹ 7,000 crore and hopefully more in near future, there was not much left at stake to deny full compensation as the gap could only be around ₹ 60,000 crore. He suggested that a Group of Ministers may be formed on the subject as the issue was loo sensitive and had potential to become a precedent in settling compensation issues in the future. He stated that in ease the issue was not settled during the meeting, the Council may activate the dispute resolution mechanism. He concluded saying that there were three issues to be considered (i) whether the Council would go with the Ld. AGl s opinion and amend the Act; (ii) whether the dispute resolution mechanism could be activated and (iii) since the gap was only around ₹ 60000 crore which could be handled by the Centre, a collective decision could be taken in this regard. He stated that the spinoff in terms of morale for the business community and for the State governments would far outweigh the sum of ₹ 60,000 crore. 28.16 The Hon ble Minister from Uttar Pradesh thanked the Chairperson for extending the cess collection beyond five years and for reducing the assumed growth rate from 10% to 7%. He stated that the Centre had not avoided any responsibility and had given assurance to give maximum facility to the States in the form of the two options provided, among which the State of Uttar Pradesh had chosen Option-1. He stated that since the Centre was taking responsibility and had given a suggestion, the States should agree to it. He stated that his State would support the Centre in any decision it may take and further stated that with the economic package announced by the Centre during the time of Covid purchasing power of the people has increased and economic performance of the State improved compared to last year. He stated that in comparison to the revenue collection in the year 2019, the revenue collection in 2020 was better. He stated that this improvement in economic performance was the result of the steps announced by the Centre from time to time and he hoped that the same performance would continue in future. He further stated that the Centre may consider two suggestions put forward by the State i.e. (i) a plan may he evolved regarding the compensation till 2022 and (ii) more packages may he designed by the Centre so that purchasing power may be increased and economic performance may be further strengthened. He thanked the Chairperson for supporting the Slate and hoped that the support would continue in the future also. 28.17 The Hon ble Minister from Kerala stated that a written speech was circulated on 03.10.2020 to all the Members of the Council and it be taken as read. One of the main concerns expressed by the States was that the revenue loss which may occur when the taxing powers of States get subsumed, and when the taxation system changes from origin-based to destination-based. The issue of GST compensation was discussed in the Empowered Committee meetings held on 14 th June and 26 th July 2016. The States had unanimously agreed that the compensation should be paid in full for a period of five years. The Union Finance Minister, who was appreciative of the concerns of the States, assured the Empowered Committee that the Centre is committed to give full compensation for a period of five years. The States were assured of compensation by the Central Government and it was incorporated in the Constitution (One Hundred and One Amendment) Act 2016, and further to allay the fears it was mandated that Parliament shall, by law provided for compensation, instead of may . It cannot he denied that compensation package and the comfort it provided to the states was the clincher in implementing GST across the country. He added that during the discussions in the 5 th meeting of the GST Council held on 2 nd /3 rd December 2016, the 7 th meeting of the GST Council held on 22 nd /23 rd December 2016 and the 8 th meeting of the GST Council held on 3 rd / 4 th January 2017, the relationship between compensation and Compensation Cess was extensively discussed. it could be seen from the Minutes of the Council meetings that the States were assured that compensation to States will not be restricted to the compensation Cess collected. It was after much deliberation that 14 per cent growth was guaranteed to the states. The widening of the Compensation deficit had become evident much before COVID with the decline in GDP growth rate during 2019-20, so much so that in the 37 th meeting of the GST Council at Goa, the Chairman, Fifteenth Union Finance Commission, while addressing the Council, pleaded to the States to re-visit the Compensation formula, saying that the growth at 14 per cent was unsustainable in the macroeconomic scenario that prevailed in the country. All Slates had then rejected the proposal. 28.18 The Hon ble Minister of Kerala further stated that in the 41 st meeting of GST Council, the States presented their views, while the Centre discussed the opinion of Attorney General and placed before the States two options of borrowing. In such circumstances, if it is difficult to arrive at a consensus, the legal provisions for Dispute Resolution Mechanism within the Council may be activated. It appears that measures taken by the Centre seem to have impact on State resources as cesses are kept outside the dvisible pool, the States are being given only 32% of the Centre s resources against the promised 42%. He also raised the issue of proper management of IGST and compensation accounts. He quoted the example of the Central Government appropriating a sum of ₹ 88.344.22 crores in 2017-18 and ₹ 13944 crores in 2018-19 from IGST account by crediting it to the Consolidated Fund of India. He also mentioned about amendment in the GST Act for petroleum products to be brought into GST. Further, the long-standing demand of the States to appoint a Vice-Chairperson to the GST Council may be considered and implemented at the earliest. He stated that there were two principles on which the Slate would not compromise -. (1) that full compensation had to be paid as it was a Constitutional right of the States and (2) if a borrowing is required, it could not be part of the normal borrowing of the States or the additional borrowing of the States which was already permitted. Option-2 did not meet these conditions. With the current proposal, these principles were not upheld. He drew attention to the statement made by the Union Finance Minister two days after the last GST Council meeting, wherein she assured that as a commitment of the Centre, full compensation would be paid to the States. 28.19 The Hon ble Minister of Kerala further stated that there were four issues which needed to be discussed. (1) the issue of how much compensation would be paid now and how much to be deferred, (2) the issue of who should be borrowing, the States or Centre or both, (3) what would be the terms and conditions of borrowing, and (4) the issue of repayment. He stated that the issue of repayment was already settled. He stated that lie was happy with the statement of the Secretary that the full compensation would be paid. He further stated that he believed that the Council as a federal institution must be strengthened and that all the members must strive to have a professional approach to decision making and must compromise to develop a consensus. Ile stated that he agreed with the view expressed by the Hon ble Member from West Bengal that within the Council, a professional approach should be taken, He stated that as the Hon ble Member from Punjab stated, with an additional sum of ₹ 60,000 crore, entire compensation could be paid for the year. He stated that the issue was that a concept of distinction was made suddenly, between loss incurred due to implementation of GST and due to other causes, which was never thought while preparing the GST Act. He slated that the definition of the compensation and calculation of compensation was elaborately mentioned in the Act itself without any reference to any other factor such as act of nature, act of God and origin of the loss. He stated that even if one accepts this concept of distinction between the causes. it was all the more important that the compensation should be paid immediately since Covid had already come and the impact was being felt at present and the shortfall must be made good immediately. He stated that it would not make much sense macro-economically to compensate at a Future date, for the revenue loss during a recession. He stated that even with the differentiation, since the Covid impact was at present, the loss of revenue was at present, the States should be compensated at present. He further stated that regarding the question of who should borrow this amount, he would agree with the view of the Hon ble Members from West Bengal and Chhattisgarh that there would not be any difference whether the States borrow or the Centre borrows. He stated that it would be much easier and convenient for the Centre to borrow as the Centre would get much better terms and a window for monetizing the debt. He stated that as the compensation requirement would be different for each State, there could not be same rule for all and that the additional borrowing wouId have to be tweaked which was an ex-post outcome. He stated that it would be much more convenient for the Centre, when looked at rationally. 28.20 He stated that with regards to the Ld. AGI s opinion that it cannot be paid from the Consolidated Fund, when undistributed IGST fund was not just parked in the Consolidated Fund but was appropriated into the Consolidated Fund, there could be no argument that the Centre cannot borrow to make good the shortfall in compensation to the States. He stated this view goes against the history of discussions held in the Council. Empowered Committee and the Parliament, yet, a discussion should be held regarding how much the Centre should borrow and how much should the States borrow and arrive at a consensus. He stated that regarding the terms and conditions, since it was already decided that the repayment was to be made from the extended cess collection and the interest also to he paid from the same, the whole 2% additional borrowing could be made unconditional as few States would it very difficult to implement the condition regarding direct benefit transfer in electricity sector. He stated that in case this was not acceptable, a dispute resolution mechanism be made active and the issue may be referred to the same as it would only show the maturity of the Council in working to arrive at a consensus. 28.21 The Hon ble Minister from Telangana stated that the distinction of loss of revenue on account of implementation of GST and of Covid was artificial. He further stated that it was the Constitutional right of the Slate to gel the entire shortfall. He stated that compensation payment should not be linked to normal or additional borrowing which is permitted to States under the Aatma Nirbhar Package. He stated that the Centre should borrow entire shortfall which could be serviced from the cess collected beyond 2022 and Centre need not pay anything from its kitty. He further requested that the cess collected in the last six months, which was readily available with the Council to the tune of about ₹ 30,000 crore may be paid to the States immediately to provide relief to the States during the time of Covid. 28.22 The Hon ble Deputy Chief Minister of Delhi stated that when the States surrendered their right to tax, it was assured to them by the then Chairman, GST Council that the States would be compensated for five years with an assured growth rate of 14%. He stated that ideal situation was for the Centre to borrow and compensate entire shortfall to be recouped by the Cess collection beyond 2022, He stated that it would not he proper to divide the shortfall into two categories of Act of God situation and due to implementation of GST. He stated that when the borrowing options were provided, the Union Territories with legislature were effectively provided with only one option, which was Option-1. He stated that the NCT of Delhi was compelled to accept Option-1. He stated that in the detailed agenda note (volume-5), Agenda Item 9A (3) (V) it was said that in respect of Union Territories (including National Capital Territory), suitable arrangements to ensure flow of resources under the Special Window to them would he made by the Government of India. He requested that it may be clarified whether the Ministry of Home Affairs (MFIA) had been kept in loop while deciding the above arrangement for Union territories with Legislature because it would not be possible without MHA s approval. He further stated that it was mentioned in Agenda item 9A (3) (Xl) that the remaining arrears of compensation accrued during the transition period would be paid after the interest and principal are paid. He sought clarification as to whether this would mean that the remaining part of ₹ 1.35 Iakh crore would be given to the States after 2022. He further stated that assumed growth rate of 7% was calculated based on two year average, instead it would have been better to be based on last year s revenue growth rate which was around 2.8% to 3.0%. 28.23 The Hon ble Minister from Assam stated that the Centre had committed at the time of implementation of GST that the Council would compensate the States for the revenue loss due to the implementation of GST, He stated that as per Section 18 of the Constitution (One Hundred and First Amendment) Act 2016 the shortfall due to implementation of GST was to be compensated, the Centre was helping the States even though the Central Government is also facing several such challenges. He stated that the Central Government was also Facing the Covid-19 crisis as the States did and that the entire vaccination program had been taken over by the Centre which would involve expenditure of huge amount. This is in addition to the handling of the situation at Ladakh. He stated that this was the time to strengthen the hands of the Centre rather than having difference of opinion. He further stated that the assurances about the principal amount the guarantor, the extension of cess period and no limitation on the borrowing of the States, secure the interests of States. He further stated that the Centre had been standing by the States in disbursing the Compensation amount, devolution amount and the revenue grants even though similar situation is being faced by the Centre. 