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TMI BlogMinutes of the 25th GST Council Meeting held on 18 January 2018X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Central Government 4. Decisions of the GST Implementation Committee (GIC) for information of the Council 5. Minutes of 4 th and 5 th Meeting of Group of Ministers (GoM) on IT Challenges in GST Implementation for information of the Council and discussion on GSTN issues 6. Recommendations of the 'Committee on Returns Filing' on Simplification of Returns under GST 7. Issues recommended by the Law Committee for consideration of the GST Council 8. Recommendations of the Committee on Handicrafts 9. Changes proposed to be made in the CGST Act, 2017, SGST Acts, the IGST Act, 2017 and the GST (Compensation to States) Act, 2017 10. Issues recommended by the Fitment Committee for the consideration of the GST Council i. Recommendations on Goods ii. Recommendations on Services 11. Carry forward items from the previous Council Meeting i. Presentation on GST in Real Estate sector ii. Incentivising Digital Payments in GST regime 12. Transfer of shares of Empowered Committee (EC) in GSTN to the State of Telangana 13. Any other agenda item with the permission of the Chairperson i. Proposal to declare the sale of goods in Customs bonded warehouse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.1. To replace the version of the Hon'ble Minister from Rajasthan in paragraph 6.13 of the Minutes with the following: 'The Hon'ble Minister from Rajasthan stated that they were a part of the pilot programme of e-Way Bill implementation starting from 20.12.2017 and that they were ready for inter and intra-State implementation from 1.2.2018 or 1.4.2018, on whatever date the Council decided. He supported the view of the Hon'ble Minister from Haryana as there should not be any distinction between the date of implementation of e-Way Bill for both inter and intra-State transactions.' Agenda item 2: Revenue collected in the month of November and December 2017 under Goods and Services Tax, including the revenue accruing to Centre and States through settlement of funds 6. The Secretary invited Shri Udai Singh Kumawat, Joint Secretary, Department of Revenue (DOR), to make a presentation on this Agenda item. 6.1. The Joint Secretary, DOR, made a presentation (attached as Annexure 3 of the Minutes). He informed that revenue collection during the month of November, 2017 was ₹ 85,931 crore and during December, 2017, it was ₹ 83,716 crore. He stated that the revenue col ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2017 and requested Dr. Arvind Subramanian, Chief Economic Advisor, Ministry of Finance, to conduct a study as to why the tax revenue of Punjab had fallen so steeply which was not expected. The Secretary stated that earlier Punjab was getting revenue on the purchase tax for food grains exported to all other States, whereas now under GST, due to it being a destination-based tax, Punjab was getting revenue only to the extent of consumption by its citizens. 6.4. The Hon'ble Deputy Chief Minister of Bihar stated that an amount of ₹ 1,35,000 crore was lying in the IGST account, which had not been settled as yet. He suggested that this amount could be distributed among the States. The Secretary stated that there was a big gap of time between the point of production of goods and the point of sale and that the revenue would accrue to both the Central Government and the State Governments when goods were actually sold in the market. Until then, IGST would remain accumulated and expressed hope that after three months, revenue would pick up with goods being actually sold to buyers. He stated that this would lead to reduction in the accumulated amount of IGST and increase in the IGST se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment to different States based on their share of collection of taxes subsequently subsumed under GST during the base year 2015-16. He added that necessary changes in rules could be made for this. The Hon'ble Deputy Chief Minister of Bihar supported this suggestion. The Council agreed to this suggestion. 6.6. The Hon'ble Minister from Kerala stated that the data presented showed that percentage of return filing had gone down and the projection of revenue for December 2017 was based on low return filing. He stated that the other question was regarding other forms of leakage of revenue. He observed that the consumer States were lagging in revenue collection and their settlement from IGST should have been higher. He added that presently, the figures of tax from SGST and IGST settlement were almost the same, whereas due to the destination principle, higher taxes should have accrued to the consumer States through lGST settlement. He added that if the SGST collection is ‘x’, then IGST settlement should be around '2x' for the consumer States like Kerala. He observed that this showed substantial revenue leakage in the inter-State movement of goods. 6.7. The Secretary stated that the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulating compensation amount. He suggested that in the information sheet circulated by the Department of Revenue on compensation, a column should be added to indicate the amount of tax recovered from the earlier VAT period in order to get an idea as to how arrears collection was progressing across the States. He also suggested that compensation should be paid every month. Joint Secretary, DOR, pointed out that the provision of bi-monthly compensation was part of the law. The Secretary' supported the first suggestion of the Principal Secretary (Revenue) and stated that the compensation figures sent to the States should also have a column indicating the amount of arrears of VAT collected during the relevant months. The Council agreed to this suggestion. The Secretary added that it was important for the State Government officers to also focus their attention on recovery of arrears of revenue. 