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TMI BlogMinutes of the 32nd GST Council Meeting held on 10th January 2019X X X X Extracts X X X X X X X X Extracts X X X X ..... MSMEs 5. Issues recommended by the Fitment Committee for the consideration of the GST Council i. Proposal for boosting real estate sector under GST regime by providing a composition scheme for residential construction units ii. Proposal regarding rationalisation of GST rates on Lottery iii. Request by CAPSI (Central Association of Private Security Industry) to bring the entire security services sector including body corporate under RCM (Reverse Charge Mechanism) 6. Issues recommended by the Law Committee for the consideration of the GST Council i. Notification of provisions of the CGST (Amendment) Act, 2018; UTGST (Amendment) Act, 2018, the GST (Compensation to States) Amendment Act, 2018 and the IGST (Amendment) Act, 2018 ii. Consequential amendments in notifications issued earlier in light of bringing into force the provisions of the CGST (Amendment) Act, 2018; the UTGST (Amendment) Act, 2018; the GST (Compensation to States) Amendment Act, 2018 and the IGST (Amendment) Act, 2018 iii. Consequential amendments in Circulars and Orders issued earlier in light of bringing into force the provisions of the CGST (Amendment) Act, 20 18; the UTGST (Amendment) Act, 2018; th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chnical issues), and 11 (Report of GoM on Revenue Mobilisation) were placed before the Council in pursuance of the decision of the last Council Meeting to discuss these issues in a combined meeting of the Fitment Committee and the Law Committee or in the GoM and place the recommendations in the next meeting of the Council. He added that the only new substantive agenda was Agenda item 9 (Use of RFID data for strengthening enforcement of e-Way bill system under GST) which was discussed during the Officers meeting held on 9th January, 2019 and the Council would be apprised about its deliberations when this Agenda item came up for discussion. 3.2. The Hon'ble Chairperson observed that there should be a procedure by which any pressing issue raised by a State may be brought before the Council. He stated that the Hon'ble Minister of a State could write to him or the Finance Secretary of the State concerned could write to the Union Revenue Secretary. The Hon'ble Minister from Andhra Pradesh stated that they had written to the Council on certain issues and they would write again on those issues. Many of these issues related to fitment of rates, which needed to be considered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t would come into the Consolidated Fund of India and refunds would be given, and the Government would come to know about the exact amount lying in the Consolidated Fund of India only at the end of March, 2019. He further stated that they were taking legal opinion as to whether the unsettled IGST amount could be kept in the Consolidated Fund of India and whether it was devolvable. He added that this issue was also under discussion with the accounting authorities of the Central Government before taking appropriate decision. 3.6. The Hon'ble Chairperson observed that since the two Union Territories with legislature were not getting any money through devolution, their request to keep only a minimal amount under the IGST head would need to be examined. The Hon'ble Deputy Chief Minister of Delhi stated that an in-principle decision should be taken now that Union of India should keep only a minimal amount under the IGST head as this might be the last meeting of the Council during the current financial year. Dr. T.V. Somanathan, Commissioner, State Tax, Tamil Nadu, stated that the Government of Tamil Nadu held the same view as that of the Hon'ble Deputy Chief Minister of Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y service, business support service, advertisement, etc. and the revenue from them was going to be cannibalized in GST, being a levy on the final price. He stated that as per his estimate, the net revenue from Service Tax was supposed to be around ₹ 70,000 crore depending upon the exemption threshold.' (iii) In paragraph 12.20 of the Minutes, to make corrections in the first six sentences as follows (the suggested changes are in italics and underlined and suggested deletions are in strike through mode): 'The Advisor (Financial Resources), Punjab, further stated that at the time GST design was first conceived around 2008 the rate of State VAT was standard rated @12.54% and merit rate was 4% but the rates varied rose subsequently among the across the States as some States started levying 10% surcharge, some raised tax rates etc. At the time GST was ushered. Most States had a tax VAT rate of 13.5%-14% on a cascaded value, which included Central Excise in addition to CST of 2% plus tax credit reversals of 4% on stock transfers. Thus, his estimate was that most of the States had a prevalent VAT rate of 18% at the higher end which had now become 9% (as SGST) and VAT rate o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied. Agenda Item 3: Decisions of the GST Implementation Committee (GIC) for information of the Council 8. Introducing this Agenda item, the Secretary stated that the GST Implementation Committee (GIC) took one decision between 22nd December, 2018 (when the 31st GST Council Meeting was held), and 2nd January, 2019 (before the 32nd Council Meeting). The decision related to a provisional settlement on ad hoc basis of IGST amount to the tune of ₹ 18,000 crore between the Centre and the States. The GIC had agreed to the proposal to settle this additional IGST amount, 50% to the Centre and 50% to the States, on ad hoc basis. He stated that this Agenda item was discussed during the Officers meeting held on 9th January, 2019 (presentation on the issue attached as Annexure 3 to the Minutes) and there were no comments from the Officers. He stated that this Agenda item was placed before the Council for information. 