28.24 He further stated that the country was just recovering from the economic slowdown and the Centre may be complimented for the GST revenue collection in the month of September 2020. Reacting to the proposal of creating the dispute resolution mechanism within GST Council, he stated that Assam along with around 21 other States had no dispute with the Centre. He also stated that the States were in immediate need of revenue and the dispute resolution mechanism is not a priority as on date. He stated that the Centre had already taken the views of all the States and had generously assured the States of full compensation for the revenue including the loss of revenue on account of Covid. He also stated that the 21 States which had chosen Option-1 may be allowed to go ahead with the borrowing irrespective of other States not joining, as the revenue is needed immediately for the welfare of the people. He sought to place on record his deep appreciation to the Union Government, the Hon ble Prime Minister, the Hon ble Union Finance Minister and the Hon ble Minister of State (Finance) for the kind of help and support extended to the States in the present hour of crisis. 28.25 The Hon ble Minister from Andhra Pradesh stated that he would like to reiterate certain facts. Fie stated that taxation was an integral part of governance and administration. He stated that from the revised estimates, an approximate amount of ₹ 67 lakh crore was spent in total (about ₹ 27 lakh crore of the Union arid ₹ 40 lakh crore was spent by all the States). If the defence expenditure of around ₹ 4,67,000 crore was deducted, along with paramilitary related expenditure, an expenditure of 7% would be reduced. It would mean that the States spend about 64% and the Centre about 36% of the total expenditure towards services, subsidies, welfare and administrative expenditure which directly concerns the common man. He further stated that regarding the taxes that are collected, which form part of the divisible pool, the cesses and surcharges in the year 2018-19 was around ₹ 2,65,000 crore which had seen a steep increase in 2019-20 to about ₹ 6 lakh crore which was directly reflected on the divisible pool which otherwise would have been automatically been part of the State revenues. In the year 2018-19 the divisible pool was around ₹ 18 lakh crore whereas in 2019-20 (R.E), the divisible pool was reduced to ₹ 15 lakh crore. This had a direct bearing on the revenues of the States. In 2018-19 ₹ 7.61,000 crore was the share of the States taxes which had come down to ₹ 6,50,000 crore in 2019-20. He stated that the Cesses and Surcharges had become the major portion of total taxation which was reflecting on the divisible pool and on the taxes transferred to the States. 28.26 He stated that in this scenario, where the States had far more direct responsibilities for governance and administration, it was requested that certain decisions may be taken which would have a bearing on the revenues of the States such as (i) the assumed growth rate of 7% may be reviewed further in a scientific manner because there was slowdown in the country s economy and global economy even before Covid (ii) de - linking of the 2% additional borrowing facility which was provided to the States as part of Aatina Nirbhar Package and (iii) the priority order for repayment to be changed to from interest first, principal next and arrears of compensation later to arrears of compensation being the first charge. interest as the second charge and the repayment of principal as the third charge. He further stated that with regards to borrowing, the Centre was more empowered and appropriate to borrow or to raise the money of around ₹ 1 lakh crore required as the Centre had the facility to coordinate with RBI to do the needful. 28.27 The Hon ble Minister from Arunachal Pradesh stated that he agreed with the views of the member from Assam and chooses Option- 1. He thanked the Centre for confirming that the interest would be repaid from the compensation cess. 28.28 The Hon ble Member from Jammu and Kashmir stated that they would opt for Option- 1 and were in favour or utilizing the borrowing mechanism that was proposed, as early as possible, to enable the Union Territory to deal with the situation that was prevailing. He further requested that the compensation cess collected till September 2020 may be released at the earliest possible. 29. The Hon ble Minister from Goa thanked the Hon ble Chairperson for taking the problems being faced by States, into consideration. He stated that after 21 States had already chosen Option-1, it could have been put to a voting and done away with, but the Hon ble Chairperson had not done so. He stated that a good formula had been devised. He stated that with the new initiatives on invoice matching, detecting tax fraud, plugging leakages of revenue, the revenue was bound to increase. He stated that iii spite of the pandemic, revenue was on a march to recovery as evidenced in the recent GST collection, He further stated that right path had already been chosen by the Hon ble Chairperson by allowing the cess to continue beyond 5 years to cover the entire borrowing and interest, by putting no additional burden on the States, making available the borrowing, window through the RBI or such facility as created by the Centre and the States not to be penalized for borrowing more. 29.1 He further stated that as he had suggested in the last GST Council meeting, Cess should be increased on cigarettes, bidis and tobacco related products. He stated that the World Health Organization recommends that the total taxation should represent at least 75% of the retail price where as it was only 49.5% for cigarettes. 63.7% for smokeless tobacco and 22% for bidis at present. In the name of common man, bidis are taxed on the lower side, but they should also consider the suffering of poor people because of the impact on the health and subsequent economic costs involved. He stated that cess should be charged on these products as was suggested by scientific data. He stated that according to his calculation an amount of ₹ 49,000-50,000 crore could be raised with minimum increase in the rate of cess so that the burden of loan on the States and the Centre would be reduced. He further stated that around ₹ 1,04.500 crore i.e. 1.16% of the GDP was spent on treatment for ailments of tobacco use in 2011 and it could be further more at present. He stated that the Council need not be subjected to allegations that it was protecting the tobacco industry and all the members of the Council should support this proposal as these products were harmful to the health and were deteriorating the health of the common man in the form of bidis, and of the rich in the form of smokeless, e- cigarettes. He further stated that people from tobacco industry had given a calculation with much reluctance that even with just one rupee increase per stick, the revenue gain would be around ₹ 50.000 crore. 29.2 He further requested that a sum of around ₹ 7000 crore collected at present along with the balance of ₹ 15,000 crore collected, not released to the Stales should be released to the States without further delay. He suggested that since smaller States like Himachal Pradesh, Goa and North Eastern States require smaller amounts, and that it should be decided by consensus that smaller States, which require small amounts, may be released compensation without any delay. He stated that with an early disbursal the funds could have been utilized in building tourism infrastructure, which would have resulted in a greater influx of tourists, more earnings of foreign exchange through foreign tourists, more indirect tax collection through CST and revenue would have risen, He stated that the smaller States deserved an extra consideration and he hoped this would happen. He stated dial it was not the ease that the Centre had money and holding it back and not giving to the States and that the problem was being faced by the States and Centre alike. 29.3 The Hon ble Deputy Chief Minister of Haryana stated that his State opted for Option-1 as stated in the Annexure. He further requested the Council that the cess collection which had been accumulated with the Centre as on date to the tune of ₹ 28,000 29,000 crore should be released as soon as possible with a set timeline so that the States start getting funds and a timeline should be set for the repayment of interest and arrears to the States. Further, as per Agenda item 9, a timeline regarding extension of cess whether for three or five years must also be decided by the Council so that the interests of States are safeguarded. 29.4 The Hon ble Deputy Chief Minister of Bihar thanked the Chairperson for giving two options to the Slates and given the circumstances, these were the best options that the Centre could give. He further stated all States were in need of money since compensation was not available for the last six months and since 20 States had already opted for Option- 1, the process regarding the borrowing may be started at least for these States. He Further requested that the States, who had not given an option yet may be given sufficient time to choose but the process should start for others so that the States who had opted for option 1 may start getting the required money by November. He further stated that the Council should deliberate and list out goods which can possibly be subjected to compensation cess. He stated that similar to raising compensation cess on cigarettes and tobacco products as suggested by the Hon ble Member from Goa, there was a need to consider a change of tax structure on Pan Masala also as regularly suggested by the Hon ble Member from Uttar Pradesh. He stated that an Officers Committee may be made to deal with the issues of identifying products which can be subjected to cess and the products on which cess already exists but it can be raised. He stated that the States were already reeling under severe economic pressure and the process for borrowing may be started at the earliest. He further stated that regarding the dispute resolution authority, he was the Chairman of the Empowered Committee amid that the Standing Committee and perhaps even the Parliament had already rejected that proposal since the States are sovereign and no other authority or Tribunal could direct them in these matters. He stated that if a dispute arises, or if there was a difference of opinions, the Council already had the mechanism of constituting Groups of Ministers (GoMs) to deal with those issues and had already constituted 11 such GoMs so far which were successful in dealing with the issues referred to them. 29.5 The Hon ble Minister from Himachal Pradesh thanked the Centre for taking many steps to stabilize the economy and agreed with the views as put forward by Hon ble Members from Assam, Bihar and Gujarat. He stated that he welcomed the options given for payment of compensation cess and the unanimous decision of the Council to extend the compensation cess beyond July 2022 so that the burden of the repayment, interest shall not fall on the Slates. He further stated that similar to many other States, Himachal Pradesh also opted for Option-1, and requested that an early borrowing may be facilitated by the Centre at G-sec rates. 29.6 Since the Hon ble Minister from Jharkhand could not attend the meeting the representative officer from Jharkhand put forward the State s view. She stated that the Hon ble Member from Jharkhand and the Hon ble Chief Minister of the State had already sent written communication that neither of the two options as communicated was acceptable and that it was the Centre s responsibility to go for borrowing and transfer the entire compensation to the Slates and that the Centre should raise the required funds as a loan lending it to the GST Compensation Fund against the future receipts of the cess beyond 2022. She further requested that the existing funds which had been collected already may be released to the States as soon as possible. 29.7 The Hon ble Minister from Uttar Pradesh stated that he welcomed the statement of the Hon ble Member from Bihar. He further stated that he had raised three issues of Pan masala, brick kilns, and Mentha oil earlier also. He stated that with regards to menthe oil, which was specific to his States, there was an outgo of ₹ 400 crore for which no tax was collected in return. He stated that a GoM may be convened to deal with the issues of Pan masala and brick kilns and said that he was ready to take responsibility in GoM in whichever capacity assigned to him. He stated that there was a loss of revenue of ₹ 2000 crore in these issues and thus they may be decided at the earliest. He further stated that there was a. significant evasion of tax in these sectors and that in their single initiative they were able to uncover a loss of ₹ 738 crore and recover the same. He stated that these could be good sources of revenue. He stated that before GST, in 2015-16 around ₹ 500 crore tax had been collected in brick kilns and at present, it was reduced to less than ₹ 100 crore and thus a decision should be taken at the earliest. He further stated that the problems in Mentha would also be eliminated if Reverse Charge Mechanism (RCM) in which the buyer who purchases from the farmer at the first instance would pay the tax, was implemented. He stated that the State was already doing better at tax collection, compared to last year s collection, and hoped to continue the performance with the support of the Centre. 29.8 The Secretary stated that the issues of pan masala, brick kilns, mentha oil and casinos were already discussed earlier and if time permitted, a presentation regarding the same could be made, so that the Council can be made aware of the issues involved, then the Council could guide how to move further. 