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TMI BlogMinutes of the 1st GST Council Meeting held on 22nd and 23rd September 2016X X X X Extracts X X X X X X X X Extracts X X X X ..... l observed that the political parties showed statesmanship in passing the historic taxation legislation in the Union Parliament and thereafter, the States also played an active role in ratifying it. He also thanked the Empowered Committee of the State Finance Ministers for playing an important role in reaching a broad consensus on GST. He observed that the Council has a very important constitutional responsibility to deal with all important issues relating to GST. 3. Five agenda points were taken up for meeting which are as follows: (i) Draft Rules of Procedures and Conduct of Business in Council (ii) Proposed timetable for the implementation of GST (iii) Thresholds for exemption and composition under GST (iv) Draft Modalities for GST Compensation and draft Compensation Law (v) Provisions for Cross-Empowerment to ensure Single Interface Under GST 4. Before taking up the agenda points, the Chairperson invited the Members of the Council to make general comments, if any. The following issues were highlighted- (i) The Hon'ble Minister from Kerala expressed that given the good experience with the Empowered Committee of State Finance Ministers during the last ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otes before every meeting could derail the deadline. It was agreed that a meeting notice along with agenda points shall be sent at least 7 days prior to the date of the meeting of the Council and the agenda notes would be sent at least 3 working days prior to the date of the meeting. The timelines could be revisited once GST was implemented. (iv) In respect to Rule 3, the desirability of holding meetings via video conferencing was suggested by the Hon'ble Minister from Tamil Nadu and discussed. Some members felt that it was an efficient way of conducting business where the agenda points might be very few whereas some others felt that chemistry of the group was important, especially during the initial stages when important issues were being discussed and this could be achieved only by a physical meeting. The Chairperson observed that the idea of video-conferencing could be explored at a later date, specifically in cases of meetings where the agenda points were few and required just a formal approval. Furthermore, the desirability of postal ballot was also discussed and it was decided that this was not required. (v) Rule 4 - The Hon'ble Minister from Kerala observed tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Union oflndia, which is not desirable. The Hon'ble Minister from Bihar observed that under the leadership of the Chairperson, a healthy convention should be developed of taking decision by consensus. (xi) In respect of Rule 16, the Hon'ble Ministers from Tamil Nadu and Uttar Pradesh suggested that there should be different weightage of votes for States within the two-third weightage of votes given to the States. The Hon'ble Minister from Tamil Nadu stated that States with a population of 20 crores and 1 crore should not be treated equally in terms of votes. It was pointed out that such an approach was followed for Rajya Sabha membership. Some criteria like population, GDP, revenue collected or Lok Sabha representation could be adopted to assign weighted votes to each State. The Hon'ble Minister from UP also endorsed this suggestion. This suggestion was objected to by several States. The Hon'ble Minister from Meghalaya stated that no inequality should be created between the States. The Hon'ble Minister from Assam also strongly opposed this suggestion and observed that each State played an important role in the Union and that a small State like Arunachal Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il 2017. The Hon'ble Minister from Kerala stated that they were ready with the IT systems but they would be in a position to pass the legislation only by February 2017. The Hon'ble Minister from Jammu and Kashmir stated that they would be able to pass the law only by January 2017. The Chairperson observed that the States that were going for elections would need to make a special provision for passing their SGST Legislation. He also advised the States to meet the deadline and for this, where needed, a one-day special session of the legislature could be convened. The Hon'ble Minister from Tamil Nadu suggested that implementation of GST should be by 1st September 2017 as it was a challenging task and the officers needed to be deployed properly. He also mentioned that inadequate preparations could harm the taxation system. 8. After discussion, it was agreed that the implementation date for GST would be 1st April 2017. The Chairperson observed that between 22nd September 2016 and 22nd November 2016, a lot of work was required to be done and that officers of the State Governments should be spared for the work relating to GST. The Hon'ble Deputy Chief Minister of Aruna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s would go out of the tax net who accounted for 7% of their revenue. He supported a threshold of ₹ 10 lakhs. The Hon'ble Ministers from Punjab, Telangana, Goa and Bihar also supported a threshold of ₹ 10 lakhs. 12. As regards the Special Category States, the Hon'ble Minister from Meghalaya informed that their present threshold was only ₹ 1 lakh and therefore, exemption for Special Category States should be ₹ 5 lakhs. The Hon'ble Minister from Mizoram also supported a threshold limit of ₹ 5 lakhs. The Hon'ble Minister from Assam supported a threshold of ₹ 10 lakhs. 13. Given the difference in opinions, the issue was deferred for reconsideration to the next day. In the meeting of 23rd September 2016, after further discussion, it was agreed that the threshold exemption shall be ₹ 20 lakhs. The Chairperson also observed that taking note of the concerns expressed by the Hon 'ble Chief Minister of Puducherry, this decision would be reviewed after 5 years (during which compensation for any loss of revenue is guaranteed) and a decision regarding any modification to the exemption threshold would be taken thereafter. 14. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the base year should be taken as a normal year, that is, a year in which revenue was collected normally. He gave the example of unprecedented floods in Jammu and Kashmir in the year 2015-16 that led to reduced revenue collection. In relation to release of the compensation, he expressed the view that annual release of compensation based on the CAG's audited figure would put States to difficulty in their cash management. He suggested having a mechanism of drawing advances against prospective compensation which could be reconciled later. This would ensure that the Ways and Means Advances are well managed in the States. He was also of the' view that the suggested model was too simplistic and did not take into consideration many of the variables such as inflation 20. The Hon'ble Minister for Uttar Pradesh desired to know whether the compensation formula would take into account the impact on revenue of the tax holidays provided by the States. The Hon'ble Minister from Telangana explained that his was a new State and therefore only figures for the year 2016-17 would be available. The Hon'ble Minister from Gujarat expressed the view that the base year should be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding 6 years be taken into consideration to account for the floods in Tamil Nadu. He was also of the view that the States should assess their revenue loss by December and convey to the Centre and compensation should be paid on that basis. The projected growth rate should take into account all taxes subsumed under GST. He observed that more detailing was required in the Rule. He also requested for payment of outstanding CST compensation amount. 