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TMI BlogMinutes of the 14th GST Council Meeting held on 18 and 19 May 2017X X X X Extracts X X X X X X X X Extracts X X X X ..... he Common Goods and Services Electronic Portal for facilitating various taxpayer operations under Section 146 of the CGST Act, 2017 5. Constitution of Project Management Team, Standing Committees and Sectoral Working Groups for smooth roll-out of GST 6. Nomination of Additional Secretary, GST Council to the Board of GSTN 7. Approval of mechanism to split the MDR (Merchant Discount Rate) charges between the Centre and the States 8. Approval of amendments to the following Draft GST Rules and related Forms: i. Registration ii. Return iii. Payment iv. Refund v. Invoice, Debit/Credit Note vi. Input Tax Credit vii. Valuation viii. Transitional Provisions ix. Composition 9. Approval of the Fitment of goods and services into the various rate slabs 10. Any other agenda item with the permission of the Chairperson 11. Date of the next meeting of the GST Council 3.1. The Hon'ble Chairperson welcomed all the Members to the Council Meeting. He conveyed the sad news that Shri Anil Madhav Dave, the Union Minister for Environment had passed away on 18 May, 2017. The Hon'ble Members of the Council observed one-minute silence in memory of the departed soul. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... volved to the States. He stated that if any Value Added Tax (VAT) exemption was given to such units, the State concerned could reimburse this tax amount collected as State Goods and Services Tax (SGST). The Hon'ble Minister from Assam stated that earlier, despite devolution, the Central Government gave hundred per cent exemption. The Hon'ble Chairperson stated that the situation was different as presently the units enjoyed hundred per cent tax exemption but in the GST regime, the units under the area-based exemption would pay tax and since the Central Government could retain only 58% of the CGST collected, it would reimburse only this amount to the eligible units. 4.2 The Hon'ble Minister from Uttarakhand stated that his State could not give reimbursement of the remaining 42% of the CGST as GST was a destination based tax and they would not be able to retain any tax for the goods manufactured in their State but supplied outside the State. He recalled that under the Industrial Policy of 20 1 0, industries in his State had been assured exemption from Central Excise till 2020. The Secretary stated that the exemption had been given under the old taxation regime and the G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Council could agree to this suggestion and approve rates of simple interest per annum at the upper prescribed ceilings under the various Sections. The Council agreed to this suggestion. 7. For agenda item 2, the Council approved the following rates of simple interest per annum for the delayed payment of tax by the taxpayer and the delayed refund by the Government to the taxpayer: - SI. No. Section Rate of Simple Interest per annum approved by the Council 1 Section 50 (1) of the CGST Act/ SGST Acts and under corresponding circumstances in the IGST Act (Section 20) 18% 2 Section 50 (3) of the CGST Act and the SGST Acts and under corresponding circumstances in the IGST Act (Section 20) 24% 3 Section 54(12) of the CGST Act and the SGST Acts and under corresponding circumstances in the IGST Act (Section 20) 6% 4 Section 56 of the CGST Act and the SGST Acts and under corresponding circumstances in the IGST Act (Section 20) 6% 5 Proviso to Section 56 of the CGST Act and the SGST Acts and under corresponding circumstances in the IGST Act (Section 20) 9% Agenda Item 3: Finalization of the rate of tax to be collected at source under Section 52 of the CGS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration, payment of tax, furnishing of returns, computation and settlement of integrated tax, electronic way bill and for carrying out such other functions and for such purposes as may be prescribed. " 9.2. The Secretary proposed that the Council might approve to issue a notification to the effect that www.gst.gov.in shall be the Common Goods and Services Tax Electronic Portal specified under Section 146 of the CGST (which would also be applicable to the IGST Act by virtue of Section 20 of the IGST Act) and the SGST Acts, and Section 21 of the UTGST Act and that this website was being managed by the Goods and Services Tax Network on behalf of the Government. The Council approved this proposal. 9.3. For agenda item 4, the Council approved the proposal to issue a notification that www.gst.gov.in shall be the Common Goods and Services Tax Electronic Portal specified under Section 146 of the CGST and the SGST Acts and Section 21 of the UTGST Act, which is being managed by the Goods and Services Tax Network on behalf of the Government. Agenda item No.5: Constitution of Project Management Team, Standing Committees and Sectoral Working Groups for smooth roll-out of GST: 10.1. Int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) Law Committee (i) Finalizing all the Rules (ii) Drafting of all Non-Tariff (NT) notifications (iii) Trouble shooting and simplifying business process design (iv) Examining all representations of trade on Legal issues (b) Information Technology Committee (i) Monitoring IT preparedness of GSTN (i) Monitoring IT preparedness of Centre and States (ii) Monitoring linkages between various networks (c) Single interface Committee (i) Coordinating migration and verification of past credit (ii) Rules for single interface including in the IGST in coordination with Law Committee (iii) State-wise coordination teams for assigning taxpayers (iv) Any other administrative issue needing resolution at the State level (d) Fitment Committee (i) Recommending rates of taxes on all commodities and services (ii) Recommending interest rates under various Sections and Rules (iii) Recommending Composition rates (iv) Recommending any other rate provided in Act or Rules (v) Examining all representations of trade on rate and other issues (e) Publicity and Outreach Committee (i) Publicity in print, electronic and social media (ii) Outreaching taxpayers (iii) Circulati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Council approved the proposal. He further stated that during the meeting of the officers, Joint Commissioner, Commercial Taxes, Government of Sikkim had suggested to add another sector, namely Hydro projects, but after discussion, it was felt that this could be covered under the sector relating to 'Big Infrastructure'. The Hon'ble Minister from Haryana suggested to add Housing Construction as an additional sector. The Secretary observed that this could also be covered under the sector 'Big Infrastructure'. The Council agreed to this suggestion. 