9. For Agenda item 3, the Council took note of the decision taken by the GIC between 22nd December, 2018 (when the 31st GST Council Meeting was held), and 2nd January, 2019. Agenda Item 4: Interim Report of GoM (Group of Ministers) on MSMEs 10. Introducing this Agenda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the figures indicated in the presentation, it appeared that when the annual turnover threshold for availing the Composition scheme was ₹ 1.0 crore, only 22% of the eligible taxpayers had availed the Composition scheme. He further stated that the proposed increase in the annual turnover threshold for Composition taxpayers now being made was meant to address the grievance of the MSME sector. However, as only 22% of the eligible taxpayers had availed this Scheme, it was clear that this facility was not relieving the sufferings of the bulk of the MSME units. He added that their suffering was more due to compliance burden and not composition or regular rate of tax. He added that the proposed increase in the annual turnover threshold might not solve the problem of the small taxpayers. He stated that while he was not opposed to this proposal, he wanted to put this perspective before the Council. 10.4. The Hon'ble Chairperson stated that the compliance issues were also being simplified. He observed that even where taxpayers were exempted from GST because their annual turnover was less than ₹ 20 lakh, many were still taking registration for reasons like remaining within in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finding it burdensome. Therefore, the smaller businesses may require to be offered multiple avenues of simplified system to reduce the compliance burden on them. He suggested that the Council could agree to this recommendation of GoM. The Council agreed to the same. ! 10.7. The Council agreed to the proposal to simplify the Composition scheme by providing for quarterly payment of tax and filing of only one return in a year with effect from 1st April 2019. The Law Committee to design a tax payment declaration with details necessary for compliance verification and also to suitably amend the FORM GSTR-4 and to place it before the Council. (III) Increasing threshold exemption for suppliers of goods 10.8. The Joint Secretary, TRU-ll introduced the third recommendation of GoM regarding increasing exemption threshold for supplier of goods for registration up to ₹ 75 lakh. He informed that during the joint meeting of the Law Committee and the Fitment Committee held on 4th January, 2019, the following two alternatives were suggested: (i) to raise the annual threshold exemption uniformly for goods and services to ₹ 40 lakh; or (ii) to raise the annual threshold exemption for g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orst-case scenario, the total annual revenue that could be impacted would be about ₹ 5,225 crore if the annual turnover threshold for registration for supplier of goods was increased to ₹ 40 lakh; it would be ₹ 6,450 crore and 9,200 crore respectively if the annual turnover threshold for registration for supplier of goods was raised to ₹ 50 lakh and ₹ 75 lakh respectively. The total number of taxpayers expected to go out of the GST net would be about 20,64,000 if the annual turnover threshold was increased to ₹ 40 lakh; the number would be about 21,91,000 and 23,81,000 if the threshold was increased to ₹ 50 lakh and ₹ 75 lakh respectively. 10.11. The Joint Secretary', TRU-ll further stated that the fundamental argument for raising the threshold was that it would free the business of its expenditure which went into compliance. He informed that the taxpayers with turnover up to ₹ 60 lakh were usually paying only around ₹ 5000 annually as tax but their compliance cost was ₹ 15,000 to Rs .20,000 per annum. He added that if the threshold was raised, more than the revenue, the money saved by the taxpayer on compliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... worked out by the Law Committee. He stated that the implementation of the proposal might require amendment in the GST Law but alternatively, it could be done by the exemption notification as well. 10.13 . Starting the discussion on this issue, the Hon'ble Minister from Kerala observed that the Council had already agreed to raise the annual turnover threshold for Composition taxpayers to ₹ 1.5 crore, charged a reduced tax and had simplified the compliance burden by deciding to take only one return in a year from them. As the compliance cost for MSMEs had been taken care of fully, there was no need to increase the annual turnover threshold for registration as this would undermine the architecture of GST. He observed that the broad philosophy of GST is to keep the tax rate low and to widen the tax base. In order to maintain self-policing nature of GST, input tax credit should be available at each stage of transaction. If about 20-23 lakh taxpayers went out of the GST net due to increase in the annual turnover threshold for registration, this would compromise the efficiency of GST. He further stated that in addition to direct loss of revenue, there would be indirect loss of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had gone due to equalization of rates of tax across the States under GST. He suggested that the Council should wait for some time before thinking of increasing the annual turnover threshold for registration and take a call once the revenue position had stabilized. He stated that increasing the annual turnover threshold for registration would lead to splitting of units and large-scale tax evasion. 10.16. Shri Mauvin Godinho, Hon'ble Minister from Goa, stated that while he would have normally welcomed the decision of raising the turnover threshold for registration, but the State of Goa would serve as a classic example for deciding on the particular agenda. He stated that if the annual turnover threshold for registration was increased from ₹ 20 Iakh to ₹ 50 lakh, his State would suffer a revenue loss to the extent of 30% and if the registration threshold was increased to ₹ 75 lakh, his State would suffer a revenue loss of 40%. He stated that while discussing this issue, needs of smaller States should also be kept in mind, particularly those like Goa, which was not a Special Category State. He observed that after five years, there would be no compensation. He ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nover threshold for registration was based on the erstwhile Excise Duty structure under which manufacturers up to an annual turnover of ₹ 1.5 crore were exempted from Central Excise Duty. He added that the small manufacturers were most affected, and therefore, increasing the annual turnover threshold for registration to ₹ 40 lakh or ₹ 50 lakh would not result in significant revenue loss but would take out a large number of taxpayers from the GST net. He added that for Goa and