24. The Hon'ble Minister from Bihar suggested that the formula of compensation used during VAT transition should be used as it was a trusted methodology. He also expressed the view that more clarity was needed on how and when the compensation would be paid. The Hon'ble Minister from Andhra Pradesh supported the view that VAT compensation methodology might be used for paying GST compensation. 25. The officer representing Maharashtra brought to the notice of the Council that Maharashtra had suffered drought during the last 3 years and therefore, for States with such special circumstances, 5 year period should be taken to ascertain the projected rate of growth of revenue. He also submitted that the Octroi collected by local bodies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the CST compensation be released forthwith. The Hon'ble Minister of Chattisgarh while supporting the idea of using VAT methodology for payment of compensation, desired to know the impact of petroleum items which were outside GST on the calculation of the growth rate. He also suggested that 2016-17 be taken as the base year. 31. The Hon'ble Minister from Haryana brought to the notice of the Council that they had problems similar to that of Punjab as they also had a lot of agricultural produce in the State. The Hon'ble Minister from Telangana brought to the notice of the Council that Telangana would stand to lose ₹ 700 crores of R.D.Cess (Rural Development Cess) and should be compensated. He also desired that full CST compensation be paid and details of methodology for working out CST compensation be spelt out. He suggested that the compensation should be given at least quarterly and there should be accommodation for Ways and Means Advances. 32. The Hon'ble Minister from Odisha desired to know as to when the compensation for years beyond 2013-14 would be released. He suggested that compensation should be paid on a monthly basis. Karnataka was represented ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compared to VAT. During the introduction of VAT, there was no provision of 100% compensation for 5 years. While it was agreed then for best 3 out of 5 years' growth rate, it was linked to diminishing amount of compensation for 3 years, namely 100% for year one, 75% for year two and 50% for year three. Therefore, it might be inappropriate to adopt only part of the formula. 36. The IS. (Rev) clarified that compensation would include all taxes such as CST, Octroi, Purchase Tax, etc which are levied by the State Governments and now proposed to be subsumed in GST including cesses, if any, imposed by the States. The frequency of release could be decided by the Council and could be an interim figure. There was considerable discussion in the Council on various other methods of calculating the compensation figure such as trends of Nominal GDP growth rate, application of buoyancy factor, variation in the GDP estimates, taking taxlGDP ratio as a factor, removing outliers from growth data of 5 years and the need to keep calculations reliable but simple. 37. The Chairperson, after getting the sense of the house summed up the following points relating to payment of compensation and pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t proposed a cross-empowerment model under which officers of the Union Government and the State Government shall be empowered to undertake the functions like Audit, Scrutiny, etc. on behalf of both the administrations. With such a model, there would not be a need to have any vertical threshold of a particular turnover to divide the roles of the State and the Centre. 40. After these introductory remarks, Shri Vivek Johri, Principal Commissioner, Customs, CBEC made a presentation outlining the broad features of the proposed cross-empowerment model. This model essentially provided for a protocol on the basis of which scrutiny of returns of taxpayers and their audit would take place. It was proposed that an overall cap might be agreed upon on the number of interventions (of scrutiny of returns and audit) to be done by the Central and State authorities taken together. Within this cap, on an annual basis, the list of taxpayers to be subjected to detailed scrutiny of returns and audit would be drawn by the Union and State Government officers in each State on the basis of certain risk parameters. Based on these lists, allocation of taxpayers to the Central and State tax administrations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther's administrations. The Hon'ble Minister from Tamil Nadu suggested that if the new arrangement led to excess officers of the Central Government, they could be deployed in the Customs formations which was presently understaffed. He supported the proposed protocol for taxpayers above the threshold of ₹ 1.5 crores but suggested that administration of taxpayers below ₹ 1.5 crores should rest with the States. 44. The Hon'ble Chief Minister of Puducherry stated that there was a need to move away from 'Inspector Raj' and the consensus arrived earlier in the Kolkata meeting of the Empowered Committee in July 2016 needed to be respected. The Hon'ble Minister from Uttar Pradesh stated that as 91% of revenue came from taxpayers with a turnover of more than ₹ 1.5 crores, it was advisable that the Central tax authorities focused on the big taxpayers and the small taxpayers should be left to the administration of the State tax authorities. 45. The Hon'ble Minister from Kerala observed that the proposal being discussed in this meeting had never come up for discussion earlier. He stated that the protocol appeared unworkable and very complicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cross-empowerment model presented in the meeting which can be suitably modified by a Committee of Central and State Government officials. iii. All existing registered service providers irrespective of the value of turnover, for the present, shall continue to be administered by the Central tax administration. iv. States will also get jurisdiction along with the Centre over those service providers who get registered under GST in future and a protocol in this regard could be devised. Specific arrangements for the training of State Government officers in assessment of Service Tax assesseesbe made. v. The percentage of audit in all cases would be restricted to 5% of total assessees. vi. Information-based enforcement powers can be exercised by the Central Government or State Government in all cases irrespective of division. 48. In his concluding remarks, the Chairperson stated that the next meeting would be held on 30th September 2016 and expressed his happiness at the progress made in this meeting.The Secretary to the Council stated that the issues to be taken up at the next meeting would be the rate structure and the tax exemption schemes of the Centre and the States. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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