10.6. The Secretary informed that the States had been requested to send nominations for the Project Management Team, Committees and Sectoral Working Groups but only few nominations had been received and that many nominations were not at sufficiently senior level. He stated that during the meeting of the officers of the Centre and the States held on 17 May, 2017 in Srinagar, it was suggested that there should be one member from each of the four zones of the country and that in this view, there should be four members from the States in the PMT. The Council agreed to this suggestion. As regards the constitution of the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tees and the Sectoral Working Groups after incorporating further nominations received from the States and carry out changes in scope and nomenclature of Committees/Groups, wherever required. (iii) To include Power Sector and Housing/Construction in the 'Big Infrastructure' Sectoral Group. (iv) Decisions of the GST Implementation Committee shall be circulated to the Council. Agenda Item 6: Nomination of Additional Secretary, GST Council to the Board of Goods and Services Tax Network (GSTN): 11.1. Introducing this agenda item, the Secretary informed that a position of Director on the GSTN Board of Directors had been vacated upon demission of office of Member Secretary, Empowered Committee of State Finance Ministers (EC) by Shri Satish Chandra, who ceased to be a Director with effect from 31 st March, 2017. He further stated that after the passage of the 101st Constitutional Amendment Act, GST Council was the Federal Constitutional Body spearheading the policy initiatives relating to GST roll-out in the Country, including the passage of the GST Acts and Rules. He stated that GSTN shall be asked to amend its Articles of Association (AoA) to the effect that all references to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onment processes are finalized. 12.2. The Secretary informed that this agenda item was discussed during the meeting of the officers in Sri nagar on 17 May, 2017 and some States like Haryana, Assam, Rajasthan and Odisha had not favoured putting additional financial burden on the State Governments. He further stated that some States desired to know the likely financial burden on the State Governments if the MDR charges for payment of GST by debit card up to Rs.l lakh was to be borne by the State Governments and the Central Government. He also informed that Uttar Pradesh had suggested that the Central Government could bear the entire charge for the first two years and then the States could take a call whether to bear this charge. The Hon'ble Minister from Andhra Pradesh stated that after demonetisation, the Central Government had been giving incentives to make payments by credit and debit cards and the State Governments should not be given this burden. The Hon'ble Deputy Chief Minister of Delhi expressed that as Government ofIndia had been bearing this expense, it should continue to do so. The Hon'ble Minister from Assam pointed out that this facility was being extended o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gistration rules to bring it in consonance with FORM REG RULE 12. (ii) The word "Registration. 16" may be replaced with "Registration17" in Rule 1 of Composition Rules. (iii) Under Rule 7(1) (i) of the ITC Rules, {'F' is the total turnover of the registered person during the tax period"} may be replaced with {'F' is the total turnover in the State of the registered person during the tax period"} to bring in more clarity. 13.2. Starting the discussion on this agenda item, the Hon'ble Minister from Uttarakhand stated that Rule 4 of the Registration Rules provided for separate registration for multiple business verticals within a State and enquired as to what treatment would be given to a trader who sold various items like cloth, sanitary ware, hosiery, etc. when his combined turnover exceeded ₹ 20 lakh. The Secretary stated that the trader would be required to take only one registration and that if he was only making supplies to consumers (B2C), he would not be required to file invoice-wise details. He stated that majority of the dealers would need to file a very simple return as their supplies would only be B2C. The Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be one registration for all businesses operating under a common PAN (Permanent Account Number) in a State and that they would all pay GST. He added that in certain circumstances, different business verticals could have different GSTIN numbers, within the same company. The Hon'ble Minister from Uttarakhand raised another issue that a manufacturer of tractor would use different mechanical and electrical parts falling under different HSN (Harmonised System of Nomenclature) Code and how the manufacturer of tractor would declare the same. Dr. P.D. Vaghela, Commissioner of Commercial Tax (CCT), Gujarat, clarified that inputs would be accounted separately and ITC would be available on such inputs and the final product (tractor) would be declared separately under a different HSN Code. The Hon'ble Minister from Uttarakhand also raised the issue of difficulties that job workers for jewellery would face in declaring the HSN Code. The Secretary stated that this issue could be discussed when fitment rate for gold was discussed which was not in the agenda item for this Meeting. 