29.9 The Hon ble Deputy Chief Minister of Gujarat stated that a scheme of Reverse Charge Mechanism already existed in Cotton in Gujarat, where lakhs of farmers sell cotton and the dealers who purchase the cotton to make cotton bales, make the payment of tax. Similar RCM mechanism may be employed as suggested by Hon ble Member from Uttar Pradesh. He further stated that a constitution of GoM may not be required as the issue only pertains to Uttar Pradesh which had been raising the issue from a long time. 29.10 The Secretary stated that based on the suggestions given on all these four issues, a Group of Ministers may be formed to discuss and analyze the issues: Capacity based taxation on Pan Masala. Reverse Charge Mechanism in mentha oil, brick kilns, taxation in casinos and with respect to lotteries. 29.11 The Hon ble Minister from Karnataka stated that the issue of horse racing also may be referred to the proposed Group of Minister and the Chairperson assured the same. 29.12 The Hon ble Minister from Odisha stated that the issue of whether the liquor was food or not should be decided. He further stated that the issue is not pending in any court and would not be sub-judice to decide. The Hon ble Chairperson had assured him to take the matter in the next GST Council meeting, but unfortunately, the same was not brought today, and requested to include this matter with issues of Pan Masala etc. and requested that the issue may be taken at the next meeting of the GST Council. The Hon ble Chairperson assured the same. 29.13 The Hon ble Chairperson stated that few members raised the point about the available cess amount and she assured that the Centre is committed to disburse the money to the States. She further stated that because of the Iockdown, there was no substantial collection of the Cess till August 2020 but at present, there was around ₹ 20,000 crore which would he distributed by late that evening. The Hon ble Members from Gujarat, Karnataka, Uttar Pradesh, Madhya Pradesh, Puducherry thanked the Hon ble Chairperson. 29.14 The Hon ble Chairperson reiterated that the cess collection would be disbursed immediately and the amount of excess compensation cess credited to the Consolidated Fund was also being reversed and that was how the compensation of around ₹ 1,60,000 crore was given to the States, despite the collection being around ₹ 96,000 crore in the previous year. She stated that she was aware of the difficult times the Centre and the States were facing and that the actual light against Covid was being undertaken by the States. She stated that since she took charge with due process, she had given time to address all the long pending issues. She thanked all the members of the Council for being positive in solving the three problems. She further stated that she was always willing to hear any views of the members whether it was suggestions or criticism and that she never hurried through when a member wants to put his point of view forward. The Hon ble Chairperson further stated that she was not in favour of any code of conduct for the members as each member was a senior and experienced leader managing their States even during the current challenging times. 29.15 The Secretary, GST Council stated that borrowing program was discussed with the Secretary Department of Expenditure and Secretary, Department of Economic Affairs who were in touch with the banks. He further stated that since Agenda Item 9 was approved, procedural formalities could be started within the next two days and that other States which had not exercised their options could also take a decision within the next two days. He stated that the Reserve Bank desired a borrowing calendar so that they can plan the logistics and go to the market and arrange for the money. 29.16 The Hon ble Minister from Kerala stated that this went against the spirit that the Hon ble Chairperson had just espoused. He stated that he welcomed the remarks of the Hon ble Chairperson about Council being an open forum, and not making a code of conduct, for Members. He disputed that Option-1 was the decision of the Council. He stated that he had mentioned earlier that both the options were unacceptable and along with the reasons and that he also said that they could have a discussion and possible to arrive at an alternative. The Council had not decided Option-1 as its final decision. 29.17 The Hon ble Chief Minister of Puducherry stated that regarding Agenda Item 9A, some States had expressed that the Central Government had to borrow and give the compensation to the Stales and some States said they preferred Option-1, and thus there was no consensus regarding the Agenda Item 9A. He stated that since there was a division, the Hon ble Chairperson had to arrive at a consensus before coming to a conclusion. He stated that he made his position clear that his State did not agree with Option-1. 29.18 The Hon ble Minister from Chhattisgarh stated that he was in agreement with the view of the Hon ble Member from Puducherry. If it had been decided as Option-1, he was making it clear that his State had not agreed with either of the options. 29.19 The Hon ble Minister from West Bengal stated that along with Option-1 and Option-2 there was also a third Option which the Hon ble Chief Minister of West Bengal had written to the Hon ble Prime Minister, and as reiterated by the Hon ble Members from Puducherry and the Hon ble Member from Chhattisgarh agreeing to it i.e. for the Union Government to borrow from the RBL window and crediting the amount to the Compensation Cess Fund for further disbursal to the States. So there were three Options on the table. He stated that the Council should come to a conclusion and if there was a difference, more discussion could be held in next few days to arrive at a consensus. 29.20 The Hon ble Minister from Punjab reiterated his remark about whether the law would be amended as he regarded that the options provided were not in accordance with law. He further mentioned that the Article 279A (11) of the constitution provided a dispute resolution mechanism and that it could be activated. Tie further stated that if there was no consensus, a division could be called. The Hon ble Member from Chhattisgarh also supported a division. 29.21 The Hon ble Deputy Chief Minister of Gujarat stated that the matter which was being discussed was of immense importance for the States. He stated that the first priority was how to get the fund at the earliest. He Further mentioned that as the Hon ble Member from Karnataka and the Hon ble Member front Assam discussed that once money was received, there would be spurt in economic activities. It was already stated by the Secretary to the Council, if they get approval, they would start the process of availing loan from tomorrow itself. He further stated that any delay would only hurt the States and not the Centre as the States were facing the shortfall of fund and their schemes were not working and requested all the members to choose Option-1 and start the borrowing procedure at the earliest. He stated that there was never a division in the GST Council earlier and it would not be appropriate to go for voting or division. 29.22 The Hon ble Minister from West BengaI stated that his State was unable to accept Option-1 and if the Hon ble Chairperson was not convinced, the Hon ble Chairperson may call for division. 29.23 The Hon ble Minister from Assam stated that his State had chosen Option- 1 and he was not in a position to accept any other alternative. He made request that proceedings should start for the States who had already chosen option-1, as they were in immediate need of money. 29.24 The Hon ble Minister from Karnataka slated that the States should come to a practical solution that having the money at present was more important than receiving after six months by which time lot of damage would have been done to the people and the economy. He requested the Hon ble Chairperson to state the sense of the house and take a call, stating the Consensus of the House, 29.25 The Hon ble Minister from Chhattisgarh requested that the Chairperson may take more time to achieve consensus as voting was not preferred by the States and if unfortunately consensus was not forthcoming, tenets of the GST Act must be adhered to and a voting may be called where 75% or more members vote for a particular issue. 29.26 The Hon ble Deputy Chief Minister of Bihar stated that he failed to understand the opposition when the Centre was guaranteeing in a way and making arrangements for borrowing, the States were not burdened. He stated that this issue about who should go for borrowing might go on but in the process. States, which were in immediate need of money would suffer, He stated that another 5 days time may be given and a meeting of the Council could be called next week and if the issue was unresolved, if required voting should be resorted to, for as was done in deciding the lottery issue. He pleaded that it may either be decided today or latest in next meeting. It should not be prolonged and States could not be deprived of funds. He stated that some States could not veto when most other States suffer because of unavailability of hinds. 29.27 The Hon ble Minister from Uttarakhand stated that he welcomed the proposal tinder Agenda Item 9A and the State had opted for Option- 1. 29.28 The representative Officer from Rajasthan stated the State was in favour of Option-3 where the Centre would borrow and disburse the amount to the States. 29.29 The Hon ble Minister from Kerala stated that he had earlier requested that there should be a compromise and a new formula could be arrived at within the broad contours he suggested earlier. 29.30 The Hon ble Chairperson stated that she heard all the Hon ble members, had been rightly reminded that there should be consensus in decision making. Therefore, upholding the tradition of the Council and going by the suggestion of the Hon ble Member from Bihar she proposed to hold another meeting on 12 th October 2020, She was open to have another round of discussions on 12 th October 2020 and then they would take a call that day. She further reiterated that States were on the forefront of fighting Covid, she had cleared disbursement to the States as soon as resources were available whether it was GST compensation or devolution in terms of Finance Commission s recommendation The meeting on 5 th October 2020 ended with thanks to the Chair. Agenda Item 9A: GST compensation options - ways of meeting the shortfall as discussed on 12 th October, 2020. 30. The 42 nd meeting of the GST Council resumed on 12 th October 2020 with the Secretary of the GST Council welcoming the Hon ble Union Finance Minister, the Chief Minister, the Union Minister of State (Finance), the Deputy Chief Ministers, and all the Hon ble Members of the Council to the Council meeting. 31. The Secretary submitted to the Council that Agenda Item No.9 for Continuation of cess beyond transition period had been approved, and Agenda item No.9A GST Compensation Options - Ways of meeting the Shortfall was under discussion. He requested the Chairperson to allow resumption of discussion on the said Agenda Item. He asked the Joint Secretary, DoR, to initiate with a brief recap. 32. The JS, DoR stated that the States had been given two options. 23 States f UTs had opted for Option-1, whereas no State had opted for Option-2 and 8 States had reservations against either of the two Options, the details of which are given in Annexure to the Agenda. 33. The Secretary stated that the details of the option one were communicated to the States by the Department of Expenditures, Ministry of Finance, Government of India. After the options were communicated by the Department of Expenditure to the States there was a meeting held by him as the Finance Secretary, with the Expenditure Secretary and Finance Secretaries of the States and certain suggestions were received and thereafter various suggestions had also been being received from the States. He added that the Department of Expenditure examined all the suggestions in detail and agreed to modify Option-1, under which the entire ₹ 97,000 crore shortfall was calculated assuming GST growth rate of 10%, but States had suggested that the real growth could be in the range of 7% to 8% depending upon the State so the assumed growth rate was reduced to 7% which meant amount to be borrowed under Option-1, would now become ₹ 1.1 Lakh crore instead of ₹ 97,000 crore. 34. On the question of as to how this entire debt would be serviced, the Secretary, stated that with the approval of Agenda Item 9, the cess had already been extended beyond June 2022. He stated that the Department of Expenditure had communicated to them, that the interest on the borrowing under the Special Window would be paid from the Cess as and when it arises until the end of the transition period. After the transition period, principal and interest would also be paid from proceeds of the Cess, by extending the Cess beyond the transition period. However, as per discussions, it is now decided that at first stage, cess collected would be used for paying the interest and at the second stage, it will be used for repaying the principal and the remaining part would be used for meeting the remaining arrears of compensation. The Secretary submitted that this was the main item for discussion that had been communicated from the Department of Expenditure and requested the Hon ble Members of the Council to express their views on the Agenda Item. 35. The Hon ble Minister from Madhya Pradesh thanked the Hon ble Finance Minister for announcing the special package. He stated that he was glad that Central Government had positively considered the Option- 1 in respect of compensation cess and also considered the other two suggestions given by Madhya Pradesh State. Now, his State could borrow ₹ 4.542 crores instead of ₹ 4,056 crores under the special Facilitation provisions of Central Government and RBI, which they could use for the development work of the State. He added that in last meeting, he also requested that when Central Government was pondering over the options of compensation cess so seriously and had also received the support of majority of States then remaining States should also think over it positively so that some solution could he arrived at, and amount is made available to the States so that the same could be utilized in the second half of this Financial Year. 35.1 The Hon ble Chief Minister of Puducherry thanked the Hon ble Chairperson for postponing the meeting so as to arrive at consensus on the issue of Agenda Item 9A. He stated that the issue was discussed in the previous two meetings and Hon ble Chairperson was kind enough to hear views of all Hon ble Members. Who would be borrowing and how it would be paid was elaborately discussed along with the learned AGI s view and also the views taken by various States. The points he Liked to raise were the decisions that had been taken in previous meetings of the GST Council and the assurance that had been given by then Hon ble Union Finance Minister, Late Shri Arun Jaitley that the Government of India would borrow and give to the States and whenever there would be short fall of compensation Cess, it would be honoured and implemented. How to implement this decision was the issue which the Hon ble Members had to decide. 