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TMI BlogMinutes of the 33rd GST Council Meeting held on 20th and 24th February 2019X X X X Extracts X X X X X X X X Extracts X X X X ..... 24 th February, 2019 is at Annexure 2 . 2. A list of Officers of the Centre, the States, GST Council Secretariat and the Goods and Services Tax Network (GSTN) who attended the Meeting through video conferencing on 20 th February, 2019 is at Annexure 3 arid those who attended the physical meeting on 24 th February, 2019 is at Annexure 4 . 3. The following agenda items were discussed during the 33 rd Meeting of the Council. 1. Confirmation of the Minutes of 32 nd GST Council Meeting held on 10 th January 2019 issued by the Central Government 2. Deemed ratification by the GST Council of Notifications, Circulars and Orders issued by the Central Government 3. Decisions of the GST Implementation Committee (GIC) for information of the Council 4. Decisions/recommendations of the IT Grievance Redressal Committee for information of the Council 5. Recommendations of the GoM for boosting Real Estate Sector under GST regime 6. Draft notifications and Removal of Difficulty order giving effect to the decisions of 32 nd GST Council Meeting regarding MSME (including small traders) 7. Any other agenda item with the permission of the Chairperson i. Interim repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it was not required. He added that during the 1 st Meeting of the Council, the mechanism to resolve the issues where serious difference of opinion arises among the Members was also discussed. He further cited Rule 15 of Chapter VI of the Rules of Procedures and Conduct of Business in GST Council which deals with 'Division' and stated that it was unfortunate that the decision was being taken based on the interim report of GoM on Lottery when many Members including him were unable to attend the meeting of the GoM on Lottery. He added that the meeting of the GoM was held inspite of his and Punjab Minister's request to the Convenor of the GoM to postpone the meeting by a few days. He informed that due to health reason and doctor's advice, he was unable to travel and the Hon'ble Punjab Minister was presenting his Budget on the day of the meeting of the GoM. He stated that due to the manner in which the decision was being taken, he wanted to give advance notice to seek a division on the proposal on lottery. He stated that as per the Rules of Procedure, if a division was to be made, it should be in a physical meeting. 4.3. Shri J. Syamala Rao, Chief Commissioner, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh video conference and everyone could place his views through video conference. He added that the issue should be discussed and decided in this meeting. 4.6. Shri Rajesh Agarwal, Hon'ble Minister from Uttar Pradesh wished the Hon'ble Chairperson good health and then stated that the issues of Lottery and Real Estate were discussed in the last meeting of the Council and both should be finalized in this meeting after discussion through video conference. Shri Anurag Goel, Commissioner, State Tax (CST), Assam stated that his Hon'ble Minister had instructed to convey that both the issues, namely Lottery and Real Estate, should be discussed through video conference and decided today. Shri C.P. Singh, Hon'ble Minister from Jharkhand stated that the issue of Real Estate was very important for his State and suggested that this should be discussed and decided today, so that action could be initiated from today itself. As regards the agenda on Lottery, he stated that his State did not have Lottery. 4.7. Shri Suresh Bhardwaj, Hon'ble Minister from Himachal Pradesh stated that Real Estate was a badly affected sector in his State and suggested that discussion on the is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation and take a decision on this issue today. 4.9. Shri Shanti Kumar Dhariwal, Hon ble Minister from Rajasthan stated that the GoM on Real Estate could not discuss the issues in detail and all members of the GoM were not present in its meeting. Hence, he did not agree with the findings of the GoM on Real Estate. He added that a meeting through video conference should only be for issues of urgent nature and this was not such an urgent issue. He further stated that States were not able to properly place their views through video conference and therefore suggested to defer this agenda item to be discussed during a physical meeting. 4.10. Shri Subodh Uniyal, Hon'ble Minister from Uttarakhand stated that he supported the recommendations of the GoM on Real Estate. He further added that his State did not have Lottery. Shri Wochamo Odyuo, Additional Commissioner, State Tax, Nagaland stated that they wanted the Agenda on Lottery to be discussed and decided today. Shri Somesh Kumar, Principal Secretary (Finance), Telangana stated that his State had a robust Real Estate sector and they wanted an early decision for this sector and it should be decided today. As regards lottery, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he intention behind these Agenda items was noble but certain rough edges needed to be addressed. 4.13. The Hon'ble Chairperson thanked all the Members for their good wishes. He then stated that there were 4 to 5 formal Agenda items which could first be taken up and then the issue of real estate could be discussed. During the discussion, it could be ascertained as to what was the extent of the difference of opinion and the extent to which it needed to be reconciled. He added that there was an urgency to decide the issue of Real Estate as this related to every State and lakhs of flats were lying unsold due to taxation issues. He stated that faster these issues were resolved, the better it would be for the States too. He suggested that the formal Agenda items could be done first and then the extent of divide or consensus on this issue could be ascertained. 