13.4. Shri Somesh Kumar, Principal Secretary (Revenue), Telangana, raised a few questions relating to the Regi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applying this lower threshold at the all-India level as they felt that this would considerably increase the compliance burden on the tax payers as well as the buyers. He suggested that there could be other ways of addressing this issue like setting up good quality outlets for high value consumer products in the smaller States of the North East, educating the customers to have their address recorded in the invoice when buying from outside the State even for purchases lesser than ₹ 50,000 and the possibility of recognizing the right of non-tribal traders to set up retail stores. 13.6. The Hon'ble Deputy Chief Minister ofManipur stated that the cost of goods in the North-Eastern States was high due to high transportation cost and lack of developed roadways and this prompted the persons from the North-Eastern States to buy goods from Silchar or Guwahati. He stated that an exception should be made in the Rules regarding the monetary limit for recording the address of the purchasers in B2C transactions. The Secretary stated that the issue did not relate to the North-Eastern States but to its neighbouring States where such an exception in the relevant Tax Invoice Rules would ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Pradesh suggested that there should be a provision in the Invoice Rules that the address of the buyer would be recorded in an invoice where the buyer insisted on it. The Secretary suggested that a provision to this effect could be made in the Tax Invoice Rules. The Council agreed to this suggestion. The Council approved the other Rules. 14. For agenda item 8, the Council approved the GST Rules and the related Forms on (i) Registration; (ii) Payment; (iii) Refund; (iv) Invoice, Debit/Credit Note; (v) Input Tax Credit; (vi) Valuation; and (vii) Composition with the following amendments: (i) The word "ninety days" to be replaced by "thirty days" in Rule 9(3) of the Registration Rules to bring it in consonance with FORM REG RULE 12; (ii) The word "Registration. 16" to be replaced with "Registration. 17" in Rule 1 of the Composition Rules; (iii)Under Rule 7(1)(i) of the ITC Rules, to replace the expression "{'F' is the total turnover of the registered person during the tax period}" with the expression "{'F' is the total turnover in the State of the registered person during the tax period}"; (iv) To inser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of services, the Committee largely followed the following principles while recommending the GST rate structure: (a) continuance of exemption for certain services, so as to maintain present tax incidence on services; (b) To suggest broadly the same GST rate for different modes of transportation services, more or less at the present rates [lower than the general standard rate of 18% for services] because the inputs for transportation sector such as fuel, etc. were not in GST; (c) Withdrawal of exemptions in certain cases where such exemptions had been extended because of lack of jurisdiction; (d) Withdrawal of exemption in certain cases, like Works Contract [a composite supply of service]. The Committee had recommended withdrawal of present service tax exemptions, keeping in view the fact that sale of goods in these contracts would now attract GST and it might not be possible to segregate the value of services from the total value; (e) For ensuring similar GST rates, when similar supplies could be treated as supply of services or goods [depending on facts of the case] so as to remove tax arbitrage [For example, transfer of right to use goods is a service under GST law (Schedule I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be taxed under reverse charge. He stated that all these tables and the Addendum to the detailed agenda notes of Agenda Item 9 circulated before the Council Meeting had been discussed during a meeting with the officers of the Centre and the States held on 17 May, 2017 in Srinagar. He added that based on the suggestions agreed upon during the officers' meeting, rates on certain goods/services were proposed to be modified as compared to what was proposed in the original agenda notes and that a 4-page addendum was circulated suggesting these modified rates during the meeting today (enclosed as Annexure 4 to the Minutes). 15.5. Starting the discussion on this agenda item, the Hon'ble Minister from Kerala made a general point that 70% of the VAT revenue came from goods that attracted the VAT rate of 14.5% and that the same weight ofthe goods should have been there for 28% tax slab under GST but this weight was only 20%. He observed that coverage of goods under the exemption list was understandable as it was meant to keep the Consumer Price lndex (CPI) basket low but for intermediate goods, there was a drastic reduction in the incidence of tax as it was being brought to 18%. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to reduction in tax rate and improved compliance. He suggested that the presently proposed GST rates should be adopted and could be watched for a year or two and if there was a serious shortfall of revenue, a call could be taken to increase the tax rates. The Hon'ble Chairperson stated that when Constitutional amendment was being undertaken, there was a concern diametrically opposite to the one expressed by the Hon'ble Minister from Kerala and that was to keep the GST rates low and to put a cap of 18% in the Constitution itself He stated that the whole issue of having a band of tax rates arose from this concern and there was an effort to reduce the number of goods falling in the band of 28% rate. He further stated that coverage of goods in the 28% rate band had to take account of the current reality, and some of the goods which were considered luxury earlier, were no longer luxury goods, and therefore, kept at 18%. He further stated that the concern regarding fall in revenue due to lowering of rates were legitimate as every Finance Minister needed to balance his budget. He stated that how much would be gained from buoyancy was a judgment call