35.2 He added that from point of view of Puducherry, GST, especially the commercial tax, was one of the main components of their revenue. He mentioned that they are a small State and the taxation power which was there with the States, had been surrendered to the GST Council on certain conditions and certain assurances. Now, the State Governments would lose their revenue because of various factors including the tax equalisation which had affected his State very badly and also due to COVID-19 pandemic situation. The financial position of the State was in a very bad condition and they were not able to meet day to day expenses of the Government on various schemes, projects and towards salary of Government employees. He requested the Hon ble Chairperson that the borrowing from the open market or from RBI or issuance of Gold Bond was very easy for the Government of India to do instead of the State Governments doing it. Apart from that, his State had another difficulty as they were a Union Territory with legislature. Whenever they wanted to borrow, they had to approach through the Home Ministry. Government of India. Unless the Home Ministry concurs and the Finance Ministry gives the nod, it would be difficult for Puducherry to borrow. 35.3 He stated that they were grateful to the Hon ble Chairperson who was hearing the views of the Hon ble Members of the Council and trying to arrive at a solution. He requested that the disputes had to be resolved by give and take, all States had to agree because of present critical financial position in various States. Therefore, he requested the Government of India to borrow and pass it on to States and all problems associated with State borrowing such as State Governments approaching RBI, going to open market, in their case, State going to the Home Ministry, could be resolved. Borrowing by the Government of India would be very easy vis-a-vis State Government doing it because without the permission of the Government of India, the State Governments cannot borrow and therefore he wanted easy route to be followed. He requested the Hon ble Chairperson to consider the third option proposed by the Hon ble Finance Minister of West Bengal i.e. the Govt. of India to borrow and give it to States. 35.4 The Hon ble Minister from Assam congratulated the Hon ble Union Finance Minister for declaring so many benefits for States in continuation to what had already been done for them. He stated that in the last meeting held on 5 th Oct 2020 also they had discussed this GST Compensation options issue at length and 23 States had already chosen the option. The Department of Expenditure had already deliberated the issue and States would be borrowing as it would be repaid by the Central Government out of the collection of the Cess. The mechanism of borrowing is being handled by the Department of Expenditure of Government or India and as the provisions of the Article 293 of the Constitution, the options have been worked out. The GST Council has jurisdiction to extend the levy of cess to compensate for shortfall in the compensation and in the last GST Council meeting held on 5 th October, the GST Council exercised its authority to extend the levy of cess beyond June 2022. That decision was actually taken to ensure the States would get full compensation with respect to any shortfall in comparison to the projected revenue growth of 14%. 35.5 He was of the opinion that, so far as the borrowing was concerned, it was the decision of the individual State and the Centre in accordance with the Article 293 of the Constitution of India and he was of the opinion that it will fall outside the jurisdiction of the GST Council. As a matter of respect, the Central Govt. had brought this issue to the GST Council for information that in case of shortfall, one could go for borrowing under various options but it would not be ultimately decided by the GST Council. This decision had to be taken under the Article 293 by the Government of India independent of any decision which would be arrived at in the GST Council. He said over and above this, the Chairperson offered that if they had any immediate requirement of funds, they could approach the Central Govt. under Article 293 and choose from the options provided. He said the 23 States that have preferred Option- 1 needed immediate funds and they could discuss under Article 293 with the Department of Expenditure, Government of India on borrowing and the GST Council need not discuss about borrowing which was not their mandate. 35.6 The Hon ble Minister from Chhattisgarh thanked the Hon ble Chairperson for allowing this discussion to continue and allowing them all to make an honest and concerted effort to conic to a consensus arid not get into options of division or voting and also thanked her for whatever releases had been done so far. lie quoted para.6.3 of the Minutes of the 10 th meeting of the GST Council held on 18 th February 2017 wherein it is stated that: The Hon ble Minister from Telangana stated that the Compensation Law should provide that if money fell short in the Compensation Fund, it could be raised from other sources. The Secretary stated that Section 8(1,) of the draft Compensation Law provided that cess could be collected for a period of five years or such period as may he prescribed on the recommendation of the Council He stated that this implied that the Central Government could raise resources by other means for compensation and this could then recouped by continuation of cess beyond five years. He stated that the other decisions including the possibility of market borrowing for payment of compensation was part of the Minutes of the Meeting of the Council held on 3 rd and 4 th January 2017) and need not be incorporated in the Law, The Council agreed to this suggestion. He stated that the then Hon ble Chairperson of the GST Council assured that compensation to States shall be paid for 5 years in full. Within the stipulated period of 5 years, in case the amount of GST compensation fell short of compensation payable in any bi-monthly period, the GST Council may decide the mode of raising additional sources. In this regard he further referred to para 6.5 of the Minutes of the 10 th meeting of the GST Council wherein it is mentioned that on pointing it out by the Hon ble Minister from Karnataka, the words such other revenues in Section 10(1) of the GST (Compensation to States) Act 2017 were replaced with the words such other amounts . Thus, there was a commitment for Central Government to provide 100% compensation and how it would be done was for the Council to decide, 35.7 He then referred to the Section 18 of the Constitution (One Hundred and First Amendment) Act 2016 wherein it is mentioned that the Parliament shall, by law, on the recommendation of the Goods and Services Tax Council, provide for compensation to the States for loss of revenue arising on account of implementation of the goods and services tax for a period of five years. This was supported and brought into active mode through Section 8 of the GST (Compensation to States) Act 2017. These acts and laws and provisions are passed in the Parliament which were enshrined through deliberation in the GST Council. He further referred to Article 293(2) of the Constitution where it is stated that Government of India can give guarantee in respect of a loan raised by the State Government and sums required for this purpose shall be charged on the Consolidated Fund of India. It was GST cess amount which they had all agreed in Agenda Item 9, would be extended beyond June 2022. The GST Compensation Cess was under the GST regime and these Articles did not take into account of the same and thus the ways of meeting of the shortfall for GST compensation was under the purview of GST Council. 35.8 The Hon ble Minister from Assam stated that for certain matters, the sovereignty lies with the Parliament and the Constitution of India and are out of purview for discussion in the GST Council. He requested the Hon ble Chairperson to not allow, any decision to be taken, which did not fall within the mandate of the GST Council. 35.9 The Hon ble Finance Minister of West Bengal put forth his submission that there was a historical context. As was discussed in the 10 th meeting of the GST Council held on 18 th February 2017 wherein the then Secretary of the GST Council in the presence of the then Hon ble Union Finance Minister who was chairing the meeting, very clearly said that ...this implied that the Central Government could raise resources by other means for compensation and this could be then recouped by continuation of cess beyond five years... (as mentioned in para.6.3 of the Minutes of the 10 th meeting of the GST Council). In the same spirit after several years, on 14 th March 2020, the Hon ble Union Finance Minister said the same thing, lt was the solemn commitment to the States that the Centre is duty bound to give compensation to the Stated . So his first point was that, it was the historical commitment that they were talking about and the matter of trust and faith in a federal system. 35. 10 He further stated that the options of borrowing by the States were sent after day- long discussions in the 42 nd meeting of the GST Council held on 05-10-2020. The GST Council Secretariat sent Note regarding GST compensation borrowing option - please find attached note of borrowing options as discussed in the 41 st meeting of the GST Council about GST Compensation and thus it is within the scope of GST Council. 35.11 Then he discussed about Article 279A(11) of the Constitution for establishment of a dispute resolution mechanism within the GST Council. He requested that in a time bound manner, the dispute resolution mechanism may be set up in 7 days, with a request to come to a conclusion and then quickly bring it back to the GST Council. Alternatively, he suggested that the possibility of formation of GoM on the issue may also be explored. 35.12 He suggested that the third option which was that the Government of India may borrow may be accepted. The Hon ble Chief Minister of West Bengal had also written to the Hon ble Prime Minister of India that they would allow indefinite extension of the cess so that when the Government of India borrowed, it did not have to repay from its own resources. The two options proposed require States to borrow from RBI. It may be noted that the Central Government already had such a window with RBI. The Centre could simply borrow and had no risk at all. States cannot borrow because they did not have such a window. He further added that the Secretary Expenditure, Ministry of Finance, Government of India, had clearly said that there was no such window possible for the States. 