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TMI BlogMinutes of the 8th CST Council Meeting held on 3-4 January 2017X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Civil Aviation e. Railways f. Commerce 2. Confirmation of the Minutes of the 7th GST Council Meeting held on 22-23 December, 2016 3. Approval of the Draft IGST Law 3A. Definition of State, Imposition of Tax on Goods and Services in UTs without Legislature, Territorial Waters and Exclusive Economic Zones and Provisions for authorization of proper officers in States 4. Provision for Cross-Empowerment to ensure Single Interface under GST 5. Approval of the Draft Compensation Law as modified in accordance with the decisions of the GST Council 6. Date of the next meeting of the GST Council 7. Any other agenda item with the permission of the Chairperson 3. In his opening remarks, the Hon'ble Chairperson of the Council welcomed all the Members and informed that during this meeting, they would first hear the sectoral representatives of certain industries to understand their concerns. The Hon'ble Minister from Bihar recalled that in the last meeting of the Council, it was agreed that the representatives of the Power sector would also be called, but they had not been invited for consultation, though electricity was a very important issuefor the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddress these challenges, she suggested that in GST, there should be one registration for a bank for its headquarters and only Integrated Goods and Services Tax (IGST) might be charged for all transactions. She observed that this would simplify compliance and would obviate the need to determine whether a customer coming to make a demand draft in the bank, should pay CGST and SGST or IGST. She stated that at the end of the month, all the transactions could be segregated and invoices relating to business-to-business (B2B) transaction would be uploaded and information relating to business-to-consumer (B2C) transactions would be furnished to facilitate transfer of tax to the destination State. She observed that this would make compliance easier and emphasised that real time determination of place of supply would be very difficult due to large volume of transactions. 4.1.2. The Hon'ble Minister from West Bengal observed that when in goods sector, multistate operators were registered under Value Added Tax (VAT) in every State, it would be desirable for multi-State operators in service sectors to be also registered in every State. He cautioned that any exception for one sector would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the ATM (whether fifth or sixth) was such as to attract levy of GST and then to determine whether this tax should be charged as CGST and SGST or as IGST. He explained that determining this on real-time basis would be time-consuming and pose a problem for customers in terms of time taken to complete the transaction. He, therefore, suggested carrying out this task at the end of the month. The Hon'ble Minister from Tamil Nadu observed that this example seemed to pose the least challenge as the place of supply would be where the ATM was located. He observed that there would be complexity for GSTN if all taxes relating to banks were charged as IGST. 4.1.4. In the presentation made on the Insurance sector, Shri G. Srinivasan, Chairman, General Insurers' Public Sector Association stated that the insurance industry had certain peculiarities. He added that presently, in the Service Tax regime, Insurance companies were dealing with only one tax authority and that they needed a simpler system under GST. He pointed out that the volume of transactions in life insurance policies was very large (approximately 13 crore) and involved different kinds of policies such as group policies, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est Circle). He pointed out that this would create a structural mismatch if GST registration for the telecom operators was to be taken State-wise. He further pointed out that after the introduction of wireless telephony, allocation of spectrum was as per telecom circles and therefore, it would be difficult to make the telecom circles congruent with State-wise tax jurisdiction. He, therefore, suggested to have one registration under GST and also only one audit jurisdiction. The second issue that he raised was that voice call was seamless in nature and for a call made from Delhi to Goa, inputs were used from the exchange network of both Goa and Delhi and, therefore, pooling of ITC was essential. The third issue that he raised was that there were several instances of self-supply in telecom sector and these should not be taxed. 4.2.2. Shri Akshaya Moondra, CFO, Idea Cellular made a presentation on behalf of the industry. He pointed out that record-keeping, accounting, etc. were kept on circle-basis based on license conditions. He added that the spectrum allocations as well as network configurations were aligned to circle boundaries and it was not possible to align them to tax jurisd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k of various dealers on which service tax had been discharged on full value before the transition date and which would again become liable to GST. The current transitional provisions did not address this); (iv) telecom services should be charged at lower rate as it is an essential service. He pointed out that issues raised at (i) and (ii) above could be partly addressed only by having a system of centralized registration. 