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TMI BlogMinutes of the 34th GST Council Meeting held on 19th March, 2019X X X X Extracts X X X X X X X X Extracts X X X X ..... essal Committee for information of the Council 5. Recommendations of the Joint Committee (Fitment Committee and Law Committee) on Real Estate Sector 6. Creation of the State and Area Benches of the Goods and Services Tax Appellate Tribunal 7. Any other agenda item with the permission of the Chairperson (i): Approval of the draft Removal of Difficulty Order for giving effect to the decisions of 32 nd GST Council Meeting for MSME sector (including small traders) 8. Date of the next meeting of the GST Council Preliminary Discussion: 3. The Hon ble Chairperson welcomed the Members for the 34 th Meeting of the Council. He stated that before taking tip the Agenda items, there were some important formal items, which he wished to take up. He placed on record the appreciation of the services of late Manohar Parrikar to the GST Council. He was the Chief Minister of Goa and former Defence Minister of India and also held the portfolio of Finance Minister of Goa and attended 13 th and 22 nd Meetings of the Council. He stated that it was unfortunate that he passed away on 17 th March, 2019 and, on behalf of the Council, he placed on record his deepest condolences tow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the Hon ble Minister did not refer anything about the cost of land. The proposed change, in strike through mode, would be as follows: He suggested that these two models should be considered by the Council for being taxed only on the construction cost. The Council agreed to the suggestion. 4.2. The Secretary further informed that a communication had been received from the State of Rajasthan to make a change in the version recorded in paragraph 25.24 of the Minutes of the Hon ble Minister from Rajasthan, by substituting the expression He also suggested that criterion for affordable housing should be housing with carpet area of 100 sqm or 120 sqm and houses with a carpet area lower than this should be exempt from tax. with the following: He also suggested that it should be left to the State to decide what area may he allowed for affordable and non-affordable housing projects. The Council agreed to this suggestion. 4.3. The Hon ble Minister from West Bengal stated that during the last Meeting of the Council on 24 th February, 2019, at the fag end of the discussion on Agenda item relating to real estate sector, he had suggested to consider making the new proposed taxat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act/Rules Type Notification/Circular/Order Nos. CGST Act/CGST Rules Central Tax 9 to 14 of 2019 Central Tax (Rate) 2 of 2019 UTGST Act Union territory tax 2 of 2019 Union territory tax (Rate) 2 of 2019 Circulars Under the CGST Act 92 to 93 of 2019 ROD Orders Under the CGST Act 3 of 2019 Under the UTGST Act 2 of 2019 7.1. 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 8. The Secretary invited the Principal Commissioner (GST Policy Wing), CBIC, to brief the Council on this Agenda item. The Principal Commissioner (GST Policy Wing), CBIC, made a presentation which is att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... March, 2019. Comments received from members were examined jointly by both the co-convenors of the Fitment Committee and the amendments proposed in the draft of the Notifications, Rules and the Circulars were finalized. Thereafter, final draft notifications, rules and documents were forwarded to GST Council Secretariat on 15 th March 2019. 12.1. He further stated that that since the Model Code of Conduct due to elections was in force, a reference was made to the Election Commission on 12 th March, 2019 for their permission to implement the decisions of the 33 Council Meeting regarding the GST rates on Real Estate Sector (1% and 5%) and the issue of Removal of Difficulty Order for Composition Scheme for suppliers of service (6% tax rate). Approval from Election Commission was received on 14 th March, 2019 to implement the same. However, the Election Commission had imposed certain conditions that the decisions of today s meeting approving the procedure should be restricted to the substantive decisions already taken and no new decision could be taken. Further, it was also mentioned by them that no briefing to public or press on today s meeting should be done by any political func ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but it also laid down the method of accounting for achieving the threshold limit of 80% purchases from the Registered Suppliers. It also sought to create a new rate of 18% on supply of services other than TDR, FSI (including additional FSI), Long Term Lease by an unregistered person to a promoter with conditions as mentioned therein. Document 1A contained illustrations to transitional provisions while Document 2 sought to exempt supply of TDR, FSI (including additional FSI), Long Term Lease of land (against upfront payment in the form of premium, salami, development charges etc.). Similarly, Document 3 was for notifying tax liability on promoter under sub-Section (3) of Section 9 (RCM) on receipt of services from unregistered person, namely Transfer of Development Rights or FSI (including additional FSI) and Long Term Lease of Land (against upfront payment in the form of premium etc.). Document 4 was to notify shifting of the date on which liability to pay tax on TDR, FSI and Long-Term Lease would arise to the date of issuance of Completion Certificate for construction of Real Estate Project (REP) / Residential Real Estate Project (RREP) under Section 148 of CGST Act. Docume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remium) should be shifted from land owner to builder under Reverse Charge Mechanism (RCM) to address the problem of cash flow. Further, the builder shall be liable to pay tax on TDR, FSI and long-term lease (premium) to the extent these rights were used in construction of flats that were sold after issuance of Completion Certificate. The date on which builder shall be liable to pay tax under RCM in respect of flats sold after issuance of completion certificate was also being shifted to the date of issue of completion certificate. 12.8. The transitional issues were also explained to the Council in the presentation for computing lIC to be allowed or lapsed. he explained about the proposed amendments to GST Rules vis- -vis (a) fjnalization of lic at the end of the project as well as financial year wise and (b) apportionment of ITC based on area of commercial and residential apartments in the project. 