7. For agenda item 2 , the Council took note of the GST revenue analysis for the months of November and December, 2017. Furthermore, the Council approved the following: i. Out of ₹ 1,35,000 crore lying in the IGST account, a sum of ₹ 35,000 crore shall be provisionally settled b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the decisions of the GIC. 12. For Agenda item 4 , the Council took note of the decisions of the GIC. Agenda item 5: Minutes of 4 th and 5 th Meeting of Group of Ministers (GoM) on IT Challenges in GST Implementation for information of the Council and discussion on GSTN issues 13. The Secretary invited the Hon'ble Deputy Chief Minister of Bihar, the Convenor of the Group of Ministers (GoM) on IT Challenges in GST Implementation to brief the Council regarding the deliberations of GoM. The Hon'ble Deputy Chief Minister of Bihar stated that the GoM had held a meeting on 17 January, 2018 and the review showed that overall, there was a good progress and that lnfosys was performing well. There were much fewer complaints regarding the network and the system. He further stated that NIC made a presentation on e-Way Bill system and they suggested to delay implementation of intra-State e- Way Bill system by another 15 days to a month so that taxpayers/transporters get a chance to first work on the inter-State e-Way bill system and then proceed to intra-State e-Way bill system. During this one month, e-Way Bill system for intra-State movement could be operated on a trial basis. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2017 (till 14 January, 2018) was 92% and some taxpayers were still filing GSTR-3B for July, 2017. He further stated that GSTR-3B filing was 87% for August, 2017; 83.51% for September, 2017; 78.99% for October, 2017 and 72.18% for November, 2017. The periods for which late fee waiver was given, the filing continued even after 6 months. The GSTR-4 filing by composition dealers was 66.74% of the registered taxpayers during the first quarter and 3.26 lakh GSTR-4 returns had been filed for the second quarter. He informed that GSTR-1 filing was 80% for July, 2017, 57% for August, 2017, 62% for September, 2017; 47% for October, 2017 and 40% for November, 2017. He observed that the total percentile was quite low and this needed to go up. 13.2. On e-Way bill system, he stated that the system software had been operational since September, 2017 in Karnataka and they were issuing about 1.2 lakh e-Way bills every day. He informed that 32 States and UTs were working on e-Way bill system after it was opened to all the States/UTs and the trial period was till the month-end. He informed that all modes of e-Way bill system were in use like web, SMS, mobile app, and Bulk upload through Excel Tool ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnover threshold for composition dealers to ₹ 2 crore in the law. The ACS, Uttar Pradesh, stated that their margin also appeared to be as high as 30% and it appeared that they were under-reporting their turnover. He stated that there was also a case for upward revision of the rate of composition tax. 13.4. The CEO, GSTN, further stated that an analysis of GSTR-38 returns indicated that 80% GSTR-38 filers filed consistent returns in all five months (July to November 2017). A comparison of GSTR-1 and GSTR-38 indicated that about 10.96 lakh filers did not file the GSTR-1 returns and the Tax Administration would need to examine why they did not file returns. He further stated that around 485 of big taxpayers i.e. those with an annual turnover of more than ₹ 100 crore, had filed only one return and rest of the returns were either Nil or of very low amount. He stated that this number was constantly increasing from July (164) to November (485) and their number showed that they were getting emboldened not to pay tax. He stated that these details would be shared with tax authorities for further follow up. He added that about 4.5 lakh taxpayers did not file GSTR-3B from July t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regarding the present procedure of return filing, which involved filing 37 returns in a year, the Committee, after discussing the issue with the officers of the Law Committee, had recommended that instead of three returns in a month, only one return could be filed. On the basis of the uploaded invoices of the seller, input tax credit could be made available. He added that the switch over should not be abrupt; rather, there should be a transition plan to get into invoice based input tax credit system. He then invited the CEO, GSTN, to make a presentation on the recommendations of the Committee on Return Filing. 