4.2.4. The Hon'ble Deputy Chief Minister of Delhi raised a question as to how a single registration would solve the issue of telecom circles not being co-terminus with the State boundaries. The CFO, Idea Cellular stated that the problem might not be fully solved and requests (i) and (ii) as stated above needed to be addressed but centralised registration would prevent litigation in allocating revenue State-wise as per return especially as one telecom circle spanned more than one State. In a Centralised Registration, the company would provide a State-wise revenue breakup of national level revenue reconciled with audited accounts and compliance could be ensured by a central assessing authority. This reconciliation would not be possible in a decentralised set- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ster from Karnataka observed that if the telecom operator was giving a declaration, it would have to be based on invoice and without it, centralized registration would be a challenge. The representative pointed out that the biggest challenge of State-level registration would be levying tax on self-supply where one call went through several States and tax could potentially be charged in each State and the issue of multiple States claiming revenue in their jurisdiction in a decentralised set up. 4.2.5 In the concluding part, the Hon'ble Minister from Mizoram pointed out that the quality oftelecom service by BSNL was very poor in the North Eastern States and it needed to be improved urgently. The Hon'ble Chairperson observed that the quality of BSNL service must be improved in the North Eastern States for effective implementation of GST. The Secretary, Department of Telecommunication clarified that they had provided broadband in all 506 blocks in Mizoram and in addition, dongle-based connectivity had also been provided. He stated that almost 97% of the population in Mizoram had internet connectivity. The Hon'ble Minister from Mizoram pointed out that broadband connectiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be leveraged for revenue sharing between the Centre and the States and that the design of GST should promote ease of doing business. He also suggested that software should be classified as services, including for electronic download, and that software loaded on a tangible medium should attract the same rate of tax as for software classified as services. He also stated that India was a pioneer in developing a global delivery model based on multiple location delivery and the GST in its current form would require raising disaggregated internal invoices and of taking ITC. He observed that this would require entering into multiple contracts for a single transaction whereas the requirement was for a single registration for billing and for taking ITe. He observed that due to intangible nature of the IT industry, it was difficult to determine place of supply and place of consumption. He also suggested that not only should the valuation rules be simple, but valuation-related questions should not be raised in relation to internal supplies. He also added that the Indian IT sector which was globally competitive was becoming a victim of protectionism in other countries and its trouble sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engers travelling in airlines was almost the same as the number of passengers travelling in the higher classes of railways, namely AC First Class, AC 2-tier and AC 3-tier. He stated that Aviation Turbine Fuel (ATF) being outside the ambit of GST and the entire ticketing system being under the purview of GST was a double whammy for the civil aviation sector. The Ministry raised the following issues for the consideration of the Council: (i) Aircraft ) leasing and aircraft import should not be subjected to taxation in GST as was the situation presently; (ii) To have a system of centralized registration as most aircrafts, engines, spare parts, cutlery and services moved inter-State very frequently and without centralized registration, each such transaction would need to be valued, invoiced and taxed leading to blockage of funds without accrual of any net revenue; (iii) Self-supplies such as import of aircraft and movement of aircraft in different States should not attract GST; (iv) The rate of GST for economy and non-economy class air travel under GST should be kept at the same level; (v) Zero-rate outward travel; (vi) Adopt the present definition under Service Tax for continuous journ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would lead to several logistical problems. The Hon'ble Chairperson stated that the same issues could also arise for goods to which the Member (Finance) responded that if required, they could tweak their system to meet the requirement of GST. He added that tweaking of the pan-India system of Railways would be a time consuming process and necessary preparatory time must be given. 