4.14. The Hon'ble Chief Minister of Puducherry stated that the issue of apportionment of IGST to Puducherry and Delhi for the last financial year (2017-2018) had still not been resolved. In the last meeting, the Hon'ble Chairperson had requested the Revenue Secretary to deal with this matter. The Revenue Secretary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal with the issue. 4.16. The Hon ble Deputy Chief Minister of Delhi stated that it was not a correct proposition to say that only if C AG stated that the method of devolution was wrong, then the Government of India would act. This issue should not be dependent on the C AG report as in principle, both Delhi and Puducherry should have got the fund and the money due to the States should have been distributed to them. The Hon'ble Chief Minister of Puducherry stated that the money lying in the Consolidated Fund of India during that time should have been distributed between the Centre and the States. He added that they were yet to get the settlement amount for the month of December, 2018 and January, 2019. He further stated that for a procedural mistake of the Union Finance Ministry, C AG could not say much for the money which was due to them. The mistake occurred due to transfer of the IGST amount to the Consolidated Fund of lndia. 4.17. The Hon'ble Chairperson stated that he would meet the Hon'ble Chief Minister of Puducherry and the Hon'ble Deputy Chief Minister of Delhi along with their officers and, if possible, the C AG, on any convenient date, in order to ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kumbh and other religious ceremonies during fast. Hence the State of Uttar Pradesh had requested time and again to exempt Dry Singhara from GST. He further stated that the present tax rate of 18% on handmade soap was quite high. He added that handmade soap was manufactured by small scale industries and by labour in the unorganized sector and that it was used by poor people in rural areas. Hence handmade soap should also be exempted from GST. The Hon'ble Chairperson observed that these requests should be examined by the Fitment Committee.' 6. For Agenda item 1 , the Council decided to adopt the Minutes of the 32 nd Meeting of the GST Council with the following change: 6.1. To insert a new paragraph 36.2. in the Minutes and to incorporate the following therein: 'The Hon'ble Minister from Uttar Pradesh stated that Dry Singhara was used by Sadhu-Sant, Kalpvasis and general public during Kumbh and other religious ceremonies during fast. Hence the State of Uttar Pradesh had requested time and again to exempt Dry Singhara from GST. He further stated that the present tax rate of 18% on handmade soap was quite high. He added that handmade soap was manufactured by sm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x (Rate) 1 of 2019 IGST Act Integrated Tax 1 to 3 of 2019 Integrated Tax (Rate) 1 to 2 of 2019 UTGST Act Union territory tax 1 of 2019 Union territory tax (Rate) 1 of 2019 Circulars Under the CGST Act 88 to 91 of 2019 Under the IGST Act 4 of 2019 ROD Orders Under the CGST Act 1 to 2 of 2019 Under the UTGST Act 1 of 2019 Orders Under the CGST Act 1 of2019 8.1. The Notifications, Circulars and Orders issued by the States which are pari materia with above Notifications, Circulars and Orders were also deemed to have been ratified. Agenda Item 3: Decisions of the GST Implementation Committee (GIC) for information of the GST Council 9. Introducing this Agenda item, the Secretary stated that the decisions of the GIC post the 32 nd Me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the GST Council. He further stated that so far voting bad been avoided and he intended to avoid it now too. The Hon'ble Minister from West Bengal expressed his reservation to even initiating the discussion on the agenda and stated that a substantive number of States had opposed to take up this agenda on video conference in the beginning of the meeting itself and if discussion on the agenda started, then it would mean taking a decision without having consensus. The Hon'ble Chairperson stated that this issue had been discussed in last 2-3 meetings and he meant to start the discussion so that members could express their views but it would not mean that decision would be taken without consensus. He advised that the discussion on this issue should not be vetoed. 13.1. The Hon'ble Deputy Chief Minister of Gujarat stated that as the GoM had submitted its recommendation before the Council, it should not be kept pending without discussion. Thus, discussion on it should be conducted so that the difficulty faced by this sector could be brought out before the Council. The Hon ble Deputy Chief Minister of Bihar, supported the view and expressed his agreement with all the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also be treated as sale of land since it was subjected to Stamp Duty by the States. Hence, on such long-term lease, no Service Tax was paid in the pre-GST period, as immovable property was outside the purview of Service Tax levy though some States had received notice for payment of tax on such long-term leases. He further stated that such long term leases in some cases were further sub-leased to private enterprises and the stamp duty was also paid and these enterprises partnered with States in the economic development. He referred to the General Clauses Act and stated that the definition of land includes both land and benefits arising out of land. Thus, such transactions should be kept outside GST. 13.3. The Hon'ble Minister from Punjab raised another issue that levy of tax @18% on premium for long term lease for completed property would create an absurd situation where the GST on premium would be higher than the proposed tax of 5% on the property sold after completion. Thus, the sector would be having double taxation i.e. under the State law as well as GST law and hence long-term lease and TDR be kept out of the GST for all purposes, leaving it to States until Real Estate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial property would have compliance issue. 