35.13 The Hon ble Minister from Goa referred to the special assistance that the Hon ble Union Finance Minister had provided to the States. Expectations by States were very high but the States could not recognize the fact that in spite of the COVID, the last quarter had shown that economy was picking up. He stated that at least in his State Goa they were concerned that they had no funds for payment towards the ongoing infrastructure work. And when the Centre had come out with this special package, certainly there should be some level of satisfaction. He stated that Goa was also a very small State which came in the planning process much later. He suggested that when certain amount remains pending with the Centre from compensation cess collected, the smaller States may be given preference to release that amount to them. 35.14 He felt that the GST Council may arrive at simple consensus since most of the States had already opted for Option-1. He pleaded that the GST Council had got the spirit to unite as well as had got the spirit of consensus. With the special assistance that had been announced by the Hon ble Finance Minister, they would be able to keep the expenditure towards infrastructure, committed payments and building something that was necessary for the States. He hoped that all that would help to resolve the problem and by the end of the meeting they would be deciding that matter by consensus and to close that issue once for all. 35.15 The Hon ble Deputy Chief Minister of Bihar stated that the first question which had been raised by some States was whether the GST Council had the jurisdiction to discuss the borrowing issue. He personally felt that they were stakeholders and in a federal structure they could discuss any issue in this GST Council but not necessarily take a decision and go for voting on that particular issue. He recalled that earlier the issue of natural gas was discussed even though as on date GST is not levied on it Similarly the issue of Stamp duty on securities was the second example that was presented to the Council. Third example was regarding CST Act where many States had raised the issue regarding C-Form on petrol and diesel. CST Act is not under the jurisdiction of the GST Council but still it discussed it. He stated that in this fiscal federal body, States could raise issues, they could discuss about the same but as far as voting was concerned, with respect to borrowing issue, it was not within the jurisdiction of the GST Council. It comes under the purview of Article 293 of the Constitution of India and it was between the States and the Centre to decide about the same. 35.16 He said, that in the last meeting, some States were urging for voting on the issue of borrowing. He referred to the Minutes of 20 th meeting of the GST Council held on 5 th August 2017 regarding amendment to the Procedure and Conduct of Business Regulations of the GST Council . The Chairperson may convene a meeting of the Council through video conferencing but if a proposal under discussion is required to be decided by voting, then it shall be deferred and taken up iii the next physical meeting of the Council. So, if some States want voting, the voting cannot take place through video conferencing as voting could only be done in physical meeting. Further, he said that some States suggested for constitution of the GoM. He felt that suggesting for GoM after two months is not proper and it would be difficult even for the GoM also to arrive at a consensus. It would only delay the process as they knew the views of everybody and majority of views were in favour of Option-1. Bihar was absolutely not in favour of constituting the GoM. He further referred to title Attorney General of India s opinion that within the parameters of Article 293, the States could borrow on the strength of the future receipts of the compensation cess. Even if a single State accepts the option and if the Government of India was ready, then other States could not prevent those States who wanted borrowing. He felt that there was no requirement of constituting the GoM and also there was no requirement to resorting to voting and opined that after taking everybody s opinion they should resolve the issue in that meeting. 35. 17 The Hon ble Finance Minister of Kerala stated that in the 42 nd meeting of the GST Council held on 05.10.2020, he had distributed a fairly detailed written statement about his position on the issue. He relied upon the response to Question No.3 given by the Attorney General of India wherein it was stated that this wouldn t permit extension or deferment of the period of 5 years for the payment of compensation lo States. By law they had no right to extend it beyond 5 years . Then AGI further stated that where all States come together, agree for a deferment or extension in regard to the payment of compensation to them, that one could adopt such a course of action . Keeping in view the above response from AGI, the Hon ble Finance Minister of Kerala was opposed to both the Options suggested by Department of Expenditure, Ministry of Finance, Government of India. According to him, the Option-1 involved deferment of the compensation and there was no guarantee that it would be paid within 5 years. Therefore, he would say that the Attorney General had suggested that it required a consensus and there was no consensus regarding deferment of compensation cess. The Hon ble Minister also drew attention to the AGI s opinion that It is for the GST Council to decide on any other source from it may lawfully recommend crediting the necessary amounts to the GST compensation cess fund . The amount so borrowed has to come to the Compensation Fund and Compensation has to be paid from it. The Attorney General of India s opinion made it very clear that it could not be done without the agreement of the Centre. Thus, he again relied upon the Attorney General of India s response to Question No.2 that stated the GST Council wouldn t be in a position to make recommendation to which the Central Government was opposed. This has to be kept in mind . He stated that the Council had sought the opinion of the Attorney General of India on this issue and the discussion in the Council may focus upon the opinion given by the AGI as mentioned above. 35.18 He stated that discussion on any issue does not necessarily mean voting on it. There could be difference of opinion but there is unity in diversity. In the GST Council meetings repeatedly they had said that they should try to have a consensus but not division at every point of time. Therefore, he is in support of Option-3 of borrowing by the Centre and they could discuss this proposal or they could go to Option-4 also, if any, He was against deferment and wanted compensation funds this year. Law was very clear that Compensation had to be paid every two months. 35.19 He also suggested to form a GoM on this issue which may take one more month, then discuss and come to consensus with mutual sense of accommodation. The functioning of the States would not be hindered because there was an accommodation provided in the additional borrowing which was already permitted. So within one month, this GoM could see how they reach an understanding and he promised that he would try to work towards consensus in a spirit of accommodation. 35.20 The Hon ble Minister from Uttar Pradesh stated that Uttar Pradesh was with the Central Government, and with the decisions taken by the Central Government. His suggestion was for increasing revenue and they could impose cess on some other items too. He requested all to think over items on which they could increase their col election, to robust their mechanism and the items on which they could impose more cess so that their cess collection could increase over time. He completely agreed with the views of the Hon ble Deputy Chief Minister Bihar that nothing new would come out of the GoM because opinion of all the States had already come. 35.21 The Hon ble Minister from Uttar Pradesh stated that Punjab had raised many pertinent questions both in writing and in the previous meetings. As far as Punjab was concerned, their issue was very simple. give them the compensation as per the law or if a pragmatic change was necessary then get the law amended. The word compensation was defined as difference between the projected revenue and the actual revenue. Thus, compensation could not be arbitrarily split into two parts. There was no basis to apply either 7% growth now or 10%. Compensation shall be paid out of the GST Compensation Fund as mentioned in Section 10 of the GST (Compensation to States) Act 2017. Any amount of compensation that comes from sources other than this Fund was not compensation. Thus, unless the Central Government borrowed and credited it to the GST Compensation Fund, it was not compensation. The Section 7 of the Act requires that compensation shall be paid to the States during the transition period which was 5 years. This was clarified in the opinion of the learned Attorney General of India. They needed to take note that in Option-1, a good part of the cess collected would he used to pay the interest on that borrowing of ₹ 1.10 lakh crore. According to him, there should be some legal backing for that. The Learned Attorney General of India had further pointed out that unless all States agree, the compensation could not be delayed beyond 5 years. Thus, majority voting would not matter unless all States agree. 35.22 He stated that he would not be talking about activating the dispute resolution mechanism because the Hon ble Finance Minister of West Bengal had already highlighted it. Some Hon ble Members even suggested that those who were willing to borrow should be allowed to borrow, leaving others to fend for themseIves, which is not proper. He had suggested a GoM on the subject to look at the issue with the calmness and in far greater spirit of accommodation of consensus of all. It would also serve as decent proxy for the dispute resolution mechanism. If the Group could be announced that day, it could give its report within 7 days. He stated that it is proposed to borrow ₹ 1.10 Iakhs crore. The balance amount that could be borrowed is only ₹ 73,000 crores out of which ₹ 13,000 crores has already been credited out of provisional lGST settlement. Thus, what is left over to be borrowed was now only of ₹ 60.000 crores, This issue can be deliberated in a GoM which could submit its report to the Council. Punjab would rather have consensus on issue than a split in the Council. He staid that he didn t have mandate from his Cabinet or from his Chief Minister but if they could consider part borrowing by the State and the balance borrowing by the Government of India, he was sure this third option would be acceptable to most of the States and if a GoM could be constituted, it would break the deadlock. 35.23 The Hon ble Minister from Karnataka thanked the Hon ble Chairperson for giving them the GST compensation as per all the States demand from the Compensation fund collections, which reflected the earnest commitment towards helping the States in dire need. Centre was trying to arrive at consensus in the whole issue and they could understand the position of the Union Finance Minister and the Ministry of Finance in the given economic crisis. The Central Government had proposed extension of levy of cess which was agreed by all the States and welcomed by all the States. Thirdly, he stated that the Centre even considered States request to reduce the growth from 10% to 7%. That was the accommodation by the Government of India. That showed the true spirit of coming to a consensus and everybody agreed to that. So all States had agreed that compensation would be paid in lull, they had agreed that it would be through other means that are provided by the law i.e. by borrowing and they had agreed that there would be more amount available for the loans, they had agreed that the entire things would be paid through this compensation cess so there will be no burden on the States or on the Centre. So, these broad parameters had been agreed upon. 35.24 He stated that it had been very clear that the question of compensation had to be addressed immediately. The question was not only that compensation had to be paid; it had to be paid immediately. Further any improvement in terms of efficiency, in terms of broadening the tax net, in terms of procedure, in terms of ultimately increasing the revenue that could be thought over but at the same time, at present. States were in the dire need of money. So, his only humble suggestion was to allow them to operate Option 1. 35.25 The Hon ble Minister from Karnataka earnestly requested not to stop their right to take loan and put that funds in the development activities or States. As most of the senior Members said there was no question of voting on it and if there was a GoM, it should be for further reforms rather than delaying the present options which they had already chosen. Therefore, they may be allowed to operate their options. 35.26 The Hon ble Minister from Tamil Nadu stated that he was thankful to the Hon ble Chairperson far taking initiative to come to a consensus on the matter of GST compensation to States. The background note that the Ministry of Finance had circulated at the 41 st meeting of the GST Council held on 27.8.2020, there it had been specifically stated that the GST Council had to decide other modes of making good that shortfall. His Hon ble Chief Minister had also written to the Hon ble Prime Minister on that issue. Since, the Government of India appeared unwilling to borrow, they had no option other than to choose one of the two options offered. The Government of Tamil Nadu was conscious that reaching a common meeting ground was the need of the hour amidst this COVID-19 pandemic. It was in this spirit they had agreed to Option-1 in the previous meeting. He looked forward to early resolution of that issue so that the States get the Fund that they so urgently needed for reviving the economy during this COVID-19 crisis. 35.27 The Hon ble Minister from Telangana completely agreed with the views expressed by the Hon ble Minister from Chhattisgarh regarding the aspect of borrowing to meet compensation requirement not falling within the ambit of Article 293 of the Constitution. Apart from which it might also he noted that Section 7(2) of the GST (Compensation to States) Act 2017 mandated release of compensation to States every two months in ease of shortfall in revenue. This compensation shall be released from the GST Compensation Fund. Borrowing mentioned in Option-1 and Option-2 fell under such other amounts as per Section 10(1) of the GST (Compensation to States) Act 2017. Hence, the discussion regarding the borrowing under Option-1 and Option-2 was very much within the framework of the GST Council, He added that as pointed out by his colleague, the Hon ble Minister from Punjab. the Centre could also re-think to settle the issue at the earliest in a consensual manner as Option-1 was now revised to ₹ 1.10 lac crores and Option-2 stood at ₹ 1.83 lakhs crores and the gap was only around ₹ 73.000 crores, out of which, the Chairperson was kind enough to release some amount since the last meeting of the GST Council. Hence, under Option-1, if the amount is revised to ₹ 1.80 lakhs crores, consensus among States would be easy, and requested the Hon ble chairperson to kindly consider the request at the earliest. 