4.6. Commerce and Industry 4.6.1. Shri Ramesh Abhishek, Secretary, Department of Industrial Policy and Promotion made a suggestion that in GST, leather and footwear should be taxed at 5% and cement should be taxed at 12%. Shri A.K. Bhalla, Director General, Directorate General of Foreign Trade (DGFT) stated that export competitiveness was the core issue. He stated that the proposed GST system mandated that even though exports were zero rated, all duties must be paid at the time of purchase of inputs needed for manufacturing of an export product only to be refunded after actual exports. He added that since normal lead time starting from the sourcing of raw material to export ranged from six months to one year, the model to first pay and then claim refund would block working capital of about ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved at. The Director General, DGFT clarified that the calculation was made on the basis of normal production cycle and where duty had been paid. He further added that the issue did not relate to refund which under GST was envisaged to be given quickly; rather it was the issue of blocking of working capital. The Hon'ble Minister from Jammu Kashmir observed that the credit blockage would be rolled over a period of time. The Director General, DGFT stated that the capital blockage relating to processing of goods would vary for different sectors depending on the production cycle, but there was no logic to collect tax on supplies, which were zero-rated. Agenda Item 2: Confirmation of the Minutes of the 7th GST Council Meeting held on 22-23 December, 2016: 5. After the presentations by the various sectors, the Hon'ble Chairperson invited comments of the Members on the draft Minutes of the ih Council Meeting (hereinafter called the 'Minutes') held on 22 and 23 December 2016 before the confirmation of the same. The Members suggested the following amendments to the draft Minutes. 5.1. The Secretary informed that a request had been received from the Government o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitution (One Hundred and First Amendment) Act, 2016 that could have been collected in the Base Year had the same not been discontinued either fully or partially, during the course of the year.' The Council agreed to replace the version of the Hon'ble Minister as per the suggestion made. 5.4. The Hon'ble Minister from Maharashtra further stated that in paragraph 14 of the Minutes, the presently recorded version namely 'The Hon'ble Minister suggested to release compensation on the basis of self-certification by the State Government instead of CAG certification' should be replaced by the following version - 'The Hon'ble Minister suggested to release compensation on the basis of self-certification by the State Government instead of CAG certification, or as the case may be, by the Audit Department ofthe State Government' , The Council agreed to replace the version of the Hon'ble Minister as suggested. 5.5. The Hon'ble Minister from Maharashtra also pointed out that in the ih Meeting of the Council, he had suggested that even if the amount available in the GST Compensation Fund was not sufficient to pay compensation, the States shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g, he had suggested to specifically reflect ITC adjustment and ITC reversal in the GST Compensation Law as Section 5(1)(h) and in response, it was clarified (as recorded in paragraph 20 of the Minutes) that the spread sheet containing details of fTC adjustment and ITC reversal was not meant to be added to the revenue collected as it was already decided in the Council that for compensation, the amount of revenue to be taken into account would be net of ITC reversals. In this regard, he pointed to the decision in the 3rd Meeting of the Council held on 18-19 October 2016 (in paragraph 34) that 'ITC reversals shall be included in the definition of 'revenue subsumed' for the base year 2015-16 for the calculation of compensation to the States for any loss of revenue owing to the implementation of GST for five years' and stated that in this view, it should be recorded that Section 5(1 )(h) be added to reflect ITC adjustment and ITC reversal. The Secretary clarified that the decision in the 3rd Meeting of the Council was correctly recorded and it implied that the net revenue of States would also include ITC reversal. He further clarified that prior to this decision, the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Local Body Tax (LBT), the following explanation should be added at the end of Section 5 of the draft GST Compensation Law; Explanation - For the purpose of clause C above, the term Revenue Collected shall mean the amount of tax leviable under the erstwhile Entry 52 of List II of the Seventh Schedule to the Constitution prior to bringing into effect the provisions of the Constitution (One Hundred and First Amendment) Act, 2016 that could have been collected in the Base Year had the same not been discontinued either fully or partially, during the course of the year.' 6.4. To replace the version of the Hon'ble Minister from Maharashtra in paragraph 14 of the Minutes, presently recorded as 'The Hon'ble Minister suggested to release compensation on the basis of self-certification by the State Government instead of CAG certification' with the following version - 'The Hon'ble Minister suggested to release compensation on the basis of self-certification by the State Government instead of CAG certification, or as the case may be, by the Audit Department of the State Government'. 