14.1. The CEO, GSTN, in his presentation (attached as Annexure 7 of the Minutes), stated that the stakeholders had reported several challenges with regard to the present system of return filing like filing of three returns in a month, returns being inter-linked and thus in case one return was missed, no further return could be filed. He added that tax rate-wise entries being made in GSTR-1 doubled the work of taxpayers - one while creating GSTR-1 and the other during comparing with GSTR-2A. Linking of credit note and debit note with invoices was a tedious process; linki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n per period and suggested two options to achieve this. Option 1 could be the workflow driven in which provisional credit could be taken on the basis of seller's data plus buyer declared additional purchase details at invoice level. Under Option I, up to a particular date, say 10 th of the month, the buyer could accept the invoices and lock it. Any invoices uploaded beyond that date would go to the next month. The system would draft returns on the 11 th of the month. The purchaser could add the missing purchase invoices not uploaded by sellers. He stated that Option I feature would be any time uploading of data, offline tools for matching, no interest from the buyer for the initial two-month period as the seller would be paying the interest when he added the missing invoices to his GSTR-1. He stated that where supplier did not accept an uploaded invoice, there should be a separate provision in law to address this. The Committee recommended it to be one monthly return for all. Option II could be simultaneous uploading of sale and purchase data with system matching. Under this Option, buyer-declared input tax credit could be availed by filing purchase details at invoice level. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oading the invoices on the portal. This would mean either denial or automatic reversal of credit on unmatched invoices. He stated that this principle was even more important in GST regime because settlement of IGST became a lot more complex and harder to audit where transactions would have to be settled possibly at invoice level. He stated that without matching of invoices, benefit of other related initiatives like e-Way bill system would be diluted. He stated that those models were doomed to fail which increased the burden on the taxpayer to correct mismatches or which relied on tax official's intervention to reduce the mismatches. He added that any solution that permitted, in the first place, higher level of mismatch would also fail as it would not permit automatic reversal. 14.6. Shri Nilekani further stated that the biggest risk of having a mechanism in which the system would do the matching was like taking the monkey on one's back. He added that it was not desirable to entrust the responsibility of invoice matching to the Government. He stated that a high rate of mismatch of 30% to 40% would provide sufficient cover to fraudsters to easily split the fraudulent claims knowin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right from day one and that it should not be rolled up at tax rate or commodity level. Upload should happen on a continuous basis, which would imply that verification and acceptance coincided with the actual business transaction. Invoices uploaded after the 10 th of the month would automatically be included in the next return. He stated that market forces would evolve a model where invoice would be paid for only after upload on the GST system. Buyer should accept supplier's invoices on the GST system, which would automatically determine the input tax credit. He stated that the key contrasts from GSTR-2 and pure system matching model was that it was simply an invoice "acceptance" and not "filing" of return and that acceptance could happen on continuous basis, not waiting for all GSTR-1 to be filed. Invoices, once accepted, would be locked and could not be modified by the supplier, thus bringing finality to the transaction. The system should provide robust tools to facilitate smooth acceptance including for offline matching of supplier invoices with purchase books, auto-acceptance capabilities and improved support to GSPs/ASPs for tighter integration with accounting packages. 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed that this system would work well as it was incentive aligned where, if the supplier did not report invoices on time, he would not get paid and the buyer who did not accept invoices in time, would not get input tax credit. 14.10. The Secretary observed that the presentation of Shri Nandan Nilekani suggested matching responsibility to be entrusted to the buyer and the seller which made the job simpler. The other option was to make everyone report his sale and purchase invoices and then computer would generate mismatches. He expressed that it could take months to rectify the mismatches. For mismatched invoices, either the tax administration would need to go after the buyer and the seller or there would be auto-reversal of input tax credit which would be a big pain point for the taxpayers. He observed that in the initial period, one would continue with GSTR-3B; upload sales invoices and have a separate missed invoices table for filling up the details by the buyer and the input tax credit claim in GSTR-3B should be roughly matching with his declaration. However, it should only be informational. The percentage of mismatch should be observed over a period of time and once mismatch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Nandan Nilekani (i.e. revised version of Model B), once an invoice was uploaded by the supplier and accepted by the buyer, the buyer would get credit automatically. However, the structure on which GST has been designed has two elements: (i) the seller uploads the invoices; (ii) the payment of tax against the invoice should have been made. If the proposed model was accepted, where the buyer would get credit on the basis of invoice uploaded by the seller without ascertaining payment of tax against the invoice, this would create a huge problem in IGST transfer as funds might be transferred from the State of the supplier to the State of the recipient, whereas the supplier might not have paid the tax. This would lead to a situation of tax administration of one State running after the defaulting suppliers located in another State which would be very difficult. 