other smaller States, one could think of a separate scheme. He further stated that even if the annual turnover threshold was increased, all the taxpayers covered within the new threshold might not go out of the tax net as many would like to continue with their registration for availing input tax credit, etc. and only 50% of the taxpayers were likely to go out of the tax net. He, therefore, suggested to raise the annual turnover threshold for registration to either ₹ 40 lakh or ₹ 50 lakh. 10.20. The Hon'ble Minister from Kerala stated that even in GoM, the proposal was to raise the threshold limit to ₹ 40 lakh. The Hon'ble Deputy Chief Minister of Bihar suggested to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supply of services by such units up to 10% of the value of turnover of goods. He also suggested to create certain safeguards, like there should be only one PAN card for every registered taxpayer. He also suggested that there should be a negative list of goods, like pan masala, tobacco, ice cream, etc., which need not be given the benefit of increased turnover threshold for registration. He further cautioned that any increase in the turnover threshold for GST registration could also affect income tax collection. He added that if the annual turnover threshold had to be increased, then the Council should also have a retook at the distribution of taxpayers between the Centre and the States, as a large number of small taxpayers would go out of the tax net. 10.24. Capt. Abhimanyu, Hon'ble Minister from Haryana appreciated the work done by the GoM on MSMEs and lauded its recommendations. He suggested that the annual turnover threshold for registration could be increased to ₹ 50 lakh, though his State was ready to adopt even a higher threshold. The Hon'ble Chief Minister of Puducherry stated that as several States had expressed differing views on the issue and no consensus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self that the idea behind GST was to broaden the tax base, but the Central Government seemed to be now going away from this position. 10.27. Dr. Himanta Biswa Sanna, Hon'ble Minister from Assam, stated that though his State was a Special Category State, he was mindful that during the Central Excise regime, the annual turnover threshold for registration was ₹ 1.5 crore and small units were suffering under GST regime. He observed that employment was key to everything. He added that initially the bigger States wanted registration threshold to be ₹ 40 lakh so that MSMEs did not suffer adversely but the decision was to keep it at ₹ 10 lakh and ₹ 20 lakh and in the process, the MSME had suffered losses because in the Central Excise regime, their exemption threshold was ₹ 1.5 crore. He added that this aspect should be considered with a view to ameliorate the adverse impact of GST on MSME Sector to boost the employment opportunities. In view of this, he suggested that the annual turnover limit for registration of MSMEs in GST could be kept at least half of the original limit under Central Excise. He stated that although his State was a Special Category St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 20 lakh whereas for other States, it could be ₹ 40 lakh Shri Jagdish Chander Sharma, Principal Secretary (E&T), Himachal Pradesh, stated that his State would prefer to retain the threshold limit of ₹ 20 lakh. He added that the procedure to ascertain the annual turnover of the taxpayer should be well thought of and should be part of an in-built system. He suggested to take up the exercise of determining the annual turnover threshold for registration at the beginning of every financial year i.e. in April and this could be made a part of law. 10.30. Shri Vanlal Chhuanga, Commissioner & Secretary (Taxation), Mizoram, stated that presently the States of Mizoram, Manipur, Nagaland and Meghalaya had an annual turnover threshold of ₹ 10 lakh for registration and they would find it difficult to move to the threshold of ₹ 20 lakh. He added that there were aspects other than revenue involved in taking a decision for increasing the threshold. He explained that there were great disparities amongst the districts in his State and while for a few districts, they could go for increasing the annual turnover threshold for registration to ₹ 20 lakh, in many far-flung d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and commodities that did not have much input tax credit, like agro based goods, or goods on which no input tax credit had been allowed for some reason were kept out of exemption threshold. He added that the global model was to have higher threshold for registration but very few exemptions. He stated that currently there was a long list of exemptions and if the annual turnover threshold for registration was to be increased, then the list of exemptions would also need to be reviewed. For example, exemption to prasad may need to be reviewed because most halwais would be below this annual turnover threshold limit of₹ 50 lakh. He added that certain items, where the rate of tax was high and which had a very high value addition, such as pan masala, gutka, aerated beverages, air conditioners, etc., should not be given the benefit of higher threshold at the manufacturers' level as otherwise a very huge amount of value addition would go out of the tax chain. 10.33. The Hon'ble Chairperson enquired whether, as a general proposition, could all items on which cess was levied, be kept out of the proposed increase in the annual turnover threshold for registration. The Joint Secre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers that were likely to get relief would be 20,64,000 and the revenue foregone would be about ₹ 5,225 crore. If the annual turnover threshold for registration was raised to ₹ 50 lakh, then the maximum total number of taxpayers likely to go out of the tax net would be 21,91,000 and the maximum revenue loss would be ₹ 6,450 crore and if the annual turnover threshold was increased to ₹ 75 lakh, the total number of taxpayers going out of the tax net would be 23,81,000 and the revenue loss would be about ₹ 9,200 crore. He explained that these were conservative estimates where the revenue foregone and the taxpayers getting relief had been taken as 50% of the total numbers likely to be affected by the proposed increase in annual turnover threshold for registration. This was based as per the previous experience and also going by the fact that many businesses would be doing inter-State trade. He added that the revenue loss was not likely to be more than ₹ 5,000 to ₹ 6,000 crore if the annual turnover threshold for registration was up to ₹ 40 lakh or ₹ 50 lakh. The Hon'ble Minister from Kerala stated that discussion on revenue loss sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttend the Law Committee meeting during discussion on these issues. 