to be taken. Further, there w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . He further stated that in general, he had no objection to the proposed fitment of goods and services into various rate slabs under GST on the basis of the guiding principle laid down during the 4th GST Council Meeting (held on 3-4 November, 2016). He stated that on certain specific products, he would make suggestions on the basis of representations from the trade and industry. Discussion on GST rate for Goods 15.9. Starting the discussion on the proposed rates of GST on goods, the Secretary stated that discussion would be limited to those goods in each Annexure where an Hon'ble Member wanted the proposed rates to be revisited. He stated that except for such goods, the proposed rates for the rest of the goods in various Annexures could be deemed to be approved by the Council. The Hon'ble Chairperson stated that any suggested modification in rates should be discussed in terms offive criteria namely, (i) revenue impact; (ii) impact on domestic manufacturing; (c) the existing combined rate of tax; (iv) the relevance ofthe product for consumers; and (v) optical perception of GST. The following goods were mentioned Annexure-wise by the Hon'ble Members for discussion: - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il rate. The Secretary stated that rusk was modified bread, and therefore, it was justified to levy tax at the rate of 5%, as proposed. The Council agreed to this suggestion. (v) 'Seviyan'(Vermicelli): The Hon'ble Minister from Uttarakhand suggested that it should attract Nil rate of GST. The Secretary stated that in most States, it attracted VAT at the rate of 5%, and therefore, it should not be brought under the Nil rate. The Council agreed to this suggestion. (vi) 'Gur' (Jaggery): The Hon'ble Minister from Uttarakhand suggested that gur should attract Nil rate. This proposal was supported by the Hon'ble Chief Minister of Puducherry on the ground that this product came from the tribal belt. The Hon'ble Ministers from Telangana and Uttar Pradesh also supported this proposal. After discussion, the Council agreed that gur (jaggery) would attract Nil rate of GST instead of the presently proposed rate of 5%. (vii) 'Khandsari': The Hon'ble Minister from Telangana stated that Khandsari should be taxed at Nil rate of duty. After discussion, the Council agreed to tax it at the rate of 5% as proposed in the agenda notes. (viii) Low priced Biscuit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce would be borne by the consumers, and therefore, it was important to see who were the consumers of the product. The Council agreed not to change the recommended rate for zari at 5%. (xii) 'Chikan': The Hon'ble Minister from Uttar Pradesh suggested that chikan should be kept under the exempt category. The Secretary stated that though chikan was a local produce, it was largely used by the rich class and when sari and dhoti were proposed to be taxed at the rate of 5%, it would not go down well with the people to exempt chikan products. The Hon'ble Minister from Bihar stated that too many exemptions would lead to problem of misclassification. The Council agreed to this suggestion and not to provide any special dispensation for chikan. (xiii) Handloom and handicrafts: The Hon'ble Minister from Jammu & Kashmir suggested that handloom and handicrafts should be kept in the exempt category. The Hon'ble Ministers from Assam and Meghalaya supported this proposal. The Hon'ble Minister from Andhra Pradesh stated that such products were exempted from VAT and imposing GST on them would create problems. The Hon'ble Minister from Goa supported the proposal to ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... products were used in handicrafts. The Hon'ble Deputy Chief Minister of Manipur also suggested to exempt bamboo matting. The Hon'ble Minister from Tripura suggested that bamboo and bamboo products should be kept under the exempt category. The Secretary stated that the GST rate for these products falling in Chapter 46 was discussed during the meeting of officers of the Centre and the States on 17 May, 2017 in Sri nagar and it was agreed at the officers' level that rather than putting them under exempt category, they could be taxed at the rate of 12% instead of the earlier recommended rate of 18%. He added that this item was included in the addendum circulated in the Council on 18 May 2017 after the meeting of the officers of the Centre and the States in Sri nagar (Annexure 4 of the Minutes). The Council approved the revised proposed rate. (xvi) Bamboo floor tiles and bamboo panels: Ms. Brahmneet Kaur, CCT, Tripura, stated that bamboo floor tiles and bamboo panels should also be taxed at Nil rate or at the rate applicable for other bamboo products. The Secretary pointed out that these products were mostly used by rich people in bungalows. After discussion, the Council ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exempt. (xxii) Dry fish, salted and fermented: The Hon'ble Minister from Meghalaya suggested that this product should be kept in the exempt category. The Hon'ble Deputy Chief Minister of Manipur supported this proposal. He stated that dry fish, fermented fish and smoked fish were sold by women in the unorganised sector and it would be difficult to administer tax on these goods and would lead to high cost of collection. The Secretary stated that dry fish was an industrial product which required processing and processing industry would get input tax credit which could be passed through if the product was taxed at the rate of 5%. He further pointed out that dry fish sold by fishermen would not attract GST because of very low turnover (below ₹ 10 lakh in Special Category States and ₹ 20 lakh in other States). He further stated that as fish would be transported to the North-Eastern States from other States like Andhra Pradesh, there would be tax on supply of transport services which could also be passed through by keeping a low tax of 5%. The Council agreed to this suggestion. (xxiii) Indigenous hand-made musical instruments: The Hon'ble Minister from