14.12.2. He further stated that under Model A of Option 11, input tax credit was being made available provisionally on the basis of missing invoices uploaded by the buyer subject to its acceptance later by the seller. He stated that this model could be acceptable to trade and chartered accountants, but Model B of option II ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he buyer and the seller and not the system. The Hon'ble Chairperson stated that the concern of the Hon'ble Deputy Chief Minister of Delhi regarding hue and cry being raised by small traders would also need to be considered. The Hon'ble Minister from Jammu & Kashmir stated that today, there was a genuine compliance complaint, which needed to be redressed through a revised procedure. The Hon'ble Deputy Chief Minister of Delhi stated that the model proposed by Shri Nandan Nilekani appeared to be good. The Hon'ble Deputy Chief Minister of Bihar stated that the burden of tax consultants would increase as they would need to upload both purchase details along with sale details and would also need to resolve mismatches. Shri Nandan Nilekani observed that money would be a big stake for the buyer and the seller. In the proposed model, no return was being filed and only invoices were being uploaded, which was not a big burden. He stated that there should not be undue concern regarding the reaction of the tax professionals. 14.15. The Principal Secretary (Finance), Odisha, stated that the fact that accounts department of the taxpayer would need to check the invoices uploaded before making p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o a small taxpayer and did not upload his invoice for 2-3 months, it could badly hit the business of the small taxpayer. He further stated that purchasers/small taxpayers should be given an option to give additional information to Government on buying so as to get the benefit of input tax credit. He added that where both buyer and seller were colluding and did not pay tax, the return should be linked with e-Way bill system. He also raised an issue that if a registered taxpayer purchased from an unregistered taxpayer without payment of tax under reverse charge mechanism, he was under no compulsion to upload the invoice, and then how information would come regarding purchases from unregistered taxpayers. Therefore, in case of purchases from unregistered dealers also, there should be a provision of uploading the invoice by the buyer. The Secretary observed that the last phase of the return filing would not be implemented right from the beginning. At the initial stage, small taxpayers would take self-declared input tax credit of the entire amount. Simultaneously, the gap in terms of number of missing invoices would need to be narrowed. The provision of denial of input tax credit for mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n II was better as it would have data of both the seller and the buyer and one would come to know as to who was the culprit for the missing invoices. In Option II, there would be no scope for the purchaser to reach a dead-end and matches could increase over a period of time. He observed that both Option I and the Option proposed by Shri Nandan Nilekani carried the risk of the purchaser reaching a dead-end. He added that no tax administration had tried Option I or the new model proposed by Shri Nandan Nilekani whereas Option II had been in use by a few State administrations. He suggested that this Option should be used along with direct auto-reversal. The Secretary observed that no new demand was being made in the model proposed by Shri Nandan Nilekani whereas burden on taxpayer was getting reduced. In this model, self-credit could be taken by the purchaser without disturbing GSTR-3B and the purchaser would only give details of missing invoices instead of furnishing his entire purchase invoices. Through this method, tax information would come and could be used by the tax administration for various purposes including for enforcement. He suggested not to apply auto-reversal in either ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sted that one should not take a hasty decision. He added that another week's time be taken to decide the issue and then take a decision during a Council's meeting through video conference. The Hon'ble Minister from Andhra Pradesh also suggested to give more time to decide on the options. The Hon'ble Minister from Telangana suggested that the options should be discussed with the stakeholders before coming to a final decision. The Hon'ble Chairperson stated that the issue should be discussed with the stakeholders after the Committee on Return Filing and the Law Committee had further examined the suggestions of Shri Nandan Nilekani and thereafter the issue could be decided by the Council through video conference. The Hon'ble Minister from Jammu & Kashmir stated that the proposal should not be condemned by putting it before the officers ' committee for consideration as they had already made up their mind that the proposal of Shri Nandan Nilekani was not workable. He suggested that a small Group of Ministers could examine this proposal. He further stated that intuitively, it seemed to be a good model. The Hon'ble Chairperson stated that the model proposed by Shri Nandan Nilekani could b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... berations in the sub-committees. She stated that inputs had been received from various States for including items as handicrafts and after the completion of the report, further suggestions had been received from the States of Odisha and Gujarat. She stated that these would also be considered by the Committee on Handicrafts and that the goods which were agreed to be considered as handicrafts would be referred to the Fitment Committee for recommending rate of tax on them. She then invited Shri G.D. Lohani, OSD, TRU-1, CBEC, to make a brief presentation on the report of the Committee on Handicrafts. 