10.38. The Hon'ble Minister from Chhattisgarh stated that he did not agree with the proposal as there was no consensus in the House. He stated that the decision was being taken in a hurry whereas more thinking was needed on the subject. The Hon'ble Minister from Kerala stated that the States should be given an option to opt out of the proposed increase in annual turnover threshold for registration as the compliance burden on small taxpayers would go down substantially with the decision of the Council to increase the annual turnover threshold for Composition to ₹ 1.5 crore along with a facility for Composition taxpayers to file only an annual return. 10.39. The Hon'ble Chairperson observed that the whole concept of GST would suffer if an option was given to States to choose their annual turnover threshold for registration. He stated that perhaps an exception could be made for smaller States. The Joint Secretary, TRU-IT stated that if there were too many exceptions, it would make it very complex to calculate the annual turnover threshold at all-India level. Shri Ritvik Pandey, Joint Secretary, DoR, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not disturbed. The Hon'ble Deputy Chief Minister of Delhi stated that a choice could be given to the States as to ,which threshold to adopt. The Hon'ble Chairperson enquired whether the State of Goa was ready to accept the annual turnover threshold of ₹ 40 Iakh for his State. The Hon'ble Minister from Goa stated that if the Council so decided, then they would join the consensus even if it meant loss of revenue to Goa. The Hon'ble Chairperson stated that this left only the other small Union territory of Puducherry which was unwilling to increase the threshold. The Hon'ble Minister from Uttarakhand stated that his State was a Special Category State and an increase in annual turnover threshold to ₹ 40 lakh would affect 41,817 taxpayers. He stated that if the threshold was proposed to be kept at ₹ 40 lakh, then sin goods should be kept out' of this threshold. The Hon'ble Chairperson stated that it was desirable to foIIow the past practice of not giving any option to the States . 10.43. The Hon'ble Minister from Kerala supported the proposal that the States be given an option to keep the annual turnover threshold for registration at &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 1.5 crore, where the administration of taxpayer was with the State Government. If the annual turnover threshold for registration was raised to ₹ 40 lakh, a large number of traders would go out of the tax net of the State administration and the same would be the situation for Composition taxpayers. The Hon'ble Chairperson observed that taxpayers with annual turnover of more than ₹ 1.5 crore were equally distributed between the Centre and the States and bulk of revenue came from this segment. Taxpayers below this annual turnover were largely an additional load ·on the tax administration. 10.46. The Hon'ble Minister from Assam supported the suggestion to have two annual turnover thresholds for registration. He stated that his State had originally opted for the annual turnover threshold of ₹ 10 lakh as a Special Category State, but due to public pressure, they later decided to adopt the annual turnover threshold of₹ 20 lakh. He expressed a hope that a similar situation would prevail in future if two annual turnover thresholds for registration were allowed for non-Special Category States. The Hon'ble Chief Minister of Puducherry stated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cil agreed to this suggestion. The Commissioner, State Tax, Tamil Nadu further stated that a time limit should be given to the States to opt for the higher threshold. The Hon'ble Chairperson suggested that preferably one week's time could be given to the States to convey their decision regarding the annual turnover threshold that they would like to adopt for registration. The Council agreed to this suggestion. 10.49. The Joint Secretary, TRU-ll stated that the Council also needed to decide the annual turnover threshold for Composition scheme for Special Category States. The Hon'ble Chairperson stated that this threshold was already ₹ 75 lakh, except for Uttarakhand and Jammu & Kashmir. The annual turnover threshold for Composition for States ·other than the Special Category States was being raised from ₹ 1.0 crore to ₹ 1.5 crore. The Hon'ble Minister from Assam stated that his State would like to adopt the annual turnover threshold of ₹ 1.5 crore for the Composition scheme. The Hon'ble Chairperson observed that the Composition threshold for Special Category States need not be disturbed at this stage and suggested that only those S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , TRU-ll drew attention to the relevant slide in the presentation and informed that the total number of taxpayers Iikely to be covered by the benefit of Composition scheme for small service providers up to an annual turnover of ₹ 50 lakh would be about 33,23,766, who paid tax in cash to the tune of about ₹ 37,046 crore. He added that these numbers would also have mixed suppliers. The effective rate of tax collection in terms of cash to turnover would be in the range of 7-7.5%. Hence the originally proposed rate was 8%. He stated that despite a Composition scheme, some categories of service providers, like contractors and professionals, were likely to continue in the tax chain because of the input tax credit involved. However, small local service providers, like beauticians, plumbers, etc. were likely to move out of the tax chain. He stated that at 5% tax rate, the revenue loss would be about ₹ 4,500 crore. He added that the GoM took into account these considerations and then suggested the rate of tax as 5%. The Hon'ble Chairperson wondered as to how many pure service providers would be covered under this scheme. The Joint Secretary, TRU-ll stated that with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recommendation was from the GoM and the decision of the GoM was unanimous, the Officers did not analyse it further. He further stated that while taking a decision in the Council, it needed to be remembered that lower rate of tax would help in higher revenue realization. It was important to make this scheme attractive, and therefore, one need not stick to Revenue Neutral Rate (RNR). He also pointed out that the rate of Composition tax for restaurants was also 5%. 