6.5. To replace the version of the Hon'ble Minister from Maha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lexities. He pointed out that the definition of 'State' proposed under agenda item 3A left out part of the coast from the jurisdiction of the coastal States which they administered otherwise, as, for example, the responsibility for policing up to twelve nautical miles from the coastline. He pointed out that even if coastal waters were not part of the territory of the coastal States, the policing responsibility had been entrusted to such States. He suggested that a similar approach could be followed for SGST namely, not to include territorial waters as part of the definition of 'State' but treat it as part of State for the administration of SGST. He pointed out that if territorial waters were treated as Union Territory, then, the indirect tax revenues accruing from transactions in the territorial waters would go into the Centre's pool and would not be available even for devolution to the States. He further stated that for the purposes of fishing, territorial waters along the coastline were treated as part of the State. The Hon'ble Minister from Kerala stated that VAT on ship bunkering was an important source of revenue for his State and it could not be given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Supreme Court had upheld the assessment under the Madras General Sales Tax Act and pointed out that assessment could be upheld only on the ground that the territorial waters were part of the territory of the State of Madras. He pointed out that all the judgements had held ground for fifty years. He further stated that the stay granted by the Supreme Court in the case of Great Eastern Shipping Co. Ltd. vs. the State of Karnataka (in Order dated 23rd January 2004) was only a stay in personem to the appellant for the balance dues. 7.3. The Hon'ble Chief Minister of Puducherry referred to a Circular of the Union Home Ministry under which States had been authorized to carry out patrolling up to twelve nautical miles and pointed out that the States also enjoyed powers to carry out fishing within the territorial waters. He cautioned that the Centre could not encroach upon the power of the States. The Hon'ble Minister from Tamil Nadu stated that sales carried out in the territorial waters adjoining coastal States could be charged to V AT only if the territorial waters became part of the coastal State. He observed that without such an understanding, SGST could not be levied a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nautical miles and this implied that the Union of India was excluded from fishing up to twelve nautical miles. He observed that when viewed in this manner, and also keeping in mind that Entry 21 in List II of Schedule 7 gave the power of fisheries to States without any restriction, the States were possibly entitled to enact in their fishing related laws that the territorial waters were part of the coastal State. He added that the power regarding fisheries within the territorial waters was given to the States under the Constitution itself whereas maintenance of law and order in the territorial waters was entrusted by the Centre to the States. He referred to the definition of Union Territory in Article 366 (30) of the Constitution to mean any Union Territory specified in the First Schedule of the Constitution and includes any other territory comprised within the territory of India but not specified in that Schedule. He pointed out that as the territorial water was not referred to in the First Schedule of the Constitution, it appeared to be a Union Territory. He said that it might not be advisable to define State in a law in a way different from the definition of State given in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Madras in the case of Madras Marine Co. vs State of Madras wherein it was held that sales to ship within the territorial water was sale within the State and it was not to be considered as export as the sale was for consumption aboard the ship. He added that presently sale in the territorial waters was under VAT and no contrary view was acceptable to them. 7.6. Shri Udai Singh Kumawat, Joint Secretary, Department of Revenue (DoR) pointed out that there were also some contrary judgements holding that the coastal waters were not part of the territory of the adjoining coastal State. He stated that in the case of Raj Shipping vs. State of Maharashtra, on the subject of jurisdiction of the States over the territorial waters, the judgement referred to the debate in, the Constituent Assembly where Dr. B. R. Arnbedkar, the Chairman of the Drafting Committee in the Constituent Assembly, stated as follows: we therefore want to state expressly in the constitution that when any Maritime State joins Indian Union, the territorial waters of that Maritime State will go to the Central Government. This kind of question shall never be subject to any kind of dispute or adjudication. The Joint S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplied to it and the Union of India had objected to this decision. He further observed that as the power to levy VAT was never