18.1. The OSD, TRU-1 in his presentation (attached as Annexure 9 of the minutes) stated that in respect of TOR (Terms of Reference) 1, relating to definition of handicrafts, the Committee took note of definition of handicrafts by UNESCO and other national and international bodies and the observations of the Hon'ble Supreme Court on handicrafts and concluded that any definition of handicrafts must have three elements, namely, predominant use of hands; sufficient artistic and traditional elements; and distinct output from machine made goods. He stated that after several iterations, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that items made of bamboo were already covered in the list and classifiable under Chapters 44, 46 and 96 (recommended rate of tax for Chapter 46 is already 5%). As regards sarees and clothes, he stated that the Committee deliberated on this issue and decided not to treat them as handicrafts. He stated that the Office of the Development Commissioner also did not recommend to treat these goods as handicrafts and as such sarees etc. from none of the States had been taken in the list of handicrafts. 18.5. The Hon'ble Minister from Jammu & Kashmir stated that first, handicrafts should be defined and then rate on handicrafts items could be looked at separately. The Hon'ble Chairperson observed that different States had different kinds of handicrafts and they were mostly out of the tax net till now. He added that this sector generated mass employment and, therefore, rate of tax on handicrafts should not be very high. He further stated that pending fitment decision on these items, the Committee could look into the issues relating to handmade carpets. The Chairman, CBEC suggested that the Council could accept the report of the Handicrafts Committee and then the issue of rates could be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeting of the officers of the Central and the State Governments on 11 January 2018 and the consolidated recommendations of the officers meeting of 11 January 2018 was placed before the Council for consideration. The Secretary invited Commissioner (GST Policy), CBEC to brief the Council about the important recommendations under this agenda item. The Commissioner (GST Policy), CBEC stated that what was placed before the Council for approval was only the broad proposals contained in the second last column of the Annexure I of Agenda Item 9 (hereinafter referred in this section as Annexure I) and the suggested formulation contained in the last column would undergo substantial modification based on consultation with the Law Committee and the Union Ministry of Law. He stated that one change was envisaged in the proposal contained in Sl. No. 11 of Annexure 1, namely, to replace the expression "employees without charging a consideration" with the expression "Employees with or without charging a consideration". He further stated that some new proposals were added which were not discussed in the Officers' meeting held on 11 January, 2018. The first one was the proposal at Sl. No.21 of Annexu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l turnover threshold for composition would be raised to ₹ 1.5 crore and that the same limit should be kept in the Law. The Hon'ble Deputy Chief Minister of Delhi stated that the original discussion was in regard to schemes relating to small scale industries and SMEs but then the discussion went on to composition scheme. The Hon'ble Chairperson stated that the results of relaxation under the composition scheme was not very encouraging, and in this view, it was not desirable to increase the annual turnover threshold for composition to ₹ 2 crore and it should be limited to ₹ 1.5 crore. The Council agreed to this suggestion. 20.2. The Commissioner (GST Policy), CBEC, stated that another proposal was to permit supply of services by a composition dealer up to 10% of the total turnover or ₹ 5 lakh whichever was higher with the condition that the taxes on the services would be little higher. This would include supplies by way of job work. For these services, a composition rate could be notified by the government on the recommendations of the Council but not exceeding a total rate of 18% (9% each for CGST and SGST). ln addition, restaurant service was proposed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rate of tax on accommodation services. The Hon'ble Minister from Goa supported the proposal of the Hon'ble Minister from Kerala and stated that it was ironical that when they raised the same issue of business moving out of India because of high rate of tax of 28% on such services, then no heed was being paid and now the same argument was being offered for place of supply related provision. The Hon'ble Minister from Haryana stated that another reason for tom business moving out of the country was that the Indian tour operators were getting VAT refunds from