10.54. The Hon'ble Deputy Chief Minister of Delhi stated that the rate of Composition tax for goods suppliers was 1% and a Composition tax rate of 8% for services suppliers would make the difference between the two very huge. He further stated that it was important to incentivize taxpayers in the services sector to adopt the Composition scheme. The Hon'ble Minister from Kerala stated that the Composition scheme for services was being adopted for the first time. He added that there was no such scheme even under the Service Tax regime and therefore a higher rate could be adopted so that there was no loss in revenue. The Hon'ble Chairperson stated that the experience in GST was that response from Service Tax was m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the rate of tax on goods had been brought down over a period of time and now painters, plywood manufacturers, etc. were paying a lesser rate of tax on their input purchases as compared to the original 28%. He further stated that in the instant case, the calculation of revenue loss was notional and one needed to look at other changes taking place in tl1e economy today, such as service providers suffering lower taxes due to reduction in tax rates on tl1eir input goods. He added that all these concessions (of fixing 5% rate of tax) would create havoc to revenue and suggested to keep the rate of tax at 8%, He added that the input tax credit would never be 10% and where the available input tax credit was less, the taxpayer would never opt for Composition scheme. He added that retail services (B2C), like hair dressers, cable operators, dry cleaners, etc. in which there was a high margin, a lower rate of tax would have implication on revenue. The Hon'ble Minister from Karnataka stated that a very reasoned argument had been presented by the State of Punjab to keep the tax rate at 8% and it should be respected. Shri G.D. Lohani, Joint Secretary, TRU-I stated that while fixing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity of providing free accounting and billing software to small taxpayers, with annual turnover upto ₹ 1.5 crore. He stated that after rigorous selection process involving national level Expression of Interest (Eol), evaluation by external tech experts and panel of experts from ICAI (Institute of Chartered Accountants of India), they have identified seven companies out of 43 companies, which had submitted the Expression of Interest to provide software for tax compliance purposes under GST. This software would enable a taxpayer to generate invoices, take stock of purchases, auto-prepare FORMS GSTR-1, GSTR-3B, GSTR-4, GSTR- 9, etc. and also prepare balance sheet, profit and loss account, etc. He stated that all the selected companies have agreed to provide basic version of software covering above mentioned functionalities free of cost to taxpayers having annual turnover upto ₹ 1.5 crore. He flll1her stated that the software was proposed to be introduced in a staggered manner from JS1 February, 2019, starting with two States and adding more in a phased manner with an aim to cover all States in two to three months. The Secretary stated that through a rigorous process, GSTN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent it before the Council; 11.6. The changes to be made operational from 1st April 2019; 11.7. Till amendment in law is made to give effect to this change, the scheme to be made operational by notifying exemptions from tax and registration; 11.8. Council took note that it had agreed to have an option of two annual turnover thresholds for registration to suppliers of goods only on the consideration that it would not affect the inter-State trade; 11.9. The States to convey their decision regarding the applicable annual turnover threshold for registration preferably within a week's time; 11.10. For the Special Category States, to retain the existing annual turnover of ₹ 7 5 lakh for Composition scheme for goods but those Special Category States desirous of increasing their turnover threshold for Composition scheme to ₹ 1.5 crore, to inform the GST Council Secretariat in writing, preferably within a week's time; 11.11. GST Council Secretariat to place before the Council the cumulative figure of loss of revenue due to decisions of the Council from November, 2018 till date; (iv) Composition scheme for small service providers 11.12. To have a residual category ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding to refund. The proposal was initially brought in the 31st Council Meeting where considering its importance, it was referred to the Law Committee and the Fitment Committee for consideration jointly and the instant proposal was based on the recommendations arising out of such a joint meeting. 12.1. Explaining the proposal, Joint Secretary, TRU-II further stated that: a. the proposal was prepared keeping in mind the buyers' perception that GST rate was high and the benefit of ITC was also not being passed on by the builders; b. the sector was not in good health and that it was suffering from cash flow problems on account of credit overhang which was aggravated by tax payment to be done on intermediate services such as Transfer of Development rights; c. the actual tax payment data of the sector was analyzed and it was found that the total cash payment from the sector was less than 5%; d. during the discussions in the Fitment Committee, it was brought out that the impact of proposed tax on lower end flats might lead to price rise; hence, GST @ 3% was proposed on the Affordable Housing category, which were proposed to be defined per the Reserve Bank of India priority se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this, an elaborate procedure for calculation was provided under the GST Rules. 