vested with the Union, the State Governments made legislation to administer VAT in the coastal waters and the practice thus continued. He added that now, in view of the definition of Union Territory in Article 366(30) of the Constitution, it needed to be considered carefully whether States could be given power to impose GST in a territory which was constitutionally a Union Territory. The Hon'ble Minister from Tamil Nadu stated that as States were allowed to collect VAT earlier, they should also be allowed to collect SGST in the spirit of cooperative federalism, The Hon'ble Minister from Karnataka stated that by an administrative arrangement, territorial waters could still remain a Union Territory and only a deeming fiction could be created to treat supplies in the territorial waters as intra-State. He pointed out that Article 269A (5) of the Constitution gave Parliament the power to formulate, by law, the principles for determining the place of supply and the Parliament could use this power to deem certain supplies as intra-State. 7.8. The Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... waters and stated that in keeping with the past practice, States be allowed to collect SGST in the territorial waters. 7.9. The Hon'ble Chief Minister of Puducherry observed that all regions of his Union Territory were coastal areas and fishermen's livelihood came from fishing within the twelve nautical miles of the territorial waters. He observed that his State had also been involved in coastal policing and collecting tax and this power could not be taken away. He requested the Hon'ble Chairperson to suggest a formulation which, without affecting the legal position of territorial waters, gave power to the States to levy SGST. The Hon'ble Chairperson observed that taxation power of States within twelve nautical miles of territorial waters was somewhat fluid and uncertain despite certain judgements discussed earlier and presently, the Union of India had filed an affidavit in the Supreme Court in the case of Great Eastern Shipping Company Ltd disputing the jurisdiction of States to levy V AT in the territorial waters. He stated that this issue would need to be further discussed with the Union Law Ministry in order to find a legally sustainable solution. He noted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing on of lTC. The CCT, Karnataka explained that if a person sold goods in the territorial waters, there should be a provision of deemed delivery to the buyer to enable him to get the credit of the tax and the subsequent transactions could then be either inter-State or intra-State depending on the place of supply of the goods. It was agreed that this issue could be further discussed by the Law Committee of officers. 11. Section 3(6) (Supplies of goods and/ or services in the course of inter-State trade or commerce): The Hon'ble Minister from Tamil Nadu suggested to add, after the expression 'SEZ unit' the phrase 'situated outside the State'. He stated that the area of a State in which SEZ was located was specified in the first Schedule of the Constitution and the States could not be bifurcated without following the procedure specified in Article 3 of the Constitution. He added that presently, sale made to SEZ units or developers was considered as zero-rated or exempted sale under the VAT Acts but it was not treated as a territory outside the State or a Customs frontier under Article 286 of the Constitution. The Secretary clarified that no sovereignty was be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnative, it could be provided that the GST Council shall recommend the rate of tax. The Secretary observed that the rate of tax would need to be specified in the law and under IGST, the cap of rate could be made 40% in view of the decision already taken to raise the rate cap for CGST and SGST to 20% each. The Hon'ble Minister from Haryana further suggested to specify that the rate cap of 40% shall be fixed for five years and that the Council could thereafter review the rates. The Secretary observed that it might not be desirable to bind the Council to a particular rate of GST for a fixed period of time as this would curtail the flexibility of the Council to respond to any exigencies. He further added that if the tax rate was fixed for five years with a review provision thereafter and in case such a review could not take place in time, it could lead to a legislative vacuum. The Hon'ble Minister from Haryana suggested that in order to permit States to impose cess on demerit goods after the expiry of the compensation period of five years, the provision could be amended to the effect that cap of 40% shall apply for goods other than demerit goods. The Secretary stated that the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing the month in which the return is filed'. He explained that this would ensure that fund-flow to the destination State was credited on the first day of the month following the month in which the return was filed and that there was no scope for discretion in the matter. The Secretary stated that this could be provided for in the relevant Rules. The Hon'ble Minister from Jammu Kashmir stated that GSTN was only a banking mechanism and the issue was the lateral transfer of fund between the importing