12.9. He, thereafter, placed the drafts of Notifications, Rules and Orders as explained above for approval of the Council so that once approved, the same could be issued after vetting by the Ministry of Law and Justice, Government of India, to be effective from 01 st April, 2019. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1% and not 5%. b. Secondly, Mumbai was the most densely populated Metropolitan City having 21,205 persons per sq.km. When one talked of smart city, it implied that the work place should be near to the residence otherwise most of the time was lost in travelling. In view of the same, the Maharashtra Government had decided to provide affordable houses near the work places in Metropolitan area. However, it was difficult to stick to the guidelines of area upto 60 sqm and value upto ₹ 45 lakh, in view of Mumbai being the costliest city in India and ranking 13 th in the world. Hence, the threshold of ₹ 45 lakh for Affordable Houses may be raised to ₹ 75 lakh in case of Mumba MMR. c. Thirdly, Real Estate Sector in Mumbai was facing crisis. Only 10% to 20% flats were being sold during construction and buiiders were sitting with vacant constructed flats in their hands. If benefit of ITC was disallowed to the sector, it would go into further crisis affecting also the banks along with the builder/developer. Thus, in the transition period, should allow GST rate of 12% and 8%, as applicable, along with the ITC. Although revenue was a concern for the Council, but to move ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue and leave the decision to the States; otherwise the States would lose revenue heavily. 12.15. The Hon ble Minister from Punjab congratulated the Law Committee and the Fitment Committee on the efforts that they had made to draft the notifications. He stated that as Council Members, either we swim together or sink and expressed his apprehension that Council was about to initiate a scheme which did not seem to be workable and perhaps which an aberration was in GST with no precedence in the world. Real Estate was a complex, evasion prone sector and the proposal would have a great impact on revenue as was evident from CPWD and NBCC figures where net of ITC, tax was 5% to 7% but actual payment in case of others in cash was not even 1/3 rd of it. He observed that the difference in two was because of large amount of ITC reversal in respect of completed properties which had not been done yet. The 40-page notification before the Council with a bundle of exceptions carved out by invoking extraordinary power under various sections, like Section 9,15,16,148 would result n maintaining a new set of accounts project wise for both i.e. future as well as ongoing projects instead of registr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s might have far reaching consequences. Further, both black and white money were used extensively in this sector and the emphasis should be to generate maximum revenue without affecting the sector adversely as this sector was one of the biggest generators of employment and was in real crisis. The main reason for crisis was the perception about high rate of tax of 12% leading to many builders having stopped building while buyers had stopped purchasing. Now, after rate reduction, the builders were of the view that at least their concerns had been heard and the sector might start moving. He was of the view that it was a work in progress and the issues such as commercial construction, exclusion of land value etc. could be considered appropriately, as and when required. However, as of now, Council had to decide the issues within the guidelines of the Election Commission vis- -vis the 33id Council Meeting decisions. The GoM may continue its work on the fresh proposals and come up with its recommendations which might be considered after the election. 12.17. The Hon ble Minister from West Bengal raised a question whether the Council could digress under the Model Code of Conduct from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ouncil to long term leases for Industrial plots. 12.19. The Hon ble Deputy Chief Minister of Bihar stated that since the Model Code of Conduct was in operation, the Council had to discuss within the framework of the decisions already taken by the Council. He had also discussed the matter with various builders and stakeholders as to whether they would like to join the new proposed scheme of taxation or continue with the old tax rates with ITC. Feedback received reflected that for new projects, 1% and 5% without ITC for Affordable and non-Affordable Houses respectively seemed acceptable and Bihar agreed with Maharashtra, Gujarat, West Bengal and other States in this regard. However, for ongoing projects, reversal would be an issue creating a liquidity problem due to huge reversals that might be required as part of the proposed scheme. Thus, Council might define the term ongoing with reference to a project (whether 80% complete or just started etc.) and provide the option to address the issue. Further, he drew attention on page no.135 of the agenda note wherein as per the explanation to Section 80, the Commissioner had been given power to fix the monthly installment for payment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om West Bengal to give an option to the builders to pay tax at the old rate for the ongoing projects. Hence, he proposed that GoM could consider and recommend on the new issues raised in the meeting, which the Council Secretariat would keep track of and Council meeting could be held immediately after elections to decide the pending issues. Thus, in the meeting, the Council might decide on the specific issue of option on pro-rata ITC reversal for ongoing projects as raised by the Hon ble Minister from West Bengal. Thereafter he invited the members to provide their views on the issue of option for ongoing projects, so that it could be settled. 