12.4. The Hon'ble Deputy Chief Minister of Gujarat sought further clarification that in his State, it was common to have construction with first two floors being commercial and floors above it being residential. The Secretary explained that the commercial property would be taxed at the tax rate applicable to the commercial property and the Fitment Committee would appropriately define the residential and commercial property. Joint Secretary, TRU-ll added that there were various methods to identify the nature of property such as declaration of type of property in the registration documents, definition of residential property in the local municipal laws, definition under the allied acts such as Income Tax Act etc. which would also be explored by the Fitment Committee before arriving at a proper definition under the GST Act. The Hon'ble Deputy Chief Minister of Gujarat further enquired whether the tax would be applicable on the selling price. The Secretary explained that in case of a big building with some floors commercial and some floors residential, the commercial floors would attract the tax ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g for the property to be completed. Since the buyers had stopped buying under construction property, the money supply to the sector had stopped and projects were not getting completed. c. It was also a fact that builder paid tax at the rate of 28% on cement, 18% on majority of other input items and 12% on some other materials and the combined lTC available to him for payment of h'is output tax came to 8-9%. Eventual tax burden on him would be 12% minus the lTC available to him. However, the unscrupulous builders were not passing the benefit of input tax credit to the potential buyers by reducing the base rates but were recovering the entire 12% in cash from the buyers. 12.7. The Hon'ble Chairperson added that a question arose as to how to resolve the issue and to come out of the logjam. The proposed solution was to fix the GST rate at 5% for normal/luxury flats and at 3% for the affordable category flats, and at the same time, to impose the condition of buying 80% of Inputs and Input Services from the registered dealers to prevent the input items going out of GST chain. Thus, the entire situation in the real estate sector where the unscrupulous builders were not passing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the consumer would see only the above tax rates on invoice which would be substantially lower. The safeguard of 80% purchases from the registered dealers would maintain the credit chain. 12.10. The Hon'ble Chairman further explained that the present tax structure was 8% on the affordable category and 12% on the normal or luxury category and both were covered by ITC benefit, which was to the tune of roughly 8% as per his interaction with the builders. An honest builder would show on the invoice that he was reducing the base price by 8% and thereafter imposing tax of 8% or 12% as the case may be. The problem was that the builders were not operating fairly and the buyers were scared away from the sector instead of actually appreciating the benefits of GST. Thus, the unfair trade practice was to make a profit of 8% by not giving the benefit of ITC to the customers and charging full tax from them. 12.11. The Hon'ble Minister from Punjab stated that the foundation of GST was to reward the honest taxpayers who remained in the credit chain and punish the unscrupulous traders who operated by purchasing the goods and services without bills. The current proposal before the Council s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : on the builder which would be borne by the buyer ultimately. The Hon'ble Chairperson observed that if it was so, why such a decision should be taken, as unethical conduct of·developers could be dealt with by use of Anti-profiteering proceedings or·through redressal under RERA proceedings. He observed that this proposal, instead of effectively reining in the builders, might increase the incidence of tax on the consumer which could be counter-productive. 12.14. The Hon'ble Minister from Karnataka submitted that studies available in the public domain showed that the incidence of tax on the high-end houses would come down while on the affordable category, it would go up. DG, Anti-profiteering submitted that there were about 30 complaints under investigation with the DG, Anti-profiteering in case of builders and they were going through the input, output and the other records of the builders to establish whether or not the benefit of ITC had been passed on. The Hon'ble Chairperson observed that addressing the problem by way of Anti-profiteering mechanism or through RERA mechanism would be better. Otherwise, with" the remedy that had been proposed, a situ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was beyond comprehension as to how two different rates of GST could be fixed on same product when sold in the State itself and when sold in the other States, which was against the provisions of the Competition Act, 2012. Discrimination did not exist in any other category of products. iii. The huge variation of 16% between two rates helped the larger States to exploit customers as smaller States could not compete with them. High differential rates encouraged non-compliance by small business. iv. Hon'ble Calcutta High Court in a judgement dated 10.10.2018 in the case of M/s Teesta Distributor vs Uol had upheld the prevailing rate structure. Even then, the product being a sin I de-merit good, needed to be taxed at rates higher than 12%. The high differential in tax rate also led to malpractice of attempting to avail tax rate of 12% by mis-representation. 14.1. The Hon'ble Minister from Karnataka stated that from the proposal it was not clear as to from where it had originated. He further stated that as had been pointed out by the Hon'ble Minister from Andhra Pradesh, a number of proposals were sent by the States to the GST Council/Fitment Committee which were not f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. In that model, the State took some fixed amount based on some percentage, whereas the whole operation was private thereafter and was misdeclared so as to pay tax @12%. Despite the higher rate of GST being applicable to these lottery owners, there was low GST collection because of this hybrid structure which was leading to evasion of taxes. Taxation of this model needed to be addressed and it should be taxed @ 28% GST. 14.4. The Hon'ble Minister from Kerala stated that majority of States had banned the lottery, and, therefore, they did not have any direct stake or interest in the instant agenda. However, States, particularly North Eastern States and 5 other major States, viz. Maharashtra, Punjab, West Bengal, Kerala and Goa who were running lotteries had a stake on the issue. One would agree that lottery was not a desirable activity as it had an element of gambling, but it could be allowed only for the purposes of revenue generation. Government of India had promulgated a Central Lottery Act to ensure one did not undertake measures which would make lottery addictive, such as the number of draws that lottery could have, the number of digits in the lottery, price system, etc. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h a decision. Thus, to take benefit, other States may also avoid middlemen and run the lottery by themselves. Kerala Government could provide the technical support to other States who wanted it. 14.7. The Hon'ble Minister from Assam stated that North Eastern States have lottery system, but they lacked proper infrastructure to run it by State machinery and that is why they ran it through somebody else as authorised outsourced agency. The Hon'ble Minister from Kerala stated that private players who had to pay ta,-x at the rate of 28% were not finding it attractive enough to compete with Kerala model. Therefore, such players were campaigning to remove this differential rate and adopt uniform rates for lottery across the country for their personal gains and accessing market in other States. This issue did not concern the majority of States but it was a serious concern for States where lottery operated. One should not upset the present system, allow it to continue and asked as to what was the rationale for changing the present structure. He stated that Kerala would help create a structure for smaller States or pay the amount that was paid by these private players to those State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the middlemen running lottery at other places. CAG report clearly indicated that some middlemen from some States were running it in an inappropriate way. Therefore, the proposal could not be accepted. 14.11. The Hon'ble Minister from Punjab stated that differential rate in lottery was contested by lottery group/associations till the Hon'ble Supreme Court, but present rate structure of 12% .- and 28% had been upheld even by the apex court and it was clear that State run lottery attracts 12% GST whereas State authorised privately run lottery would attract 28% GST. 14.12. The Hon'ble Minister from Assam stated that the argument of differential tax rates was not proper, and it was like punishing North Eastern States for inability to do certain things. On one commodity two rates should not exist and it was not warranted. 14.13. Shri Manoj Rai, Additional Commissioner, State Tax, Sikkim stated that a lot of misreporting was happening regarding "inter-State operations of lottery and that it was more in case of online lotteries. Further, carrying lottery tickets to neighbouring States was not a big task as tickets could be transported easily. He supported the proposal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tices and way forward, i.e. ways to plug revenue leakages. He added that in the Council, one should talk about streamlining the revenue and better working of Tax administration. One had to look to fix leakage in revenue and as to why all taxpayers were not coming in the system, evading GST and needed suggestions on these real issues. He added that discussion should be in the spirit of having a truly functional GST. 14.17. The Hon'ble Deputy Chief Minister of Delhi suggested that if the Council agreed, the issue could be discussed later, and it may be referred to a GoM for detailed examination. Commissioner, State Tax, West Bengal suggested that all the States who run lottery might be members of this GoM as other States were actually not affected. 14.18. The Hon'ble Chairperson observed that in a large group like Council, one might not be able to discuss all aspects of the issue. He added that during the discussion, several issues were discussed such as what was the significance of different tax rates on lottery, why one needed a uniform rate on different types of lottery systems, and what the challenges were. It was also felt that the matter pertained to only few States i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the proposal. 17. For Agenda item 5(iii), the Council decided not to agree to the request of CAPSI (Central Association of Private Security Industry) to bring the entire security services sector including body corporate under RCM (Reverse Charge Mechanism). Agenda Item 6: Issues recommended by the Law Committee for the consideration of the GST Council Agenda Item 6(i): Notification of provisions of the CGST (Amendment) Act, 2018; UTGST (Amendment) Act, 2018 and the GST (Compensation to States) Amendment Act, 2018 and the IGST (Amendment) Act, 2018 18. The Secretary invited the Principal Commissioner (GST Policy Wing), CBIC, to make a presentation on this Agenda item. The Principal Commissioner (GST Policy Wing), CBIC, made a presentation (attached as Annexure 3 to the Minutes). He explained that the Council, in its 31st Meeting held on 22nd December, 2018 had recommended that the Amendment Acts of the CGST Act, the UTGST Act, the GST (Compensation to States) Act and the IGST Act, were to be brought into force with effect from JS' February, 2019. The Law Committee examined the provisions of all the GST (Amendment) Acts, 2018 in conjunction with the CGST Act, 2017, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier in light of bringing into force the provisions of the CGST (Amendment) Act, 2018; the UTGST (Amendment) Act, 2018; the GST (Compensation to States) Amendment Act, 2018 and the IGST (Amendment) Act, 2018 20. Introducing this Agenda item, the Principal Commissioner (GST Policy Wing), CBIC, stated that certain notifications would need to be issued pertaining to the Notifications on the Amendment Acts of the CGST Act, the UTGST Act, the GST (Compensation to States) Act and the IGST Act. The details of the amendments to be carried out were contained m U Annexure A to Agenda notes for Agenda Item 6(ii). The Council agreed to the proposal. 