35.28 The Hon ble Minister from Jharkhand stated that he was in agreement with what had been stated by the hon ble Members from Chhattisgarh, West Bengal and Punjab. When GST Act was framed, it was an Act of faith for them and they trusted in it. Jharkhand got its 70% indirect tax share subsumed in GST. Today they just had 30% and it was known that Jharkhand was extremely backward and poor State. It is difficult for the State to manage with 30% of the taxes of the erstwhile regime. They depended on GST share and GST compensation which was promised to be paid to them at 14% growth rate. He stated that both Option-1 and Option-2 were not acceptable lo them. They are in favour of Option-3 by which they mean that the Government of India should borrow and give the amount to States. He is in agreement with the views expressed by the Hon ble Member from West Bengal on provision of dispute resolution mechanism under Article 279A. He is in agreement with the views expressed by the Hon ble member from Punjab about formation of a GoM on this issue. He noted that compensation amount of around ₹ 3300 crores was due to Jharkhand, out of which the Hon ble Chairperson had sanctioned ₹ 318 crores. He thanked her for that and hoped that remaining compensation amount would also be released soon. He stated that decision needed to be taken early so that a poor State like Jharkhand could be benefited and they could carry on with their welf.re activities. 35.29 The Hon ble Minister from Andhra Pradesh while appreciating the revision from 10% to 7%, he once again requested for a study to be done to arrive at more realistic figures closer to the actual that would have been. In view of the increasing cesses and surcharges which were affecting the resources of divisible pool directly reflecting on the transfer to States, he requested the Centre to be a little more magnanimous. Keeping in view the fact that this was a peculiar situation, t was imperative that the Centre and States come forward to arrive at consensus. He agreed with his counterpart from Karnataka where he had mentioned that most of the essential issues were almost agreed upon. He agreed with his counterparts from Bihar, Kerala Karnataka where they had expressed that they could sit together and do a little more of the deliberation in order to arrive at consensus but in view of the situation where all the States were severely starving for finances arid resources to meet the regular expenditure as well as additional COVID expenditure, he requested Hon ble Chairperson to provide some sort of temporary relief until such time that in a month or two where either by deliberation or by raking view point from venous States in writing, a study could be made and more or less like majority of States were expressing their views of having a consensus only. So, with the spirit of federalism and the patience that everybody had faced this challenge, he requested the Hon ble Chairperson to provide some immediate relief and go forward for deliberation to arrive a consensus. 35.30 The Hon ble Minister from Rajasthan stated that, as provided in the Constitution and the GST (Compensation to States) Act 2017, the States were not getting compensation due to them. As mentioned by the Hon ble Members from Punjab, Kerala, West Bengal and Jharkhand, whenever there was a problem in federal structure then the Central Government should come forward to resolve the problem of the State Governments. He believed that the Central Govt should borrow from RBI because they had window system and whoever borrowed, fiscal deficit would anyway be impacted. An amount of ₹ 7,300 crore was due for Rajasthan till September 2020 as compensation from the Central Government. He supported the suggestion that if there was a dispute, the provisions of dispute resolution mechanism can be activated. He proposed the GoM option to give time of 7 days, GoMs would sit, reach at consensus find would take decision. Whatever decision it would be at least States would feel that they were heard and decision was taken On consensus. He would not go for borrowing as it was the responsibility of the Central Government to pay compensation to States and reminded that the Central Government had guaranteed to pay it which was very much mentioned in the law. 35.31 The Hon ble Minister from Himachal Pradesh said that they had opted for Option-1 and decision on Option-1 should be taken soon. Small States like them were facing lot of problems. He requested that as per their calculation his loan amount comes around ₹ 1700 crores and that should be made available to them at the earliest, 35.32 The Hon ble Deputy Chief Minister of Haryana stated that as Haryana had already chosen Option-1, he requested the Council, at least for the States who had chosen Option- 1, to at Least get their share of compensation because he thought it was the need of the hour. He is not in favour of formation of GoM. He requested the Council to unanimously approve Option-1 for the liquidity for the States to come up. 35.33 The Hon ble Deputy Chief Minister of Tripura stated that he is in agreement with the Hon ble Deputy Chief Minister of Haryana and the Hon ble Deputy Chief Minister of Bihar that they should be allowed to borrow. He stated that the North-Eastern States were very small States and they were burdened with financial difficulties. So he pleaded with the Hon ble Union Finance Minister not to delay any further arid allow them to exercise Option 1. 35.34 The Hon ble Minister from Meghalaya reiterated their stand and said that Meghalaya decided to opt for Option-1. He informed that he would stand by that option. He also thanked the Govt. of India for having considered the suggestions put forward by Meghalaya and requested to place their choice of Option-1 on record. 35.35 The Hon ble Deputy Chief Minister of Gujarat stated that Gujarat had already made their stand clear in the last meeting that they would choose Option- 1 He said that it would help all the States to receive funds needed urgently for going forward with their plans and fostering economic activities which would help people in that difficult situation. He also expressed that if it was not possible to reach a consensus amongst all the Hon ble Finance Ministers of States, then it would be difficult to do so even if the GoM was formed and it would delay the matter. He proposed that the Government of India should initiate the process of giving loans through RBI to the 21 States that already gave their consent for Option-1. He said that the States which did not agree with Option-1 could discuss with the Hon ble Finance Minister of India about other options available and it would not be appropriate to stop other States from getting loans for the sake of a few States. He opined that in the present situation, this matter should not be delayed any further and it was the responsibility of all the Stale Governments along with the Central Government to help the States people and the matter needed a quick resolution. He also suggested that the amount of loan that the States would get should be based on the formula of net GST revenue and not gross GST income. 35.36 The Advisor to Hon ble Lieutenant Governor of Jammu and Kashmir stated that they opted for Option-1 in view of their current financial resources and need of funds for the Govt. of J K. He requested for the Council s consideration that Option-1 might be implemented on priority since J K needed finances urgently. 35.37 The Hon ble Chief Minister of Puducherry, while referring to the package and interest free loans for 50 years for the Slates especially for the North-Eastern States and other States based on the formula for devolution of funds under Central Finance Commission pointed out that Puducherry and Delhi had been deprived of these package and loans as they did not come wider the purview of the Central Finance Commission. He felt that the Central Government could borrow without certain limitation whereas States cannot borrow without the permission of the Centre. He further suggested that in addition to all the options considered so far, he proposed another option in which the Government of India can allow the GST Council to borrow. He mentioned that according to Article 293 of the Constitution of India, the Central Government can take a decision in the matter so that the issue could be resolved by the GST Council being authorized by the Central Government to borrow and disburse the funds to the States. 35.38 The Hon ble Minister from Chhattisgarh sought clarification from the Hon ble Chairperson on the points viz. (a) He mentioned that in the last meeting he Finance Secretary had announced that the GST Council had decided that States could take a loan. The Hon ble Minister asked whether the GST Council was within its rights to ask the States to take a loan, (b) Under Article 293, when an amount is borrowed by the Central Government the security was to be of the Consolidated Fund of India. Similarly, when the State Government borrowed, the security was to be the Consolidated Fund of the State or India. He asked, in the present proposal whether the security would be on the Consolidated Fund of the State or the GST Compensation Fund. (c) He further sought a clarification / guidance if the GST Council decides that States had to borrow, then do States have a choice whether to take loan or not. 35.39 The Hon ble Finance Minister of Assam referred to the deliberations of the 10 th meeting of the GST Council where the then Revenue Secretary had mentioned about market borrowing. He pointed out that the said meeting took place on 18 th February 2017. However, the GST (Compensation to States) Act 2017 was passed in the Parliament on 12 th April 2017. That meant whatever had been discussed in the Council, even after that, the Parliament in its wisdom decided on 12 th April 2017 to discuss about cess only in order to raise compensation. He stated that the question of borrowing which had been mentioned on the 18 th February 2017 meeting was not reflected in the GST Compensation Act passed on 12 th April 2017. 36.1 The Secretary clarified the issue raised by the Hon ble Finance Minister of Punjab, by referring to the opinion given by the Attorney General of India that the levy of the Compensation Cess could be extended beyond five years. On the reference made by Hon ble Member to the opinion of the Attorney General of India that unless and until all States agrees it could not be extended, Secretary clarified that what the Attorney General of India meant was that under the current Act, the compensation entitlement would be only for five years. However, actual levy and collection could go beyond live years if the Council recommended, that would not permit the extension or deferment of the period of five years for the entitlement of compensation to the States. In his opinion, therefore. AG has stated that only if the Council agrees to deferment or extension in regard to the payment of compensation to them (States), one could adopt such course of action. In the month of August 2020, the Attorney General of India has further clarified that extending the levy and collection of the cess beyond five years under Section 8(1) of the Act can be done on the recommendation of the GST Council which would require the decision by three fourths majority of the weighted vote. Since all States were represented in the GST Council, that could only be achieved if the requisite number of States supported such recommendations. That was clarified by the Attorney General of India that all States meant requisite number of States that supported such recommendations . In Agenda Item 9, the Council had recommended the levy of cess beyond five years. 36.2 On the issues raised by the Hon ble Finance Minister of Chhattisgarh that if the borrowing was done then, whether the borrowing would be done on the strength of the Consolidation Funds of States, and also whether the States could be permitted to borrow, the Secretary clarified by drawing the kind attention of the Council to the opinion in the month or June 2020 by Attorney General of India. In the question No.4, the AGI was asked Can the States borrow on the future receipts of the compensation fund to meet the compensation gap either fully or partially? The Secretary quoted the Attorney General of India s reply that this query can be answered with the reference to Article 292 and 293 of the Constitution. The entitlement of a State to borrow is set out in Article 293(1). And the Article 293(3) states that States can borrow on the basis of the Consolidation Funds of States . The Secretary further quoted the Attorney General of India that Limitation on such right is found in clause (3), which prohibits a State from raising any loan, without the consent of the Government of India, if there is still outstanding any part of a loan which has been made to the State by the Government of India. Clause (2) of Article 292 authorised the Parliament to make loan to a State, subject to any limit which may have been fixed by law made by the Parliament. Thus, it is within these parameters that a State can borrow, even on the strength of future receipts from the compensation fund. 36.3 The Hon ble Minister from Chhattisgarh reiterated the contentions as already stated in above paras. About Article 293 which envisages or stipulates that security would be of the Consolidated Fund of State whereas the compensation cess fund does not have any specific share of the State. The Minister from Chhattisgarh further mentioned that the Compensation cess would come after end June 2022, it was not known today, when and how much amount would come and in which time frame. Article 293 was an entirely different provision and it had no inclusion of compensation cess and the Consolidated Fund of a particular State has no fixed amount. 36.4 The Secretary clarified that the compensation cess goes to the States and it becomes the part of the Consolidated Fund of State and that was exactly the reason why the Attorney General said that under Article 293(1) States can borrow. As regards apprehension of Hon ble Minister from Chhattisgarh that Compensation Fund was uncertain in comparison to CGST and SGST, Secretary mentioned that in this meeting itself they had approved Agenda item 9 i.e. the GST Council approved that the levy of the compensation cess shall be extended to meet the entire gap. So, once Compensation Cess got extended, it was not an uncertain revenue and it becomes a certain source of revenue. Therefore, on the strength of that compensation fund, the loan or borrowing could be done under Article 293(1). The Hon ble Minister from Chhattisgarh replied that the amount was uncertain for sure. It the collections of Compensation Cess were lower, amount would be lower, but the percentage of CGST and SGST are fixed. 