those countries on official business conducted abroad. The Hon'ble Chairperson suggested that both the place of supply provision and the rate of tax on hotels, etc., should be discussed together and a proposal be brought before the Council. The Council agreed to this proposal. vi) S.No.47 of Annexure I: Compensation Cess: The Commissioner, (GST Policy), CBEC stated that it was proposed to insert an enabling provision in the GST Compensation Act to provide for levy of cess at the manufacturing stage on parameters such as production capacity for certain categories of supplies such as pan masala and other evasion prone commoditi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il Compensation Cess on medium and large cars and SUVs, on the margin of the supplier of such motor vehicles. He added that these rates would apply on supply of used motor vehicles by a person who had not availed input tax credit on such motor vehicles. He further added that for a registered entity, value for tax purpose shall be the difference between the sale value and the depreciated value of the motor vehicle. 21.2. After discussion, the Council agreed to the tax proposal of the Fitment Committee in respect of used motor vehicles, contained at Serial No.9 of Annexure 1 of this Agenda item. Serial No.10 of Annexure 1: Diamonds of all type (Precious stones) (HSN Codes 7102, 7103) 21.3. The Hon'ble Minister from Kerala raised an issue as to why tax on diamonds, other than rough diamonds and including cut and polished diamonds was proposed to be reduced from 3% to 0.25%. He pointed out that tax on exported diamonds was fully refundable and if there was delay in granting refund, it should be addressed through appropriate administrative mechanism. He observed that there was no rationale to reduce tax on diamonds as it was a luxury product. The Secretary stated that the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers. The Joint Secretary (TRU-1), CBEC, stated that all items of bamboo cane, rattan, etc. of the entire Chapter were kept at 5% tax rate and it would be desirable to retain these products also at the rate of 5%. 21.7. The Hon'ble Minister from Odisha reiterated that there should be a carve out for plates made of sal and siali leaves, and ropes made of sabai grass, and that this could be taken up by the Fitment Committee in its next meeting. The Council agreed to this suggestion. Serial No.21 of Annexure 1: Parts and accessories specifically used for manufacture of hearing aids (Any chapter) 21.8. The Joint Secretary (TRU-I), CBEC, stated that the Fitment Committee had given two options for consideration of the Council, namely, either to provide an end-use based exemption for parts and accessories specifically used for manufacture of hearing aids or to impose a nominal 5% GST on hearing aids so that the domestic manufacturers were not at disadvantage vis-a-vis imports. The Secretary suggested that the end-use based exemption might be more desirable. 21.9. The Council agreed to exempt parts and accessories specifically used for manufacture of hearing aids through end-use ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice bran at Nil rate. Handmade Carpets 21.12 The Hon'ble Minister from Jammu & Kashmir stated that he was requesting for the fourth time in the Council to reduce the rate of tax on handmade carpets from 12% to 5%. He informed that before carpets were sold, they were supplied to other States and at that stage, carpets were being taxed at the rate of 12%. The Hon'ble Chairperson suggested that this could be discussed by the Fitment Committee. The Council agreed to this suggestion. The Hon'ble Minister from Haryana stated that the State of Jammu & Kashmir deserved a special consideration in respect of the rate of tax on handmade carpets. The Secretary stated that the problem was regarding upfront payment of tax on handmade carpets and suggested that the Committee on Handicrafts could examine this issue and suggest a solution. The Council agreed to this suggestion. Agenda item 10(i): Discussion on Annexure II Serial No.6 of Annexure ll: Pickle (HS Code: 2106) 22. The ACS, Tamil Nadu, stated that pickles should be exempted from tax. He stated that the Fitment Committee had not reached a consensus for reduction in the rate of tax on pickles from 12% to 5%. The Joi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He suggested to keep the rate of tax on biscuits at 12%. The Joint Secretary (TRU-1), CBEC, stated that biscuits were in organised sector and had a market of about ₹ 36,000 crore. Half of this market constituted low priced biscuits and the other half constituted high energy biscuits. He stated that reducing the rate of tax on biscuits from 18% to 12% would lead to substantial loss of revenue. Serial No.74 of Annexure II: Materials used by disabled persons 22.5. The Hon'ble Minister from Kerala stated that spare parts for cochlear implants were being taxed at the rate of 28% and suggested that this rate should be reduced. The Joint Secretary (TRU-I), CBEC, stated that only batteries for cochlear implants would be taxable at the rate of 28%. Shri Mansur M.I., Assistant Commissioner (Commercial Tax), Kerala, informed that some cables, parts and accessories of cochlear implants needed to be replaced periodically and these were presently taxable at the rate of 28%. The Hon'ble Minister from Kerala suggested that the rate of tax on spare parts of cochlear implants should be reexamined by the Fitment Committee. The Council agreed to this suggestion. 