13.6. The Hon ble Minister from Punjab queried that if these issues were yet to be decided, then how Council could take a decision today and suggested that a call could be taken later. The Hon'ble Deputy Chief Minister of Delhi drew attention towards the article written by Dr. Arvind Subramanian, former Chief Economic Advisor which stated that the entire Real Estate Sector should be brought under GST. He stated that he still supported the proposal to bring the entire Real Estate segment under GST whereas now only some part of it was coming under GST. He cautioned that this was becoming like VAT. He further stated that under construction projects, if brought under GST with levy of tax without lTC, it would lead to generation of black money. In fact, the Real Estate Sector wanted to be out of GST. He suggested to take a strong decision and bring the entire Real Estate sector under GST. The Hon'ble Minister from Rajasthan stated that when recommendation had not been examined by the Fitment Committee and the Law Committee, it was not correct to discuss such a proposal. Shri Priyavrat Singh, Hon ble Minister from Madhya Pradesh also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Keeping in mind all these viewpoints, he suggested that the Council meeting could be adjourned and reconvened as a physical meeting on the coming Monday (25 th February 2019). The Hon'ble Deputy. Chief Minister of Delhi stated that they had assembly budget session scheduled for Monday (25 th February 2019) and Tuesday (26 th February 2019). The Hon'ble Minister from Punjab proposed to continue the meeting on Sunday (24 th February 2019). The Hon'ble Minister from West Bengal stated the meeting could be convened on Wednesday / (27 th February 2019) which would give time to examine the proposal in detail by getting more data like the one highlighted by the Hon'ble Minister from Chhattisgarh. The Hon'ble Chairperson observed that data of individual builders may not be authentic as the component of cash and ITC may not be reliable; instead it was considered appropriate to analyze data obtained from NBCC which was a Government of India undertaking and they would have no cash dealing in their transactions and similarly, the States could consider obtaining data from State PWD and that the data from NBCC and PWD would be realistic to evaluate cash component for pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Scheme for services required amendment to the GST Law. However, as the Council had taken a decision to implement these two decisions from 1 st April 2019, it could only be done through a rate notification. He informed that the draft notifications were placed before a joint meeting of the Law Committee and the Fitment Committee on 15 th February 2019 which had approved the same. He stated that after the approval of the Council, this would be vetted by the Union Law Ministry before issue. 15.1. The Principal Commissioner (GST Policy Wing), CBIC further stated that like other composition taxpayers, the composition taxpayers under the new scheme would also be eligible to avail the facility of filing annual return with quarterly payment which the Council had approved in its last Meeting for Composition taxpayers supplying only goods. He stated that for this, a suitable provision in Law would need to be made. In addition, there would be a need to incorporate a provision of reversal of input tax credit for those service providers who opted for the new composition scheme. He stated that these two issues would need to be discussed by the Law Committee and then brought before the GIC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Any other agenda item with the permission of the Chairperson Agenda Item 7(i): Interim Report of GoM on Lottery 17. Discussion on this Agenda item was deferred to be taken up in the physical meeting of the Council to be held on 24 th February 2019. Agenda Item 7(ii): Proposal to extend the date for filing the FORM GSTR-3B 18. The Hon'ble Advisor to Governor (I/c Finance), Jammu Kashmir stated that FORM GSTR-3B return for the month of January 2019 was due on 20th February, 2019. However, due to the prevailing law and order situation in Jammu Kashmir, internet services, especially on the mobile phones, had remained suspended which had caused difficulty to the taxpayers in filing their return for January, 2019. He requested that the date for filing FORM GSTR-3B Return for January, 2019 for taxpayers located in Jammu Kashmir should be extended till 28 th February 2019. The Hon'ble Chairperson suggested that the request of the State of Jammu Kashmir could be agreed to. The Council agreed to the same. 18.1. The Hon'ble Deputy Chief Minister of Bihar stated that he had received information from many States that since the evening of 19 th Febr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the Constitutionally incorrect and improper dispensation adopted by the Union Ministry of Finance. 19.1. The speech also referred to the long pending request of the State of Tamil Nadu for exemption and reduction in the rates of 77 goods and 10 services including Wet Grinders, Matches, Aluminium utensils including its raw materials and job work relating to engineering works pertaining to MSME sector which provides avenues for self-employment and livelihood to crores of people. Agenda Item 8: Date of the next meeting of the GST Council 20. The Hon'ble Chairperson stated that keeping in view the sentiments expressed by the Members of the Council, the 33 rd Meeting of the GST Council was adjourned and it shall meet again in person on 24 th February 2019 in Delhi to continue discussions on the issues relating to Real Estate and Lottery. 