36.5 The Hon ble Minister from Odisha said that the law was elastic not fixed and GST Act or Compensation Act were by-product of the Constitution. He agreed with the submissions made by the Secretary to the Council that similar to a State budget, compensation was an estimate and estimate had already been made. 36.6 The Hon ble Finance Minister of Kerala stated that it was possible to make an estimate of what would be the compensation for a State and it was complicated for States which was so simple and straight for the Centre to borrow. The Council had decided to extend the compensation cess but not to defer the compensation of the current year to future as it would require a decision of the Council and not a proposal of Option-1. 36.7 The Hon ble Finance Minister of Tamil Nadu stated that Option-1 might be agreed upon by consensus. He proposed that a meeting of officers might be organized to sort out the modalities of borrowing of the loan and mode of repayment through cess based Compensation Fund, etc. 36.8 The Hon ble Finance Minister of Assam suited that he wanted to add few lines to the opinion given by the learned Attorney General of India. He said that the Attorney General had clearly pointed out that the entitlement of a State to borrow would emerge from the authority the Constitution had given under Article 293(1) read with Article 292 and Article 293. He reiterated that the Council had no jurisdiction to advise the Hon ble Union Finance Minister as and when she wanted to exercise her authority under these two Articles as the jurisdiction of GST Council did not extend to that. 37 The hon ble Chairperson with regard to the issues mentioned by the Hon ble Minister from Chhattisgarh, that in continuation of the clarifications given by the Secretary to the Council, the Joint Secretary (DoR) would elaborate with regard to the estimates of compensation to States. 37.1 The Joint Secretary (DoR) mentioned that the figures were already shared with the States after meeting of the Finance Secretary and the Expenditure Secretary with the State Secretaries on various aspects of the borrowing options. The basis of calculation was also shared where it was said that the SGST with respect to the previous years collection at 10% would be recalculated on 7%. The calculation was done for each State and S.No.22 showed the figure for Chhattisgarh. He stated that calculations would be would be redone at 7% for all States and would be communicated to all the States. 38. The Hon ble Chairperson clarified that compensation to the States would be given only for the period pertaining to the first 5 years but the levy of compensation cess can be extended beyond 5 years in order to make up for the shortage. She stated that this is as per the existing law and this was clarified by the Attorney General of India. She informed that exercising the powers that were vested in the Council, Members had collectively agreed to extend the collection of cess beyond 5 years in the last meeting held on 05.10.2020. She asked the Secretary to the Council to read out the relevant portion from the opinion given by the Attorney General in this regard. The Secretary to the Council referred to the paragraph 2 of the answer given by the Attorney General of India to question No.(iii) on this issue. 39. The Hon ble Deputy Chief Minister of Gujarat referred to the clarification sought by the Hon ble Finance Minister of Chhattisgarh, and stated that if compensation cess collections increased, then the compensation to States would also decline. He further clarified that if in 2021, the market performs better and sales increases, compensation to States requirement would automatically be lower. Therefore, in his opinion, compensation to States was not fixed and it would decrease with an increase in economic activity. He referred to the Hon ble Finance Minister of Odisha pointing out that it was elastic in nature. He said that the accounting procedures were regular exercises that could be done any time but Option-1 should be agreed upon and the matter should be resolved quickly by taking a decision. 39.1 The Hon ble Finance Minister of Telangana reiterated his points of view and requested the Hon ble Chairperson to take a decision. He expressed that Council should come to a decision and that should be implemented by all the States. Whether some States would accept or not, but collectively the Council needed to take a final decision, he emphasized. 39.2 The Hon ble State Minister of Technical Education of Rajasthan requested the Centre to take loan and distribute to States. 39.3 The Hon ble Finance Minister of Goa expressed that in the past aIso, whenever such a thing had happened and opinions had been divided, it was left to the wisdom of the Chairperson. He wanted to leave the decision to the Hon ble Chairperson and he requested his fellow Ministers to agree to the final decision. 40. The Secretary to the Council answered the queries raised by the Hon ble Finance Ministers of Chhattisgarh and the Hon ble State Minister of Technical Education of Rajasthan as to why the Centre could not borrow under Article 292. He stated that the Department of Expenditure circulated a note on Option-1 and Option-2 and also mentioned the background of those options. He said that ultimately the aim was that States should get the money on account of compensation. Since there was not enough collection of cess, the borrowing arrangement was being worked out by the Department of Expenditure and the Department of Economic Affairs. The borrowing decision by the Central Government was not taken in the council but was taken by the aforementioned Departments based on their own constraints, He mentioned that after having considered all the constraints, they had worked out a solution where the entire borrowing would be tied up. 41. The Hon ble Chairperson thanked all the Ministers for having gone through two extended days of discussion on the matter. She stated that there was absolutely no doubt that the GST collections have suffered and these are the things that everybody knows. She also said that however much all of the Members had spoken, she did not see them having a dispute. She expressed that although there might be differences of opinion, they were not fundamentally denying one another s position. She stated that compensation and compensation in full was payable and there was no question about it. However, it was everybody s knowledge that compensation cess had not been yielding adequately. She requested everyone to look at how various views have been resolved in the past and have trust and confidence. She reminded that this was an extraordinary situation and the Members of the Council, including some who were in the Empowered Committee before the Council was formed, would not have foreseen a pandemic of this nature. Therefore, it was not only a problem for the States but the problem was for all of them. 42. While referring to the discussion as to why the Centre could not borrow, she explained that the Centre s borrowing beyond the calendar actually would adversely impact interest rates in the market and not only impact the Centre s case of borrowing but also of States as well as for the private sector. The impact would not be the same if the States were to borrow. She assured that even if the States borrow, the Government of India would work with the RBI to ensure that the States arc able to raise the amount at equitable and fair rate. She explained that a balanced approach was followed after consulting State-level officials. 43. She explained that since the compensation cess had been extended to cover the entire shortfall in the compensation, she assured that full compensation would be released and other resources of the States would not he touched for the remaining loan that was being borrowed. Therefore. States need not have any apprehension that the burden would fall upon them. She appealed to the States to reach a solution quickly so that fund could reach them which they could spend on pandemic, development expenditure and other contingent expenditure of the States. She said that even if a consensus could not be reached, she would want the Centre to be engaged with the States outside the broader consensus to devise ways that could he mutually acceptable. 44. She stated that at some time she would like to sit with all the Ministers to discuss about improving the rates per se so that the cess collection could be improved, if she had to voice the views of the States which had chosen an option, it would not be proper for the Council to say to those States to keep waiting till everybody arrived at a consensus. She emphasized consensus was something all of them, including herself would honour. She questioned if she was unable to arrive at a consensus, did it mean she would ask the States to wait as much as time they would take to arrive at a consensus. She said States had got the collection of cess coming to them and if they wanted to go ahead and do something should the Council take a view that till a consensus is arrived at no State could go on with the borrowing. So, in order to voice everybody s views, she would only say that although a consensus on how to go about borrowing could not be reached, her humble appeal would x that the need of the hour is that money should go to States so that they could start spending. 45. The Hon ble Finance Minister of West Bengal wanted to know from the Hon ble Finance Minister of India about the conclusion. He appealed to the Hon ble Chairperson that it would be solved if the central Government agrees to borrow. 46. The Hon ble Finance Minister of Assam stated that they had understood what the Hon ble Finance Minister of India said. If any State wanted to borrow it could go ahead and other States should allow that. This was what he understood and he was grateful for that. 46.1. The Hon ble Finance Minister of Kerala commented that at the end of the deliberations, two contentious issues are still not clear. One issue was to finalize whether the Central Government would borrow or individual States. The other issue was about the amount to be borrowed. He was totally against deferring part amount and how much to defer was something that was to be stated more significantly. 46.2 The Hon ble Minister of Chhattisgarh thanked the Hon ble Finance Minister of India for the complete openness she exhibited in bringing the facts and discussions in the Council. He congratulated her openness not only to listen and reach a consensus. He understood from the conclusion given by the Hon ble Finance Minister of India that the issue was open under Article 293(1) and 293(2) and that nobody could stop anyone from borrowing. 47. The Hon ble Chairperson responded that she had already explained the constraints for the Central Government borrowing the amount. She stated that there is no dispute but a difference of opinion on the approach. She further stated that while there was no consensus, she would urge all to be fair to one another. She stated that India was on a revival path and they could not have the Council deny the Indians an immediate catalytic effect required for the economy. She added that we needed the money to go down to the people, so that there is quick recovery. She hoped that revenue collections would probably be adequate next year. She again humbly appealed to all States to work out something that would benefit all states immediately. 48. After the above concluding remarks by the Chairperson of the Council, the Hon ble Finance Ministers of West Bengal, Gujarat, Assam and Karnataka expressed their gratitude to the Hon ble Finance Minister of India and appealed to her for doing the needful which would serve best the needs of the States. Agenda Item 10: Review of Revenue position 49. The Council took note of the Revenue position. Agenda Item 11: Enabling UPI and IMPS as a payment option for payment of Goods Services Tax 50. The Secretary asked. DoR to take up Agenda Item 11. The JS, DoR briefed the Council that as on date, three or four modes of payment are available for GST payment. He emphasized that in the past few years digital payments through Unified Payment Interface (UPI) had seen a historic rise, so the proposal was to allow payment of GST through UPI in addition to the existing modes of payment. He highlighted that in this regard GSTN had already done test runs and the interface was ready, and if the Council approved it could be made functional. 50.1 The Secretary to the GST council added that this would greatly facilitate the taxpayers as currently only certain banks and certain modes of payment were available for payment of GST. The GST payments through UPI would provide taxpayers the facility to do business with banks that are not authorized to collect GST with an instant and inter-operable payment option. In view of the reasons explained above, he submitted to the Council that GSTN may be permitted to allow UPI and IMPS as an option for GST payments. 51. For Agenda Item 11, the Council approved the proposal for including UPI and IMPS as an option for GST payment apart from the existing ones. Agenda Item 12: Status report of creation of GRC Zone-wise (CBIC) and States / UTs. 52. The Secretary introduced the agenda and stated that the GST Council in its 38 th meeting held on 18.12.2019 had decided that a structured grievance redressal mechanism should be established for the taxpayers under GST to tackle grievances of taxpayers on GST related issues of specific / general nature. The GST Council accordingly approved constitution of Grievance Redressal Committee (GRO) at CBIC Zonal / State level consisting of both Central Tax and State Tax officers, representatives of trade and industry and other GST stakeholders. 52.1 Office Memoranda F.No.820/GRC/GSTC/2019 dt 30.12.2019 and 07.02.2020 were issued by this GST Council Secretariat for constitution of GRC at CBIC Zonal f State level in accordance with CBIC letter F.No.20/10/16/2018-GST(Pt.1) dated 24.12.2019. 