Uttar Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and Vietnam. The Hon'ble Minister from Jharkhand also supported the proposal to keep sago under the exempt category. after discussion, it was agreed that it need not be kept under the exempt category as it was a processed product and by exempting it, local produce would not be able to face competition with imported goods. The Council agreed that it might be kept at the proposed rate of 5%. (xxvii) Honey: The Hon'ble Minister from Telangana stated that honey which was proposed at 5% rate was sold by co-operative societies and it should be kept under the exempt category. The Secretary stated that honey sold by well-known brands like Dabur carried out value addition and also incurred advertisement costs. He stated that if honey was exempted, the companies supplying them would be denied input tax credit for taxes paid during value addition and advertisement. He suggested that natural honey other than that put up in unit container and bearing a registered brand name might be kept at Nil rate whereas natural honey put up in unit container and bearing a registered brand name might be taxed at 5%. The Council agreed to this suggestion. (xxviii) Chemical contraceptives: The Hon& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be more than 3% and that if the cost of local agricultural implements was increased, this would encourage imports. After further discussion, the Council agreed to discuss this issue again. (xxxii) Hand tools: The Hon'ble Minister from Rajasthan stated that non-electrically operated hand tools i.e., gurmala, karni, sawal, gunia, etc. should be under the exempt category. The Secretary clarified that agricultural hand tools falling under HS Code 8201, namely, spades, shovels, mattocks picks, hoes, forks and rakes; axes, bill hooks and similar hewing tools; secateurs and pruners of any kind; scythes, sickles, hay knives, hedge shears, timber wedges and other tools of a kind used in agriculture, horticulture or forestry were already kept in the exempt List. (xxxiia) Cancer drugs: The Hon'ble Minister from Maharashtra stated that 118 drugs for cancer should be kept under exempt category instead of the presently recommended 5% List. The Hon'ble Deputy Chief Minister of Gujarat suggested that the generic medicines should be taxed at Nil rate of GST. The Hon'ble Deputy Chief Minister of Delhi suggested that other than those medicines which were exempt, all others should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assistive devices in the exempt category. (xxxvii) Kerosene stove: The Hon'ble Deputy Chief Minister ofGujarat suggested that kerosene stove hould be charged at Nil rate of tax. However, after discussion, Council agreed to keep the tax rate at 12%. (xxxviii) Areca nut: The Hon'ble Minister from Karnataka stated that fresh areca nut harvested from trees was proposed to be taxed at Nil rate, the dry and processed areca nut was proposed to be taxed at the rate of 12%. He stated that the weighted average of the combined tax incidence today would not be more than 5%. He stated that farmers sold dried areca nut and its rate of tax should not be more than 8% The Hon'ble Minister from Meghalaya stated that areca nut was a perishable agricultural product and green areca nut should be taxed at zero per cent and dried areca nut should be taxed at 5%. The Secretary stated that in Chapter 8 of the HSN, a carve out could be considered for dried, unprocessed areca nut to be taxed at 5% which should not be called betel nut. Accordingly, it was proposed that dried areca nuts, whether or not shelled or peeled, might be kept at 5%. The Council agreed to this proposal. Annexure II (Li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r semi-mechanised safety matches as in a multi-stage levy like GST, it would not be possible to verify this aspect at all stages and this would create disputes at the field level. The Council agreed not to have a separate rate of tax for semi-mechanised safety matches. (xliv) 'Namkeen' including 'Khakhra': The Hon'ble Minister from Rajasthan stated that namkeen (bhujia) should not be taxed at the rate of 18% and that it should be kept in the 5% category, particularly when 'rasagulla' was to be taxed at the rate of 5%. He added that namkeens sold by multi-national companies could be taxed at a higher rate. The Hon'ble Deputy Chief Minister of Gujarat suggested that the Gujarati namkeen, khakhra, should be kept under the exempt category as it was consumed by common people. The Secretary stated that khakhra was taxable at the same rate as other namkeen which was proposed to be taxed at the rate of 18%. The Hon'ble Chairperson stated that the packed namkeen was sold by big brand owners and they should be taxed whereas the smaller suppliers would come within the exemption limit of ₹ 20 lakh. The Hon'ble Deputy Chief Minister of Gujarat very str ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the cost of power generation. He added that coal was also levied to a cess of ₹ 400 per metric tonne. He stated that raising the rate of tax on coal would only increase the subsidy burden of the Governments as the Electricity Boards would seek more subsidy. He, therefore, suggested to keep the rate of tax on coal at 5%. The Council agreed to this suggestion. The Hon'ble Minister from Chhattisgarh suggested that there should be a separate classification for coal used captively for generation of power. The Hon'ble Chairperson stated that this would pose challenge for levying the tax. After discussion, the Council agreed not to have a separate classification for coal used captively for generation of power. Annexure III (List of goods at 12% CST rate): (xlviii) Plywood and particle board: The Hon'ble Minister from Chhattisgarh stated that plywood and particle board should be kept in the 12% List instead of the presently proposed tax rate of 28%. The Hon'ble Deputy Chief Minister of Del hi stated that if one wanted to prevent wood to be cut, then boards based on bagasse and fibre should be encouraged. The Secretary explained that only specified boards includi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quito