22.6. For Serial No.7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the Committee on Handicrafts to examine the problem of upfront payment of tax on handmade carpets from Kashmir, when sent to various States for eventual sale. 23.1. For Annexure II of Agenda item 10(i) , the Council approved the recommendations of the Fitment Committee and also directed it to re-examine the following: i The rate of tax on fishing line and lead weight (Serial No.28 and Serial No.63 of Annexure II); ii The rate of tax on spare parts of cochlear implants (Serial No.74 of Annexure II); and iii The classification and rate of tax on cotton eco-friendly sanitary napkins (Serial No. 95 of Annexure II). Agenda item 10(ii): Recommendations on Services General discussion relating to Hotels 24. The Hon'ble Minister from Kerala stated that the tax rate on hotels in most countries was low, like 6% in Singapore and China, 7% in Thailand and Malaysia, 10% in France and 15% in Sri Lanka and USA. However, India had a very high rate of tax of 28%. He observed that bulk of the conferences were moving away to South East Asian countries. He suggested that there should be some rationalisation of rate of tax on room rents in hotels to make it competitive vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith business entities and the same should also be exempted. The agencies of the State Government of Haryana like HSIIDC (Haryana State lndustrial Infrastructural Development Corporation) and Pollution Control Board (PCB) have such contracts in place. The Joint Secretary (TRU-IT), CBEC, explained that the part of profit petroleum given to the Central Government by the contractor was not allowed to be recovered as cost of production under the production sharing contract and thus it may not to be subject to tax. The Hon'ble Minister from Haryana stated that five States, which collected licence fee on liquor for human consumption needed to be exempted from tax as was suggested during the earlier meetings of the Council but till now, no notification had been issued to this effect. The Secretary stated that it was agreed during the earlier meeting that in future, there would be change in the revenue model under which more tax would be charged. He stated that for past cases, some way needed to be found out, may be in the form of exemption. The Hon'ble Minister from Haryana stated that on this issue, several representations had been sent but no solution had been found as yet. The Secretary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Andhra Pradesh) in the year 2014, and therefore, it did not presently have any equity shares in GSTN. The Council agreed to this proposal. 30. For Agenda item 12 , the Council approved to transfer 80,000 shares of ₹ 10 each of the Empowered Committee of the State Finance Ministers to the State of Telangana. Agenda item 13: Any other agenda item with the permission of the Chairperson Agenda item 13(i): Proposal to declare the sale of goods in Customs bonded warehouse and goods sold as high sea sales as 'no supply' under Schedule III of the CGST Act, 2017 31. Introducing this Agenda item, the Secretary stated that this agenda item was to alleviate the difficulty of double taxation. He explained that sales within a Customs bonded warehouse attracted IGST and when goods were cleared from the Customs bonded warehouse, they were again charged to IGST. In order to alleviate this problem of double taxation, it was proposed to amend the valuation provisions of the imported goods for the purposes of payment of integrated tax by amending the Customs Tariff Act. The amendment would result in integrated tax being levied on the enhanced sale value or the last sale v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o prevent harassment to trade and industry. 33.1. Initiating discussion on this Agenda item, the Hon'ble Minister from Kerala stated that imposing penalty for not carrying e-Way bill was a deterrent measure and a penalty of ₹ 500 would not be a sufficient deterrent. Shri V.P. Singh, CCT, Punjab, stated that in their experience, invoice was often destroyed after the goods reached the destination, and therefore, in case penalty was very small, there would be a perverse incentive to pay a penalty of ₹ 1,000 and carry on the evasion activities. The Secretary stated that this proposal was only for the initial period and that there was a risk that too high a penalty might cause obstruction to smooth transportation of goods. 33.2. Shri Jagdish Chander Shanna, Principal Secretary (E&T), Himachal Pradesh, stated that in his State, e-Way bill system was already in place and e-Way bill declarations were being filed and penalty for not carrying e-Way bills was 50% of the value of goods. The Hon'ble Minister from Kerala stated that in his State, penalty for not carrying e-Way bills was twice the amount of tax involved. The CCT, Punjab, stated that instead of reducing the penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 was reasonable as deterrence against evasion. 33.4. The Hon'ble Deputy Chief Minister of Delhi suggested that for inter-State movement of goods, penalty for not carrying e-Way bill should be 100% of the tax amount and for intra State movement, discretion for imposing penalty should be left to the State concerned. The Secretary stated that from 1 February, 2018, e-Way bill system would compulsorily be introduced for inter-State movement of goods and 15 States had opted to introduce the e-Way bill system for intra-State movement of goods and that for other States, the last date was 1 June, 2018. The Hon'ble Deputy Chief Minister of Delhi stated that it would not be practical for them to put check posts for intra-State movement of goods. The Secretary stated there already existed a clause for relaxing the requirement of e-Way bill for intra-State movement of goods through a Committee of officers of State and Central Government. 