52.2 The present position of constitution of GRC on the basis of orders constituting Zonal / Stale level GRV which have been received in the GSTC Secretariat, was submitted to the GST Council. The details of constitution of these GRCs are being uploaded regularly on the GST Council website http://www.gstcouncil.gov.in/grievance-redressal-committecs-central-zonestate-level under sub-menu Public Grievance Redressal Committee (GRC) under menu Help for creating awareness amongst the trade. 52.3 AIl State / UTs / CB C Zones have constituted the GRCs. except the following 06 States/ /UTs/CBIC Zones which have not yet constituted GRC. The GST Council Secretariat reminded them vide OM dated 02.06.2020, 20.07.2020, 24.08.2020 and 16.09.2020. S. No. Sate/UT CBIC Zone Status of constitution of GRC 1 Andaman and Nicobar Islands Kolkata Pending 2. Dadra Nagar Haveli, Daman and Diu Vadodara Pending 3. Gujarat Ahmedabad Pending 4. Haryana Panchkula Pending 5. Puducherry Chennai Pending 6. Tamil Nadu Pending It was requested that the above mentioned 06 States / UTs/I CB C Zones may constitute GRC and copy of orders of constitution of GRC may be sent on priority to the GST Council Secretariat. 52.4 The GSTN created a specific portal for uploading the grievances received in these meetings, for the purpose of escalating the same to the appropriate authority. The CBIC Zones / States / UTs have been requested to take Login credentials for the specific portal where the GRC is constituted. 52.5 The latest status of the constitution of CRC at Zonal / State level for redressal of grievance of taxpayers on GST related issues was placed before the GST Council for information. 53. For Agenda item 12, the GST Council took note of the latest status of the constitution of Grievance Redressal Committee at Zonal / State level for redressal of grievance of taxpayers on GST related issues. Agenda Item 13: Performance Report of the NAA (National Anti-profiteering Authority) for the 1 st quarter (April to June 2020) 54. The Secretary introduced the Agenda Item and stated that in terms of provisions of clause (iv) of Rule 127 of the CGST Rules 2017, National Anti- Profiteering Authority (NAA) is required to furnish a performance report to the GST Council by 10 th day of the close of each quarter. He placed the Quarterly Performance Report of NAA for the 1 st quarter of the financial year 2020-2021) i.e. for the period from 01.04.2020 to 30.06.2020, before the GST Council as under: Opening 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 66 21 21 14 01 06 66 54.1 The NAA reported that due to Corona pandemic outbreak, the orders in cases where in the limitation was expiring between 20.03.2020 and 29.03.2020 might not be passed within a period of 06 months from the date of receipt of the report from the DGAP due to force majeure. Accordingly, the orders were passed in terms of the Notification No.35/2020-Central Tax dated 03.04.2020 issued by the Govt. of India, Ministry of Finance (Department of Revenue), CBIC under Section 168A of the CGST Act, 2017 as amended vide tile Notification No.55/2020-Central Tax dated 27.06.2020. The NAA also reported that the hearings scheduled from 01.04.2020 to 31.05.2020 could not be held due to extended lockdowns in Delhi till 31.05.2020. Thereafter, personal hearing has been accorded only on the specific request by the interested parties preferably through video conferencing. 55 For Agenda item 13, the Council took note of the Quarterly Performance Report of the National Anti-Profiteering Authority for the 1 st quarter of the financial year 2020- 2021 i.e. for the period from 01.04.2020 to 30.06.2020. Agenda Item 14(i): Minutes of the Meeting of GoM on IGST Settlement held on 22.09.2020 01.10.2020 56. The Secretary, GST Council taking up Agenda Item 14(i) briefed the Council that a GoM under the Chairmanship of the Hon ble Deputy CM of Bihar was constituted which held meetings on the issue of (GST settlement. The report of the GoM had been circulated to all the Hon ble Ministers of the GST Council. The Secretary submitted that the recommendations of the GoM were a under: (a) Centre should disburse net amount of ₹ 24,400 crore due to States / UTs on account of apportionment of the entire year-end IGST balance available as on 31 st March, 2018; (b) Before initiating recovery of the excess Compensation amount. Centre should consult the States from which recovery is to bc made: (e) lGST settlement data arising on account of annual returns filed by the taxpayers for FY 2017-18, may be referred to the Law Committee for examination and recommendation: and (d) The matter would be placed before the 42 nd meeting of the GST Council to be held on 5 th October 2020. The Hon ble Chairperson invited comments of the Hon ble Ministers on the same. 56.1 The Hon ble Minister from West Bengal stated that he has no issue with the recommendations of GoM. But, he said that he would like to bring to the attention of the Chairperson that ₹ 1,76,688 crores were received for IGST in 2017-18. As per set procedure, half of it, that is ₹ 88,344 crores, has gone to the States and an equal amount remained with the Centre in the Consolidated Fund of India. As a second step, of the IGST amount received in the CFI, 42% of that should have been devolved to the States arid thus a total amount of ₹ 1,25,000 crores should have been devolved to the States. He said that miscalculation of IGST has resulted in shortfall of IGST devolved to the States and the compensation amount of ₹ 33,000 crores was released in the earlier meeting. He said that CAG had made a very strong observation on this and it reflected poorly on the GST Council. 56.2 The Hon ble Minister of Assam stated that GST Council was not the right forum to discuss the report of CAG as the CAG report would go to the Parliament and the Public Accounts Committee would discuss it. He advised to restrict the discussions to the report of GoM on IGST settlement. 56.3 The Hon ble Minister from Telangana submitted that he would like to bring up an issue other than the Agenda being discussed. One was the issue of ineligible, reversed and lapsed IGST ETC not being settled to the States on monthly basis. In this regard when the settlement reports pertaining to annual returns filed upto 24-9-2020 were run by the GSTN, it was noticed that an amount of ₹ 1,000 crores was due to State of Telangana which may be settled at the earliest. Secondly, him being a Member of the GoM, the GoM has unanimously agreed to the recommendations made in the report. As per the report, he requested that an amount of ₹ 25,058 crores which was transferred to the CFI, may now be devolved to the States. 56.4 The Hon ble Minister from Madhya Pradesh submitted that an IGST recovery of ₹ 1,612 crores was due from the State and it was requested that in light of the shortage of GST and VAT revenues and the increased requirements due to the corona pandemic, the State had opted for Option-1 and that this amount may be settled with the compensation dues accruing to the State either through payments in form of instalments required to he made after a period of 5 years or may be with the dues accruing for FY 2021-22. 56.5 The Hon ble Minister from Chhattisgarh, on the issue of IGST stated that the matter was brought up in the Council and then referred to GoM on IGST settlement ably led by the Hon ble Deputy CM of Bihar that reached a unanimous decision. He also discussed about Compensation to States, loan to be taken and related issues. He also sought whether certain guidelines could be framed on Members of the Council interacting with the Media on the GST related issues being discussed in the Council meetings. 56.6 The Hon ble Minister from Tamil Nadu requested the Hon ble Chairperson that the payment of IGST settlement dues as recommended by the GoM should be made in one instalment and this month itself. 56.7 The Hon ble Minister of Karnataka stated that as per the GoM s second recommendation that before initiating recovery of the excess Compensation amount, the Centre should consult the States from which recovery was to be made. He also mentioned that considering the hardships on finance front presently, it should not be recovered immediately and may either be settled at one time after five years or it could be done in instalments. 56.8 The Hon ble CM of Puducherry stated that he had been attending meetings of the Council right front 2017 and it was through deliberations and broad consensus that decisions were being arrived at. He requested the Hon ble Chairperson that each state had its typical problems and the Hon ble Ministers represent the will of the people of the State. Centre and State had to work together in the spirit of cooperative federalism. 56.9 The Hon ble Minister from Assam agreed with the views expressed by the Hon ble CM of Puducherry and suggested that if any code of conduct is being finalized, then it shall be for all Members of the GST Council. 56.10 The Hon ble Minister from Chhattisgarh requested the Chairperson to clarify what should be the stand of the Ministers of the Council in the Media and when the Council was not meeting, were they to keep silent. So if a public issue came forwards should they not express themselves in the public. 57.11 The Hon ble Minister of Karnataka stated that more focus was required on the Agenda, and the Hon ble Chairperson should take a call and sought greater clarity on the Compensation issue. 56.12 The Hon ble Chairperson stated with regard to the issue of lGST settlement, she did not want to go back to the problem as to how it happened but she pointed that after she took over as the Chairperson. GST Council in 2019, some of these issues that had been festering the GST Council were (i) lGST issue related to a particular State with regard to fixing year revenue, (ii) the lGST settlement issue concerning all States, and (iii) the Compensation Cess issue that had been credited to CFI and had not been transferred to public account. She stated that all the three issues were settled by following proper process within a period of 12 months. The issue of lGST Settlement concerning all States was looked into by the GoM on lGST settlement, headed by Sh. Sushil Modi, and the recommendations of the GoM are placed today before the GST Council. She stated that as per the recommendations of the GoM, the Centre would be disbursing net amount of ₹ 24,400 crores due to States on account of apportionment of the entire year- end IGST balance available as on 31 st March, 2018. Further, she assured that the entire IGST settlement amount of ₹ 24,400 crore would be released with iii a week. 56.13 The Hon ble Chairperson acknowledged the desperate financial need of States as they were front-liners in the fight against Covid. She said that in spite of Compensation Cess collections being only ₹ 96,000 crores last year, the Central Government had released compensation of ₹ 1,60,000 crores. Further, she clarified that on the issue of mechanism for recovery of excess IGST from States, it was not presently being pressed and could be recovered gradually. 56.14 The Hon ble Chairperson further stated that she was grateful that the Hon ble Finance Ministers of the States chose to write a personal letter thanking her. In response, she thanked all the hon ble Finance Minister of the States for being positive about the resolution of each of these issues. 56.15 The Hon ble Chairperson further stated that she had always been willing to hear every Minister who wished to speak and she had never asked any Minister to cut short or conclude. She has also assured that she was not going to prepare any code of conduct. She stated each one of them were very senior, experienced and managing their respective State s affairs during these challenging times. She stated that till today, there was never a meeting where it had been felt that a code of conduct should be formed and every meeting had gone with its due share of interaction and sharing of information. 57. For Agenda 14(i) the Council approved the recommendation of the GoM on lGST Settlement. Agenda Item 14(ii): Exemption from GST on launch of satellites of Indian private enterprises, by ISRO, Antrix and NSIL 58. The Secretary introduced the Agenda Item 14(ii) regarding exemption of levy of GST on satellite launch services supplied by ISRO, Antrix Corporation Ltd. and New Space India Limited (NSIL) to lndian private enterprises. He mentioned that, recently certain Indian startups engaged in manufacturing and launch of nano/ micro satellites opted for launch of their satellites by foreign space companies instead of ISRO. Antrix Corporation Ltd. or NSIL, the premier Indian agencies engaged in the activity of launching of satellites. One of the reasons fbi this was the GST applicable on the service of launch of satellite by an Indian Space agency such as Antrix or NSIL to an Indian service recipient. 58.1 According to the provisions of GST law, supply of satellite launch services by Antrix Corporation Ltd. or New Space India Limited (NSIL) to international customers against payment in foreign exchange constituted export of service and was zero-rated. However, supply of satellite launch services by ISRO, Antrix or NSIL to a person located in India was taxable. This position had been clarified vide Circular No.2/1/2017-IGST dated 29.9.2017. 58.2 The Council agreed that the satellite launch services supplied by ISRO, Antrix Corporation Ltd or NSIL may be exempted from GST. 59. For Agenda Item 14(ii) , the GST Council recommended that the satellite launch services supplied by ISRO, Antrix Corporation Ltd or NSIL be exempted from payment of GST. 60. After detailed discussion on the Agenda Item 9A on 12 th October 2020, the Secretary to the Council thanked the Hon ble Union Finance Minister, the Chief Minister, the Union Minister of State (Finance), the Deputy Chief Ministers, all the Hon ble Members of the Council, and other participants of the meeting. With this,. he announced the closure of the meeting.