21. For Agenda item 6(ii), the Council approved to carry out amendments to the Notifications as contained in Annexure A to Agenda Item 6(ii) and to also amend the corresponding Notifications issued by the States (except Notification No.02/2017-Central Tax dated 19th June, 2017). Notifications carrying out these amendments shall be issued after due vetting by the Union Ministry of Law. Agenda Item 6(iii): Consequential amendments in Circulars and Orders issued earlier in light of bringing into force the provisions of the CGST (Amendment) Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration is represented by way of interest or discount shall not be taken into account." 23.1. The Removal of Difficulty Order shall be issued in consultation with the Union Ministry of Law. The States shall also issue similar Circulars and Orders as well as Removal of Difficulty Order. Agenda Item 6(iv): Proposal for amendment in CGST Rules, 2017 24. The Principal Commissioner (GST Policy Wing), CBIC, stated that the Law Committee in its meeting held on 3rd and 4th January, 2019 had recommended minor amendments in the CGST Rules, 2017 to ease the process of refunds and to extend the date of examination for GST Practitioners. He explained the proposed changes in the Rules and suggested that the Council could approve the proposed changes, as contained in the notes of Agenda Item 6(iv). The Council agreed to the same. It also agreed that pari materia changes would be carried out in the SGST Rules. 25. For Agenda item 6(iv), the Council approved the proposals as contained in the Table below the notes of Agenda item 6(iv). The Council also approved that suitable notifications shall be issued after due vetting by the Union Ministry of Law and that pari materia changes shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greed to expand the mandate of the ITGRC to consider cases of non-technical glitches but in a very limited manner. 28.1. The formulation agreed upon during the Officers meeting held on 9th January, 2019 was presented by the Principal Commissioner (GST Policy Wing), CBIC (attached as Annexure 3 to the Minutes). He stated that the ITGRC shall consider on merits, the specific ' cases as covered under the orders of the Hon'ble High Court of Madras and by any other Hon'ble High Court as sent by any State or Central authority, to the GST Council Secretariat by 31st January, 2019. The ITGRC shall consider the listed cases (as informed by States/ Centre before 31st January, 2019) where the following conditions are satisfied: - i. TRAN-1, including revision thereof, has been filed on or before 27th December, 2017 and there is an error apparent on the face of the record (such cases of error apparent on the face of the record will not cover instances where there is a mistake like wrong entry of an amount e.g. ₹ 10,000/- entered for ₹ 1,00,000/-); and ii. The case should be recommended to the ITGRC through GSTN by the concerned jurisdictional Commissioner or an off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arliest. As regards Stage-TI where data was proposed for active real time intervention, they raised the issue that while implementing it, one should preserve the good attributes of GST and avoid return to the permanent static check posts system. 30.1. The Hon'ble Minister from Tamil Nadu in his written speech relating to the agenda stated that his State was opposed to the recommendations contained in agenda of adopting Option-II (i.e. Stage-II) for stoppage and checking of vehicles in real time near the toll plaza where RFID reader was located. It was further stated that it would pave the way for creation of check post in a new nomenclature with all attendant problems negating the benefits of GST. Further, the RFID technology should be implemented after due consultation with all stakeholders, adequate training and awareness to the Industries, failure free testing and piloting the same with stakeholder. 30.2. Secretary stated that it was felt that the issue required a wider consultation with some other stakeholders who were not part of the exercise so far. Accordingly, it was recommended to fom1 a Committee of Officers from Centre, States and GSTN to deliberate and suggest on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates. 33. For Agenda item 10, the Council took note of the facts reported by the National Anti-profiteering Authority (NAA) in its report for the quarter 1st October 2018 to 31st October 2018. Agenda Item 11: Report of the GoM on Revenue Mobilisation 34. Introducing the Agenda, the Joint Secretary (DoR) stated that the Group of Ministers (GoM) held two meetings to discuss the following Terms of Reference: i. Whether the mechanism of funding to the States through National Disaster Response Fund (NDRF) is sufficient in case of natural calamities and disaster; ii. Whether there should also be a supplementary mechanism for funding natural calamities and disasters through GST, and if so, whether it should be through additional cess or tax, and whether such levy should be State specific or across the country; iii The circumstances in which a State shall become entitled to get funding over and above the funds obtained through NDRF mechanism; iv. Whether it is permissible under the relevant provisions of Constitution and the GST law to create an omnibus GST Disaster Relief Fund for natural calamities or whether resources can be raised only for a specific event qualifying as nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the reconstruction expenditure outside the FRBM limits or by providing additional borrowings over and above the FRBM target over a specified number of years. 34.3. The Hon'ble Chairperson asked the Minister from Kerala as to whether the above recommendations were acceptable to him to which he agreed. The Hon'ble Ministers from Assam and Goa also supported the recommendations of the GoM. The Hon'ble Deputy Chief Minister of Delhi stated that the recommendation (i) and (iii) had nothing to do with the GST while recommendation (ii) pertained to GST which was acceptable. The Hon'ble Minister from Kerala stated that though this may not be part of GST Council's mandate but it needed to be understood that for rebuilding after a natural disaster funds were required which the Government of India allows through borrowing from external agencies. He added that the Government of India should permit external borrowing as a means of additional resource mobilisation. The Hon'ble Chairperson stated that this suggestion was out of direct scope of the GST Council, but the recommendations of the GoM would be taken up with the Government of India separately. He further sugge ..... X X X X Extracts X X X X X X X X Extracts X X X X
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