net: The Hon'ble Minister from Tamil Nadu stated that this was a life-saving product and was used by the common man and due to these considerations, no VAT was charged on this product in his State. He suggested that keeping in mind the availability of lTC, mosquito net should be levied to tax at the rate of 5% instead of the proposed 12%. It was suggested to keep this item in 12% bracket at par with fish net. The Council agreed to this proposal. (I) Mobile phone: The Hon'ble Minister from Chhattisgarh stated that in his State even when duty on mobile phone was reduced to 12%, there was no reduction in the price of mobile phones but there was substantial loss of revenue to the State. He suggested that tax rate on mobile phones should be kept at either 18% or 28%. The Hon'ble Minister from Uttarakhand suggested to increase the rate of tax on mobile phone from 12% to 18%. The Hon'ble Minister from Kerala suggested that mobile phone should be taxed at the rate of 18%. The Secretary stated that the present combined incidence of tax on mobile phone was around 14% and therefore, it was put in the rate slab of 12%. He stated that this product was also very important ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to fruits, nuts and other edible parts of plants, prepared or preserved, by vinegar or acetic acid which fell under Chapter 20 whereas the entry at Sl.No.4 of Annexure II referred to fruits and nuts provisionally preserved (for example, by sulphur dioxide gas or in brine) which fell under Chapter 8. He stated that both were distinct entries under different Chapters of the Tariff. (lvi) Inorganic and organic chemicals: The Hon'ble Deputy Chief Minister of Del hi stated that these being input materials, should be taxed at the rate of 12%. The Secretary stated that it was proposed to tax all intermediate products at the standard rate of 18%. The Council agreed to this suggestion. (lvii) Betel nut product known as 'Supari': The Hon'ble Chief Minister of Puducherry suggested to raise its rate from 18% to 28%. After discussion, the Council agreed to keep the tax rate at 18%, since it was an evasion prone item. (lviii) Insecticide and rodenticide: The Hon'ble Chief Minister of Puducherry suggested that these products should be taxed at the rate of 5%. The Secretary stated that such a rate structure would lead to a lot of input tax credit overhang and would lead to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for recycled products. (lxii) Sanitary napkins and tampons: The Hon'ble Minister from Kerala suggested that the rate of tax on these products should be reduced to 12%. The Secretary stated that these goods had already been moved to the List of goods under 12% rate slab. The Council agreed to this rate. (lxiii) Arms and ammunition: The Hon'ble Minister from Kerala stated that the rate on arms and ammunition should be kept in the square bracket. After discussion, the Council agreed to the rate as proposed in the agenda notes (i.e. 18% in Chapter 93). (Ixiv) Packed and branded cereals: The Hon'ble Minister from Kerala observed that many goods proposed to be exempted from tax were also supplied by big enterprises and therefore, branded products packed in unit containers should be taxed at the rate of 5%. The Hon'ble Chief Minister of Puducherry stated that branded cereals like packed basmati rice should be levied to tax. The Secretary stated that the Fitment Committee had discussed whether food grains and cereals packed in unit containers and branded should be taxed at the rate of 5% instead of keeping them at Nil rate. He suggested that these goods could be taxed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that all big brands selling packed and branded primary commodities should be subject to tax. The Hon'ble Deputy Chief Minister of Delhi stated that more and more consumers were moving towards buying packed and branded cereals. The Hon'ble Minister from Haryana suggested that decision on this issue could be postponed to a later date. The Council agreed to this suggestion. (Ixv) X-ray plates and films: The Hon'ble Deputy Chief Minister of Gujarat suggested that the rate of tax on x-ray plates and films for medical use should be reduced from 18% to 12% as bulk of these goods were used by Government hospitals. After discussion, the Council agreed to reduce the rate of tax on x-ray plates and films for medical use to 12% while retaining the proposed rate of 18% for x-ray films for other use. (Ixvi) Stent for heart surgery: The Hon'ble Deputy Chief Minister of Gujarat suggested that stent for heart surgery should be taxed at the rate of 5%. The Secretary clarified that coronary stent falling under Chapter 90 was already proposed to be taxed at the rate of 5%. The Council approved this proposal. (lxvii) Bio-diesel: The Hon'ble Deputy Chief Minister of Gujarat sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterials were proposed to be taxed at the rate of 28% and suggested that there should be a lower rate of tax for roofing materials like corrugated sheets of steel or asbestos. The Secretary stated that it would not be advisable to have separate rates for certain building materials. The Council agreed to this suggestion. (lxxiii) Marble and granite slabs: The Hon'ble Minister from Rajasthan stated that these products were no more luxury items, and therefore, both should be taxed at the rate of 12%. He further stated that this sector gave large scale employment to people. The Hon'ble Chairperson observed that marble and granite was largely used by rich people. The Hon'ble Minister from Rajasthan stated that there were different grades of marble from high to the low end and it was used by all sections of the society. After discussion, the Council agreed to keep the rate of tax on marble and granite slabs at 28%. (lxxiv) Motorcycles: The Hon'ble Chief Minister of Puducherry stated that motorcycles were used by poorer and mid-income sections of the society, and therefore, they should be taxed at a lower rate. The Secretary stated that the combined rate of taxation on m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and