and the exporting States and it needed consideration as to who would be the enforcing authority in cases of default. Shri Prakash Kumar, Chief Executive Officer (CEO), GSTN stated that tax returns would be filed on the twentieth day of every month and by the thirtieth day of the month, matching of invoice details would be done and a settlement order would be issued by an inter-State Cell as per the draft accounting rules shared with the States. The Commissioner (GST Policy Wing), CBEC added that the accounting rules would be recommended by the Council and that details regarding fund transfer were circulated in a publication released by the Principal Chief Controller of Account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble Minister from Tamil Nadu raised a question as to why the SGST portion of IGST could not go directly to the concerned State instead of going through a clearing house mechanism. The CEO, GSTN explained that the money was first paid through a return and then, it was passed on to the State. Shri G.D. Lohani, Commissioner (Central Excise), CBEC explained that tax was not paid invoice-wise and tax could also be paid by utilizing the ITC instead of cash payment. On account of these features, there would be one bulk debit for each State for IGST payment made in cash and several debits from the ITC accounts of the taxpayers. The Secretary stated that it would not be advisable to question the entire model of IGST at this stage as this model was accepted after protracted discussion over many years. 18. Commissioner (GST Policy Wing), CBEC made a presentation on the IGST Model and explained its basic features. He pointed out that the basic premise of the IGST Model was a uniform e-Registration, common e-Return, common periodicity of returns, a uniform cut-off date for filing of return, mandatory reporting of supply and purchase and purchase invoice details along with e-Return, a sy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Council. He observed that it needed to be recognized that de jacto, the Council was the legislative body while the Parliament and State Legislatures were de jure the legislative bodies. He added that if the Central or a State Government was not comfortable with any recommendation of the Council, it would need to come back to the Council to get it changed. The Hon'ble Minister from Assam raised an issue as to what stand a State Government should take in case amendments to the SGST law were suggested in the State Legislature. The Hon'ble Chairperson responded that the State Government's stand should be that it could not legislate contrary to the recommendation of the Council and that it would need to go back to the Council for approval of the desired modification. 19.2. The Hon'ble Minister from Kerala stated that the State legislature should have the freedom to enact a provision on its own without the approval of the Council if it did not have any implication for other States. He gave some examples in this regard, like certain facilities to be given to traders or measures to encourage voluntary registration. The Hon'ble Chairperson said that in the first cite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his question was being raised a year too late and that this question was also raised by the Hon'ble Members of Parliament from Tamil Nadu during the Parliamentary debate before the passage of the GST Constitution Amendment Bill. 19.4. The Hon'ble Deputy Chief Minister of Gujarat stated that the Council could not discuss the fundamental principles of GST and it should confine its discussion to the administrative and practical aspects of GST implementation. The Hon'ble Chairperson observed that the Council could decide as to what flexibilities could be allowed to the Legislatures in regard to procedures but they cou ld not go against the meat of the matter as decided by the Council. He added that if the Legislature supplemented the decision with certain procedures not impacting law without bringing it to the Council, it could be acceptable. The Hon'ble Minister from Assam stated that interpretation of Article 279A of the Constitution now lay with the Courts. The Hon'ble Minister from Kerala stated that the provisions of Article 279A could also be interpreted by the Council but if there was a dispute, recourse could be taken to the court of law. The Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds): To modify the second proviso to Section 15(7) to provide that the balance amount for a year shall be apportioned to all States in proportion to the SGST collection ofthe States for that year. v . Section 24 (Appointment of officers of SGST as proper officer in certain circumstances): To discuss the issue of cross-empowerment as part of Agenda Item 4. Agenda Item 5 - Approval of the draft Compensation Law as modified in accordance with the earlier decisions of the GST Council 22. The Hon'ble Minister from Karnataka stated that as agenda item 5 relating to the draft Compensation Law was a small topic, it could be taken up for consideration before agenda item 4 on cross-empowerment. The Hon'ble Ministers from West Bengal and Tamil Nadu supported this request. The Council agreed to the suggestion and decided to take up discussion on agenda item 5 ahead of agenda item 4. 