21. The meeting ended with a vote of thanks to the Chair. Minutes of the Meeting of 24 th February, 2019 22. The thirty third Meeting of the Council reconvened on 24 th February 2019 at Vigyan Bhawan, New Delhi under the Chairpersonship of the Hon'ble Union Finance Minister Shri Arun Jaitley (hereinafter referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Fitment Committee, during the process, had stayed within the recommendations of the GoM and tried to provide only the missing details in the proposal as was pointed out during the Council meeting held on 20.02.2019. The Fitment Committee recommendations on various issues were as under: - (a) As regards GoM recommendations regarding an effective rate of tax of 5% without ITC for non-affordable residential property and an effective rate of tax @ 3% or less without ITC for 'Affordable Housing' properties, the Fitment Committee had to suggest the definition of the term 'Affordable Housing' and thereafter appropriate tax rate for Affordable and non-affordable housing. The Fitment Committee considered the various data such as percentage distribution of house units sold in metropolitan and other cities of different values and of different standard sizes as per CREDAI data; existing tax pay out in cash in the real estate sector in different categories of housing and the sectoral revenue data pertaining to 7 major zones where the Real Estate Sector was concentrated so as to come out with recommendations in relation to the issue under reference. After detailed discussio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services, excluding cement and capital goods, from registered tax payer and tax rate on resulting shortfall might be fixed at a flat rate of 18% on Reverse Charge Mechanism (RCM) basis. Cement, in case procured from unregistered person, should be charged to tax at the rate of 28% on RCM basis, even if it was within the limit of 20%, subject to other actions under the Act. Capital Goods to be procured only from registered person, and should not be used for computing the 80:20 ratio (neither in numerator nor in denominator). (e) As regards concerns regarding the disruption of credit chain, the Fitment Committee had recommended that reporting of purchases and the method of apportionment may be made through the ITC Table of GSTR 3B to make it similar to ITC procedure of initial claim and thereafter reversal. Further, where supply had been shown to be received from a GST registered person who was found non-existent, it would be deemed that the purchase had been done from a non-registered person. RCM payment to be done on pro-rata basis, every month, with final adjustment at the end of the year. Fitment Committee was also of the view that alternatively, the proposal might be simplifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed during the relevant return period). (h) The apportionment of credit between residential and commercial project would be done on self-assessment basis by the developer subject to audit and intelligence-based enforcement. Guidelines to apportion the purchases between residential and commercial projects would be as under: i. Purchases exclusively for commercial property might be apportioned to commercial projects. ii. Purchases exclusively for residential property might be apportioned to residential projects. iii. Purchases common to both commercial and residential construction might be apportioned in the ratio of the carpet area of residential and commercial projects under construction. iv. 80:20 ratio would be verified for residential segment at the end of the year and at the end of the project. v. Apportionment between immovable residential property sold before Completion Certificate and after Completion Certificate might not be required (lTC not available). (i) The date of implementation of this scheme could be 1 st April 2019. (j) As regards whether the scheme should be optional or mandatory, the Fitment Committee felt that having multiple methods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty worth ₹ 1 crore which under the old tax rate of 12% would have been sold for ₹ 1.12 crore. However, under the proposed tax rate of 5%, considering that the seller would lose the lTC of ₹ 7 lakh which became his cost, the seller would fix the base price of the unit at ₹ 1.07 crore and the buyer would have to pay a tax of 5% on the base price of ₹ 1.07 crore making the total price close to ₹ 1.12 crore again. Hence, from the point of view of the buyer, the position would remain the same as earlier and hence even if the tax rate was reduced, it would still be advantageous for him to wait for the project to be completed where he would have to pay no GST. In the restaurant sector also, similar things happened when the restaurants raised their base price after the tax on the sector was reduced to 5% without lTC. Hence, the proper solution to the problem lay in bringing both under-construction as well as completed property on the same footing. The issue related to policy decision, but States would not be impacted by it as they would get Stamp Duty. 25.4. The second issue, he explained, was that the proposed solution should be such that tax adm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme would be a nightmare to implement. 