12.21. The Hon ble Deputy Chief Minister of Delhi sought clarification as to whether the issue of option for the ongoing projects was being referred to GoM or not, to which, the Hon ble Chairperson clarified that it was not being referred to the GoM and the Council had to take a decision on this issue. He further clarified that it was covered within the clearance of the Election Commission for the meeting since it was related to the decision on transition. The Hon ble Minister from Punjab stated that he preferred that there should not be any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try to include the entire license of the developer and at times it might be limited to a building. Hence, some standardization exercise was required for definitions including the definition of an ongoing project. The Hon ble Chairperson suggested that the definition should mean a building construction which had commenced prior to 31 st March, 2019. However, he added that the officers would clearly draft the definition so that there was no misuse. The Hon ble Minister from West Bengal stated that the existing draft notification already contained the definition of REP (Real Estate Project) which was already before the Council. However, he suggested that the final definition should be circulated to all the States so that before it was notified, all the States could give their views on the same. The Secretary stated that the definition of the Ongoing Project in the notification would be to include the building which had commenced prior to 31 st March, 2019 and would have the option whether to go for a suggested formula as drafted or continue with the old formula. The Hon ble Chairperson concluded that the GST Council Secretariat might consult with all the States before finalizing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the recommendations made by the Council in its 33 rd Meeting for lower effective GST rate on construction of houses as well as the modalities of the transition, the Council approved the following: - 13.1. Option in respect of ongoing projects : The promoters to be given a one-time option to continue to pay tax at the old rates (effective rate of 8% or 12% with ITC) on ongoing projects (buildings where construction and actual booking had both started before 01.04.2019) which could not be completed by 31.03.2019. The option to be exercised once within a prescribed time frame and where ever the option not exercised within the prescribed time limit, new rates to apply. 13.2. Applicability of new tax rates : The new tax rates to be applicable to new projects or ongoing projects which have exercised the option to pay tax in the new regime subject to decision at paragraph 13.1 above, as follows: (i) New rate of 1% without input tax credit (ITC) on construction of affordable houses to be available for, a. all houses which meet the definition of affordable houses as decided by the Council (area 60 sqm in metros /90 sqm in non- metros and value upto ₹ 45 lakh), and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al carpet area of the project. 13.5. Treatment of TDR / FSI and Long-Term Lease for projects commencing after 01.04.2019: The following treatment shall apply to TDRI FSI and Long Term lease for projects commencing after 01.04.2019: a. Supply of TDR, FSI, long term lease (premium) of land by a landowner to a developer to be exempted subject to the condition that the constructed flats are sold before issuance of completion certificate and tax was paid on them. b. Exemption of TDR, FSI, long term lease (premium) to be withdrawn in case of flats sold after issue of completion certificate but such withdrawal to be limited to 1% of value in case of Affordable Houses and 5% of value in case of other than Affordable Houses. c. The liability to pay tax on TDR, FSI, long term lease (premium) to be shifted from land owner to builder under the Reverse Charge Mechanism (RCM). d. The date on which builder to be liable to pay tax on TDR, FSI, Long Term Lease (premium) of land under RCM in respect of flats sold after completion certificate to be shifted to date of issue of Completion Certificate. e. The liability of builder to pay tax on construction of houses given to land own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to where they would want the Principal and the State Benches of the Tribunal to be located as per sub-section 6 of Section 109 of CGST Act, 2017. Accordingly, reports were received from 19 States and Puducherry. Subsequently report from one more State, viz. Andhra Pradesh (suggesting Principal Bench at Vijayawada and Area Benches at Vishakhapatnam and Tirupati) and the UT of Delhi (suggesting Principal Bench at New Delhi with no area bench) had been received. Report was awaited from the remaining 10 States. 14.2. He added that since report was pending from 10 States, these States should expedite sending the information about the number of State Benches of GSTAT required as well as the places where they were required to be set up. In the next hearing before the Hon ble Court, a suitable reply regarding setting np of GSTAT could be filed. Shri Ashok K.K. Meena, Principal Secretary, Finance Department, Government of Odisha stated that for Odisha, they would like to propose State Bench either at Bhubaneshwar or at Cuttack, and that this information would be sent in writing too. 15. For Agenda item 6 , the Council took note of the developments regarding the formation of the GS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the proposal to do one more ad hoc settlement of IGST to the States before the end of March, 2019. The Hon ble Chairperson stated that the issue would be looked into. 18.1. The Hon ble Chairperson stated that before the General Elections, this was possibly the last meeting of the Council unless it was required to meet for some emergent clarification. He observed that till now, 34 Meetings of the Council had been held and a very large number of man hours had been spent in these meetings. It was heartening to see that Members came to the Meetings with open mind and their political colours outside the Council did not impact economic decisions taken in the Council. He added that the decisions were always arrived at by consensus and where it was felt that it was difficult to reach a consensus, either decision was not taken or the issue was referred to a Group of Ministers before being taken up again for consideration by the Council on the basis of the revised formulation. He observed that the same practice was observed even today where the Council agreed to an alternative formulation from the Hon ble Minister from West Bengal regarding transition provision for taxation in the real ..... X X X X Extracts X X X X X X X X Extracts X X X X
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