23. The important points discussed in respect of the draft Compensation Law are recorded as follows i. Section 8(1) (Levy and collection of GST Compensation Cess): The Hon'ble Minister from Bihar raised a question whether cess would also be levied on supply of services. The Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation was inadequate in the GST Compensation Fund, then cess could be collected in the sixth year or subsequent year to adjust the payment. The Hon ble Chairperson assured that compensation to States shall be paid for 5 years in full within the stipulated period of 5 years and, in case the amount in the GST Compensation Fund fell short of the compensation payable in any bimonthly period, the GST Council shall decide the mode of raising additional resources including borrowing from the market which could be repaid by collection of cess in the sixth year or further subsequent years. The Hon'ble Minister from Karnataka stated that the wordings of Section 10(2) should clearly reflect that compensation shall be paid bi-monthly and that it shall be paid within 5 years. The Council agreed to this suggestion. iv. Section 10(3) (Crediting proceeds of cess to GST Compensation Fund): The Hon'ble Chief Minister of Puducherry stated that he had addressed a letter dated 7 December 2016 to the Hon'ble Chairperson pointing out that as per sub-section (3) of Section 10 of the draft GST Compensation Bill 2016, 50% of the unutilized fund would be devolved in proportion to the State&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art of the GST Compensation Fund. ii. Section 10(2) (Crediting proceeds of cess to GST Compensation Fund): To modify this sub-section to clearly reflect that compensation shall be paid bi-monthly and that it shall be paid within 5 years, and in case the amount in the GST Compensation Fund is likely to fall short or fell short of the compensation payable in any bimonthly period, the GST Council shall decide the mode of raising additional resources including borrowing from the market which could be repaid by collection of cess in the sixth year or further subsequent year. iii. Section 10(3) (Crediting proceeds of cess to GST Compensation Fund): To modify this sub-section to provide that 50% of the amount remaining unutilised in the GST Compensation Fund shall be transferred to the Consolidated Fund of India and that the balance 50% of the amount remaining unutilised in the GST Compensation Fund shall be distributed amongst the States as well as among Union Territories with or without legislature in the ratio of their total revenues from SGST or Union Territory GST, as the case may be, in the last year of the transition period. iv. To examine the possibility whether cess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also supported cross-empowerment under lGST. The Hon'ble Minister from Telangana stated that the States should be involved in the administration of lGST. He stated that if there was to be a vertical division, then it should be in the ratio of70%:30% in favour of the States, or otherwise States should administer all taxpayers below the turnover of ₹ 1.5 crore. He emphasised that there must be single interface for the taxpayer. The Hon'ble Chief Minister of Puducherry stated that the Central Government did not have infrastructure for indirect tax administration at the district level. He informed that the Central office for indirect tax for Puducherry was located in Tamil Nadu and stated that without the support of the State machinery, which was fully active in the field, lGST could not be implemented. 27. The Hon'ble Chairperson observed that the best method of apportionment of work between the two administrations needed to be worked out. He added that Article 269A of the Constitution provided that lGST shall be levied and collected by the Central Government. The Hon'ble Minister from Punjab stated that in such a situation, there would be dual control over t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was no such intent when Article 269A of the Constitution was drafted and it was understood that tax would be levied and collected by the Central Government. He observed that given the fact that registration, return etc. were common and tax dispute was likely to be minimal, the intervention of tax administration would be in very limited cases. 28. The Hon'ble Chairperson observed that the issues that emerged from the discussion were: (i) GST was a single tax, so it was desirable to have a single interface; (ii) States were of the view that small shopkeepers and traders should remain in the domain of the States; (iii) IGST was to be levied, collected and apportioned by the Union of India, and going by the language of the Constitution, single interface would not be possible; (iv) conventionally, CBEC had been administering service tax (v) how to optimally use the machinery of the Central and State Governments. The Hon'ble Minister from West Bengal stated that the question of dual control was a separate issue and the point at this stage was that States be conferred power to administer IGST so that it could address the issue of SGST which was part of IGST. He added that as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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