engine capacity of less than 1200 cc for petrol vehicles and of less than 1500 cc for diesel vehicles) and 1% cess on hydrogen vehicles based on fuel cell technology of length less than 4 metre (SI.No.54 of Annexure Xl) could be removed. The Secretary stated that large hybrid vehicles could be charged to Compensation Cess at the same rate (15%) as normal cars. The Council agreed to this proposal. The Hon'ble Minister from Haryana stated that one option of levying cess on motor vehicles could be on the basis of price bands instead of qualitative bands. He observed that criteria like ground clearance could lead to evasion of tax and that a price based rate structure could be adopted. The Secretary stated that due to the past experience of misuse of price based taxation system, certain objective criteria had been adopted for taxation of various categories of cars. The Hon'ble Minister from Haryana stated that some manufacturers might maintain the length of car applicable for lower rate of tax but sell it at a high value and that this would lead to loss of revenue. The Secretary stated that it was not advisable to change the criteria of taxation at this stage and suggested ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inutes with the following modifications: - GST Rate on Goods (i) Suji: Other than put up in unit container and bearing a registered brand name, to be charged to Nil rate of tax instead of the proposed 5% and suji put up in unit container and bearing a registered brand name to be charged at the rate of 5%; (ii) Dalia: Other than put up in unit container and bearing a registered brand name to be charged to Nil rate of tax and dalia put up in unit container and bearing a registered brand name to be charged at the rate of 5%; (iii) Gur(jaggery): to be charged to Nil rate of tax instead of the proposed 5%; (iv) Low Priced Biscuits: Council to discuss it separately along with the rate of tax on biscuits; (v) Silk yarn, cotton yarn in hank: Council to discuss separately the goods falling in the entire textile chain; (vi) Sewing thread: Council to discuss separately the goods falling in the entire textile chain; (vii) Chikan: not to provide any special dispensation for chikan; (viii) Handloom and handicrafts: Council to discuss separately the goods falling in the entire textile chain and the handicrafts; (ix) Fish net and fish net fabric: to be charged at the rate of 12%; (x) Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to. He stated that after discussion during the meeting of officers of the Centre and the States held on 17 May, 2017 in Srinagar, it was agreed to add a few more services to be exempt under GST as they were exempted under the existing Service Tax regime and was circulated to the Council on 18 May, 2017 (Annexure-4 of the Minutes). The Council; thereafter, took up for consideration the various Annexures VI to X and Annexures XIII and XIV relating to services contained in the detailed Agenda Notes for agenda item 9. Annexure VI (List A-l): 19.1. The Secretary stated that in List A-I of Annexure VI, it was proposed to continue with 54 exemptions under GST that were available under the Service Tax. He stated that one additional exemption was proposed in respect of services provided by GSTN to the Government. The Hon'ble Minister from Chhattisgarh suggested that the Local Self Government should also be exempt from GST. The Hon'ble Minister from Punjab raised an apprehension that security services provided to the Chief Ministers and the Governors would become taxable. The Hon'ble Deputy Chief Minister of Gujarat expressed an apprehension that functions of local bodies like givi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tary stated that if exemption was given in respect of fee for giving liquor licence, then there would be very weak justification for charging tax from telecom operators on spectrum fees. The Hon'ble Minister from Bihar stated that tax on liquor fee should not be exempted as this tax would now be shared with the Central Government. The Hon'ble Chairperson stated that 42% of this collection would also be shared with the States. 19.3. The Hon'ble Minister from Jammu & Kashmir raised an issue as to what was the broad policy objective for charging tax on Government services. The Secretary stated that tax was charged on big items like giving right-of-way for laying pipeline or sale of spectrum. The Advisor (GST), Punjab, stated that a distinction should be made between the Constitutional power to levy a tax (like entry 51 and 56 of List II of Schedule 7 of the Constitution) and other taxes. The Hon'ble Deputy Chief Minister of Gujarat supported the levy of tax on the fee for giving liquor licence as this would be distributed to all the States. The Hon'ble Minister from Assam stated that no exemption should be given for tax on fee for liquor licence as this would send a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consumers would bear the additional cost of the tax and the Government should not seek any exemption for the same. Shri Navin Kumar Choudhary, Finance Secretary, Jammu & Kashmir, stated that licence fee was only about 20% of the total amount collected from alcohol for human consumption and this could easily be passed on to the consumer. The Secretary informed that service tax was already leviable on license fee for liquor with effect from 1 April, 2016. The Council agreed to continue this tax on licence fee for liquor in the GST regime also and not to exempt it. 19.5. The Hon'ble Minister from Madhya Pradesh stated that an exemption should also be given for services provided for religious pilgrimage such as Kailash Mansarovar Yatra. The Secretary clarified that it was already exempt. Shri R.K. Tiwari, Additional Chief Secretary, Uttar Pradesh, suggested that services given by State bodies like State Co-operative Banks should also be exempted from tax. The Secretary stated that in the Addendum to the agenda notes for Agenda Item 9 circulated on 18 May, 2017, there was an entry to exempt services by way of collection of contribution under any scheme of the State Governments