25.5. The Hon'ble Deputy Chief Minister of Bihar welcomed the Chairperson's move to call a physical meeting of GST Council in Vigyan Bhawan. He stated that his State favoured tax rate of 5% for non-Affordable category housing and 1% for Affordable Housing without the benefit of ITC. He stated that he had read the statement of the Hon ble Finance Minister of West Bengal in newspapers on the subject who had also proposed cut in tax rates for 'Affordable Houses'. Further, the inclusion of 15% commercial property being allowed in residential property development keeping in mind necessity of kirana shops, barber shops, repair and maintenance shops, etc. was a good suggestion. His State also supported the tax exemption on TDR, etc. However, as regards the issue as to whether the proposed tax rates should be optional or mandatory, he would favour that the option be given to buyers under old project to pay tax at old rate but for the new projects, there should be no option and the proposed tax rate should be compulsory. He further stated that most of the problems of the Real Estate sector would be resolved with solutions proposed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construction sector in order to bring buoyancy in the sector was a welcome step, at the same time, simplicity and equity was also desirable in taxation. As regards the tax rates, as had been pointed out by him in his letter to the Hon'ble Union Finance Minister in the immediate past, mere 0.76% of the overall tax, i.e. at most 1% was paid in cash by the builders in 'Affordable Housing' segment. Thus, the proposal of the Fitment Committee to introduce 1% tax was agreeable which was also in line with his suggestion. For non-affordable category, he had written in his letter to the Hon'ble Chairperson that keeping in view the principle of equity, the GST rate for houses in the price segment from ₹ 45 lakh to ₹ 1 crore should be at 5% without TTC while the houses above ₹ 1 crore (or maybe ₹ 1.5 crore), being rich men's purchases, be at 7% without ITC. The differential tax rates could be supported on the ground of simplicity along with equity in the economy. His suggestion to the Council was therefore, to consider two tax rates of 5% and 7% in non-affordable category as against the GoM recommendation of 5% for all houses above ₹ 45 lakh w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of a Group of Ministers or Officers who could continue to discuss these issues and resolve them in the next 4-5 months. 25.10. The Hon'ble Minister from West Bengal thereafter listed out certain complications in the proposal such as the mention of recovery from a builder where he had taken excess lTC and also the provision of mixed property having 15% commercial development under residential property. He added that such complications further gave rise to interpretation such as who would recover the lTC and how it would be recovered, how to calculate the 15% commercial portion in the mixed property, etc. and hence the complications would benefit no one other than the persons raising the disputes. Similarly, the provision of apportionment and recovery of tax under RCM vis-a-vis 80-20 condition was also questionable as to why 20% should at all be allowed to be purchased from unregistered dealers. Such a provision would be grossly misused by obtaining labour, sandstone, chips, etc. from unregistered dealers which were by themselves evasion prone. Similarly, if the Capital Goods were not to be included in 80-20 calculation, the tendency would be to lease them rather than to bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same rate as 'Affordable Housing'. Government Housing schemes at present were divided further under infrastructure status or non-infrastructure status and further four more categories, viz. up to 30 sqm, 60 sqm., 160 sqm and 200 sqm. It would be advisable to leave out the flats of areas of 160 sqm and above as also transaction value concept out of the definition of' Affordable Housing'. 25.12. The Hon ble Chairperson raised a question whether a flat of 60 sqm in a metro vis-avis a tier-IT city carried the same price. The Hon ble Minister from Madhya Pradesh stated that they were different in terms of cost; a 60 sqm flat in Cuffe Parade in Mumbai would cost more than a ₹ 1 crore whereas a flat of same size in Bhopal would cost around ₹ 25 lakh. The Hon'ble Chairperson observed that in such a situation, without a value limit, definition of Affordable House would be incomparable from city to city and prone to misuse. The Hon ble Minister from Kerala stated that apart from the things discussed so far, he also had a serious difference with the proposition that there should be a GoM for recommending as to whether to bring land into GST and did not s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the discussion regarding rate of tax and definition of 'Affordable Housing' . As regards the houses pertaining to Below Poverty Line (BPL) i.e. houses up to 60 sqm, and those LIG houses under Pradhan Mantri A was Yojana (PMAY), Rajiv A was Yojana (RAY), Jawaharlal Nehru National Urban Renewal Mission (JNNURM) scheme, beneficiary led LIG Housing scheme, concessional rate of 1% was agreeable. If the MIG-I and MIG-II flats of areas of 160 sqm and 200 sqm respectively were included in the definition, it would be injustice to the poor and hence he proposed that MIG-I and MIG-II houses be kept at the tax rate of 3%. As regards the remaining houses under non-affordable housing, 5% tax rate needed to be discussed and debated in the Council. Further, under indirect tax, people in rural areas and tier-Il cities as well as urban areas pay the same rate of tax. However, people living in metro areas got far more facilities in terms of infrastructure and governmental support, and hence the tax rate in tier-II/III cities should be lower as compared to metro areas where rate could be upto 8% to maintain an equilibrium. The transitional provisions seemed to be complicated and needed to be s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buyers were under the impression that in case they waited for the houses to be completed, they would save 7%-8% in the cost. It was also a fact that the industry could not win the confidence of the buyers looking at the state of affairs in the NCR region. An exercise done by the Fitment Committee and also by the West Bengal independently had come to a similar conclusion that 4.7%- 4.8% was the revenue neutral rate for normal under-construction houses whereas 0.8% to 1% was the revenue neutral tax rate for the Affordable Houses. GoM had recommended a tax rate of 5% and 3% for non-affordable and affordable segments respectively whereas the Fitment Committee had recommended that 5% and 1% respectively were the appropriate revenue neutral rate. NBCC and CPWD data supported the above conclusion and in the last meeting also, it was submitted by the Hon'ble Minister from Chhattisgarh that 3% tax rate in the affordable segment would push up the prices. 