33.5. The Hon'ble Minister from Kerala again raised a question regarding the issue of penalty for violation fore-Way bill rules. The Secretary stated that the general suggestion was either to keep the penalty same or keep it somewhere around ₹ 30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000 or the amount of tax evaded, whichever was higher, and power should also be given to waive off penalty. The CCCT, Andhra Pradesh, stated that Section 129 had precedence over other Sections and power to waive off penalty under Section 128 should also have a reference to Section 129 of the CGST Act, 2017. The CCT, Punjab, stated that Section 129 of the CGST Act was attracted only where evasion of tax was involved. The Secretary suggested that for intra-State movement of goods, an understanding could be reached not to impose any penalty during the first month of implementation of the e-Way bill system and this could be treated as a trial period. The Hon'ble Minister from Jammu & Kashmir stated that the validity period of e-Way bill for remote areas, like Ladakh, should be more as vehicles could be stranded for 5-6 days due to natural causes. He stated that there should be an enabling provision to increase the validity period of e-Way bill in such remote areas. The Commissioner (GST Policy), CBEC, stated that such a provision already existed under the second proviso of rule 138(10) of the CGST Rules, 2017. 33.7. The Hon'ble Minister from Kerala strongly raised the question as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of goods from 1 March, 2018. The Secretary stated that the date for introduction of intra-State e Way bill system could be 1 February, 2018 but the penalty could be waived off during the first month. The Hon'ble Minister from Haryana stated that a lot of stock of goods had piled up and there was a risk of tax evasion. He stated that there could be pressure for deferment of e-Way Bill but he suggested that intra-State and inter-State e-Way bill systems should be started simultaneously if NIC was ready for the same. He stated that initially, one could take a lenient view with regard to implementation of e-Way bill system. The Secretary stated that this was a reasonable suggestion and that the 15 States, which were starting implementation of intra-State e-Way bill system for movement of goods from 1 February, 2018 (along with inter- State movement of goods) would need to go slow with regard to imposition of penalty. The Hon'ble Deputy Chief Minister of Bihar stated that guidelines should be worked out to avoid any clash between the Central and the State Governments in the enforcement of the e-Way bill system and for better coordination. The Secretary stated that in the Officer's meet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Cess had been claimed as transitional credit, which was not allowed under the CGST law. Similarly, Cess collected as Additional Duty of Customs under Section 3(1) of the Customs Tariff Act, 1975, such as Clean Environment Cess, was also being claimed as transitional credit as the law did not specifically exclude them from the list of eligible duties. He stated that to remove any ambiguity and to prevent credit of Cess to be transitioned under Section 140 of the CGST Act, 2017, it was proposed that credit of Cesses could be specifically excluded from the list of 'eligible duties' under Explanations 1 and 2 of Section 140 of the CGST Act, 20 17. He stated that accordingly, it was proposed to amend the following provisions of Section 140 of the CGST Act, 2017: i. Sub-section (1) of Section 140 to provide that only credit of eligible duties can be transitioned; 11. ii. Explanations 1 and 2 of Section 140 to include reference to sub-section (i) of Section 140; ii. Insert an Explanation 3 to Section 140 of CGST Act, 2017 to clarify that the expression "eligible duties and taxes" does not include any Cess which has not been specified in Explanation 1 or Explanation 2 above and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sago; safety matches; pickles; butter; ghee; sanitary napkins; agricultural implements; textile machinery parts and pump sets. He also suggested reduction in the rate of tax on aluminium utensils from 12% to 5%, on aluminium raw material such as aluminium circles and sheets from 18% to 12% and on aluminium scrap from 18% to 12%. He noted that aluminium utensils were used by lower and middle-class houses and aluminium utensils were mostly recycled. 39.1. The Hon'ble Minister from Kerala circulated a written speech during the meeting of the Council wherein he highlighted certain issues of concern. He suggested that the IGST amount should be distributed provisionally among States on the basis of the proportion of the (IGST fund already transferred till now. He expressed reservation regarding Centre's request to reduce the rate of tax on diesel and instead suggested that the Centre should bring down the recent duty hike subsequent to reduction in crude price in proportion to the price increase. He expressed concern regarding slow pace of notification of procedures and methodology and guidelines on determining what constitutes anti-profiteering by the National Anti-Profiteering Autho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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