25.17. The Hon'ble Minister from Chhattisgarh stated that he had submitted in the last meeting that tax rate of 3% without ITC in Affordable segment would push up prices and that 1% rate was closest to the revenue neutral rate. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tegory houses. The Hon'ble Chairperson enquired as to whether there should be higher abatement for land for premium Housing since the cost of land pushed up the price of premium housing on account of it being situated in a central area with high land costs. 25.19. The Hon'ble Minister from Goa congratulated the Hon'ble Chairperson on the practical and democratic approach adopted by him and also complimented the Hon'ble Deputy Chief Minister of Gujarat for the work done by the GoM on Real Estate. He stated that tax rate of 5% without ITC for non-Affordable Housing was agreeable. Further, GoM had recommended 3% or lower GST without ITC for Affordable category which the Fitment Committee had suggested to be kept at 1%. In his opinion, in the current meeting, the Council should decide primarily on tax rates and definition of Affordable Housing. He added that the reason for such a suggestion was that this important industry had come to a grinding halt leading to unemployment. The medium and low segment builders were all suffering and were on the verge of closure whereas the big builders were surviving as they knew how to survive when the cash flow was low. He again pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -4.8 lakhs 9 % Increase/Decrease +87% -32% 25.21 . He added that with the above data, it was not clear to him as to what was the objective of the scheme. Whether it was to gain revenue or to arrive at an equitable tax rate or to encourage the rotation of properties. In his opinion and as supported by the data, the Real Estate Sector was in crisis because cash was not flowing into the economy. In fact, the data as presented by the Central Government at slide no.8 of the presentation, upon further analysis of the impact of the proposed tax, reflected that in case of High Rise Buildings, on low end finish houses as well as affordable houses, net impact of new tax was higher by 2.23% and 9.3% due to proposed GST @ 5% and 3% without JTC respectively; whereas the premium houses in High Rise Buildings became cheaper and impact of GST @ 5% Jed to reduction of cost. Similarly, in Low rise buildings, impact of GST payment in cash on low end finish houses was very nominal while the impact of GST on affordable houses in Low Rise Buildings (taxable@ 3%) was making cost higher by 7.6%. 25.22. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be left to the State to decide what area may be allowed for affordable and non-affordable housing projects. 25.25. The Hon'ble Deputy Chief Minister of Bihar stated that a lot of discussion was going on that tax on land and that associated services were not covered in GST. He pointed out that Schedule-IT of Section 7 of the GST Act laid down that lease tenancy, easement, license to occupy land, lease or letting out the building including commercial, industrial or residential complexes for business or commerce were 'services ' and hence could be taxed under GST. The point to be noted was that the Council was not taxing the land but taxing the services associated with land. 25.26. The Hon'ble Chairperson sought a clarification as to whether the activity of Government giving land on lease for 99 years was covered under GST to which JS, TRU-ll submitted that it was covered but was exempted by Sl. No. 41 of Notification 11 of 2017. Shri V.K. Garg, Adviaor, Punjab aubmitted that taxation of land was mainly covered under the Constitution of India, Income Tax Act and the Finance Act, 1994 (Service Tax now superseded by GST). As per the Entry 49 of List-ll of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avoided and also for the reason that 18% service tax and 7% Stamp Duty would come to 25% tax on leasing which was avoidable. 25.28. CCST, Gujarat explained that in Navi Mumbai Vs. Government of India case, the Hon ble High Court of Bombay held that lease should be treated as service and accordingly while introducing GST, Article 246A was amended to contain a non-obstante clause to provide powers to tax benefits arising out of land. Thus, right to tax such benefits under GST was always there and the only question was as to whether tax should be levied or not. The Hon ble Chairperson observed that the point that the Hon'ble Minister from Punjab had put forward was that one needed to avoid over-burdening of a Sector with taxes and if not so done, the larger objective of the Government to boost the economy would not be satisfied. JS TRU-ll explained that at the moment, since taxation on Real Estate Sector and land was not being dealt with holistically, the Fitment Committee had tried to address the problem of taxation of rights associated with land in a limited manner by way of exempting TDR/JDA, etc. as long as it was supplied as input to residential houses under construction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed that the criteria for the metro residential house and non-metro residential house under affordable category should not be same in the definition of 'Affordable Houses'. Thus, the definition of 'Affordable Housing' had to be evolved in such a manner which covered even residential properties in upcoming Tier-II and Tier-Ill cities of the States with a consideration for metro cities like Delhi and Mumbai also as comparing the Tier-II cities with metros might not be a fair proposition. Thus, the larger consensus seemed to be that in the definition for ' Affordable Houses', the criteria needed to be evolved by including both size and value parameters. The Hon ble Minister from West Bengal stated that keeping in view the discussions, he agreed with the view that MIG-I and MIG-II houses of area of 160 sqm and 200 sqm respectively were big and hence, could be excluded from the category of Affordable Housing. The Hon ble Chairperson continued that for metro-cities, the definition of Affordable Housing could be houses of covered area up to 60 sqm which would be approximately 800 sq ft whereas in non-metro areas, the covered area requirement could be up to 90 sqm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uxury. The Hon'ble Minister from Goa asked to consider area limit upto 100 sqm as builders often included the area of the staircase and other common areas. The Hon ble Minister from Punjab stated that data from NBCC seemed to be outdated when majority of the inputs were taxable at the rate of 28% which had since been brought down to 18%. Secretary replied that the data was the latest one and was obtained last week and it was made available item-wise and flat area-wise. 25.33. The Hon'ble Chairperson explained that apart from NBCC and CPWD, he obtained the information from certain reputed builders of Delhi and Mumbai who were operating in a structured transparent manner. They had also submitted that their Input Tax Credit came to 7% - 8% and therefore, tax rate of 5% and 3% were verified by them which seemed to corroborate the figures except the fact that the 3% on 'Affordable Housing' segment seemed to be higher. It was confirmed by not only the Fitment Committee but by the Hon'ble Minister from Chhattisgarh and other independent enquiries from the persons involved in the sector. Thus, the tax rate of 5% and 1% without lTC would be revenue neutral in the curr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of 'Affordable Housing' seemed to have not been achieved. The Hon ble Chairperson suggested that the area for Affordable Housing be fixed as up to 60 sqm for metro and houses up to 90 sqm for non-metro areas to be eligible under Affordable Housing scheme and the cost ceiling for the Affordable houses should be ₹ 40 lakh or ₹ 50 lakh as proposed by the Council Members. The Hon ble Ministers from Madhya Pradesh, West Bengal and Uttar Pradesh proposed a cost ceiling of ₹ 40 lakh whereas Hon ble Minister from Goa proposed it to be ₹ 50 lakh to avoid flow of black money into the Sector. The Hon ble Minister from Chhattisgarh suggested a limit of ₹ 45 lakh keeping in mind the financial limit of ₹ 45 lakh in the incentive scheme of the Reserve Bank of India. The Council agreed to this suggestion and also that this value limit would apply universally to metro and non-metro areas. The Hon'ble Ministers from Gujarat and West Bengal proposed that the area ceiling should be based on carpet area. The Council agreed to this proposal. 25.37. The Hon'ble Chairperson asked JS TRU-ll to explain the proposal on TDR once again. JS TRU-ll expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or optional for the ongoing projects. 26. For Agenda item 5 , the Council approved the following: a. GST to be levied at effective GST rate of 5% without TTC on residential properties outside affordable segment; b. GST to be levied at effective GST rate of 1% without ITC on affordable housing properties. c. The new rate to become applicable from 1st of April, 2019. d. Definition of affordable housing shall be: - i. A residential house/flat of carpet area of upto 90 sqm in non-metropolitan cities/towns and 60 sqm in metropolitan cities having value upto ₹ 45 lakh (both for metropolitan and non-metropolitan cities). ii. Cities covered under the definition of metropolitan cities shall be Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of MMR). e. Tax on TDR/ JDA, long term lease (premium), FST, to be exempted for such residential property on which GST was payable. For properties sold after obtaining the completion certificate, tax on TDR/ IDA/ long term lease (premium)/ FSI etc. shall be payable at the rate applicable to that segment i.e. affordable or other than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue should not be pushed in a hurry and further discussion should be allowed in the GoM. He assured that the State of Kerala would participate in the discussion in the GoM and that the GoM would come back to the Council with its recommendation. He stated that the present situation was that there was no recommendation of the GoM and, if it was to be discussed, then he would have no choice but to demand a division on introduction of this item in the agenda itself. He observed that he had ideological reservations on GST but he had always participated constructively in the deliberations of the Council and he would not like to be an initiator of a formal vote in the House. He recalled that the former Hon'ble Minister from Jammu Kashmir, Dr. Haseeb Drabu used to often talk about the spirit of this federal body and reminded that in the last meeting, the Hon ble Chairperson had also assured that he would stick to the norm of consensus in this body. 27.2. The Hon ble Minister from Goa expressed his concern on the issue of Lottery and stated that he was a member of the GoM and though the issues were elaborately discussed there, he felt that a little more time was needed to discus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the GoM due to some other commitments. He supported the proposal of the Hon'ble Ministers from Kerala and Goa. He suggested that the GoM should meet again as in the last meeting, four members of the GoM were not present. The Hon'ble Minister from Goa stated that there was a need to arrive at some consensus soon as due to high rate of tax on Lottery, unethical practices like Matka, Satta, etc. were picking up. He added that the issue should be discussed holistically and remedies arrived at. The Hon'ble Deputy Chief Minister of Delhi stated that few major States namely Punjab and Kerala could not attend the last meeting of the GoM and it was clear that more dynamic discussion was needed in the GoM before its recommendation could be brought back to the Council. 27.6. The Hon'ble Minister from Assam stated that this issue had been alive from the very first days of GST and the State of Kerala wanted to tax Lottery at the rate of 28%. He questioned as to why there should be a discriminatory tax rate regime on Lottery and as to why Lottery of Kerala (State-organized) should be taxed at the rate of 12% whereas lottery of North-Eastern States (State-authorised) should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of tax on lottery. He questioned the rationale of taxing Lottery at the rate of 12% when so many goods of common use were getting taxed at the rate of 18%. He stated that he was not requesting to apply tax rate of 12% on Lottery for North-Eastern States; rather they were requesting a uniform tax rate of 28% for all Lotteries. He stated that this issue should not be looked at from any political or election perspective. The Hon'ble Minister from West Bengal reiterated that meeting of the GoM had taken place without four members who should also participate in the deliberations and the Hon'ble Minister from Goa had also wanted to discuss some more issues in the GoM. The Hon'ble Chairperson enquired whether the State of West Bengal was running its own lottery directly. The Hon'ble Minister from West Bengal clarified that they ran a Paper lottery. He also informed that the Hon'ble Calcutta High Court had upheld the two GST rate model for Lottery. 27.10. Summing up, the Hon'ble Chairperson observed that there were two competing viewpoints on the issue of rate of tax on Lottery. One viewpoint was represented by the State of Kerala which wanted to continue wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Minister from Goa stated that this issue was very important and presence of only two members of the GoM during the previous deliberation of GoM would not do justice to the subject. He recalled that during the initial period, when the rate of tax on lottery was being worked out in the Council, the Hon'ble Minister from Kerala had even threatened to walk out and that the Hon ble Chairperson, with his sagacity, had worked out a consensus. He appealed that the Council could presently live with this consensus and the matter could be considered further by the GoM. 27.14. The Hon'ble Chairperson stated that if a State was entitled to disallow other States to run lottery, then the question was how such a power could be created. Once this was done, then other States would not be impacted. The Hon ble Minister from Kerala stated that the Central Government brought in Lottery (Regulation) Act to ensure that the revenue from Lottery accrued to the Government. He stated that gambling, lottery, etc. was allowed, even though it was a sin activity, because the revenue accrued from it went for public use. However, there were provisions in the law to ensure that it should not become an ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and as a result, revenue was not accruing to the UT. However, because of it, he could not say that walk out of GST. He observed that presently his UT was surviving due to 14% compensation. He added that they were providing land, infrastructure, etc. to the units in their Union Territory but the revenue was going to other States and he would also like to suggest that 50% of revenue arising out of such goods supplied to other States should be retained in the manufacturing State. 27.17. The Hon ble Minister from Kerala stated that the two-rate structure on lottery had been upheld by the Hon'ble Kolkata High Court and now this was again proposed to be reconsidered. He stated that there were issues like revenue of North-Eastern States. He clarified that he did not use the word middlemen for the State Ministers, but his concern was that the State was authorizing to run the Lottery which was run with a motive of profit maximization. He stated that there were several excerpts in the report of CAG regarding corruption by private people running Lottery. He clarified that he was not against the States who authorized to run Lottery but he was against those who actually ran those Lotter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther stated that the share of IGST for December 2018 and January 2019 had not been received so far. The Hon'ble Minister from Punjab also raised the issue of GST arrears which were pending to be released from Centre. 29.1. The Hon'ble Minister from Tamil Nadu circulated a written speech during the meeting where he reiterated the request of Tamil Nadu seeking intervention of the Hon ble Chairperson for early settlement of the outstanding IGST amount to the State for 2017-2018 as it would help them in tiding over the financial constraints. He stated that the net loss to Tamil Nadu from the incorrect dispensation adopted by the Ministry of Finance was estimated at ₹ 4459 crore. It was also mentioned in the written speech that his State had sent a number of proposals relating to reduction/exemption of taxes for consideration of the Fitment Committee and placing them before the Council for a decision such as reduction and exemption of tax on 77 goods and services, the proposal relating to job works and reduction in rate of tax on safety matches, etc. 29.2. The Hon'ble Minister from West Bengal raised the issue of inverted tax structure in the railway Sector whi ..... 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