an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om Goa suggested that the exemption limit for room rent could be made ₹ 750 per day. After further discussion, the Council agreed that the exemption limit for room rent of hotels would be ₹ 1,000 per day. 20.3. The Hon'ble Deputy Chief Minister of Delhi expressed his reservation at the proposed removal of exemption on exhibition of cinematographic film (SI.No.9). He stated that this exemption was needed to promote regional films, parallel cinema, one-day events, etc. and suggested that entry at Sl.No.9 should be modified to permit exemption to such films so that viewership of films with a social message could be encouraged. He further stated that one-day events like marathon race etc. was a way of life in the country and these should be encouraged. The Secretary stated that as the Entertainment Tax, Luxury Tax and Service Tax were getting subsumed, the Fitment Committee suggested to fix a tax rate on the basis of these taxes. He stated that if States wanted to promote a particular film, they could give reimbursement of SGST portion of the tax. The Hon'ble Deputy Chief Minister of Delhi stated that theatre and cultural activity was a different dimension of soci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes (Annexure 4 of the Minutes) in which some exemptions were proposed to be restored and it was also provided that services by way of collection of contribution under any scheme of the State Governments could also be included in the exemption list after consideration by the Council. The Council approved List A - 3 of Annexure VI along with the Addendum circulated on 18 May, 2017, Annexure VI (List B): 22.1. The Secretary explained that List B of Annexure VI contained those items on which service tax exemption was recommended to be withdrawn or modified by the Fitment Committee but which needed to be reviewed by the Council. The Hon'ble Deputy Chief Minister of Delhi raised a question regarding rationale for levying tax on selling of space for advertisements in print media (SI.No.1 of List B). The Secretary explained that the selling of space for advertisement in the electronic media attracted Service Tax of 18% with ITC and the same was proposed to be continued in GST. He stated that presently, selling of space for advertisements in print media was exempt, but it was now proposed to impose a tax of 5% so that the ITC chain could be completed because GST of 5% was proposed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;ble Minister from Kamataka stated that presently they charged luxury tax at the rate of 18% for such hospital rooms. The Hon'ble Minister from Telangana stated that they charged tax for such hospital rooms at the rate of 10%. The Joint Secretary (TRU-II), CBEC, stated that such luxury tax was also being charged in Kerala and a few other States. The Hon'ble Deputy Chief Minister of Del hi stated that patients did not go to hospital for luxury but for treatment and no tax should be levied for their stay in hospital. The Hon'ble Chairperson stated that taxation in education and health sectors should be avoided and even if some States were charging luxury tax for hospital rooms, rate of 18% appeared excessive. The Secretary stated that the rate could be reduced further but a lower rate could lead to credit accumulation and demands for refund. He, therefore, proposed that tax on room charges in hospitals could be exempt. The Council agreed to this proposal. 22.4. After further deliberation, the Council approved the proposals contained in List B of Annexure VI and also agreed to delete the proviso to SI.No.2 which provided for not extending exemption from tax for renting o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... novation could be considered at a later stage. The Hon'ble Minister from Karnataka suggested that the tax rate could be kept at 8% after deducting the tax on fuel and ITC could be allowed on the same. The Hon'ble Chairperson observed that the officers had calculated the set-off on account of petrol/diesel and earlier the tax on transport sector came to 4.5%, which was now being made 5%. The Secretary stated that increasing the rate of tax at a level much higher than the present rate would be disruptive for the economy and suggested to continue with the proposed rate. The Council agreed to the proposal and approved the proposal to levy 5% GST on all services covered under Annexure VII. Annexure VIII: 24.1. The Secretary stated that Annexure VIII contained the services which were proposed to be taxed at the rate of 12%. He explained the scheme of taxation for restaurants and stated that a composition rate of 5% was available for restaurants with turnover between ₹ 20 lakh and ₹ 50 lakh and airconditioned or non-air-conditioned restaurants would attract a tax rate of 12% with full ITC and restaurants with liquor licence (whether or not air-conditioned) would be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harged on the value of land, and therefore, the Fitment Committee recommended that in a supply of works contract service where the value of land was included in the amount charged from the service recipient (along with the value of building materials and the services given by the contractor), one-third of the total consideration amount could be taken as the value of land for abatement purpose. He stated that full ITC on works contract would encourage purchase of building materials from registered suppliers but no refund of input tax credit overflow would be permitted. He stated that presently the approximate combined incidence of tax was around 9% -10% but the headline rate of tax would now become 12% with the benefit of II'C. He added that the overflow of input tax credit in this sector would not be refunded. He state~ that building materials would be mostly in the rate slab of 12% and due to benefit of lTC, the prices of flats should become cheaper. He stated that consumer education would be required on this subject. 24.3. The Hon'ble Minister from Telangana stated that two different schemes of taxation in construction sector could lead to confusion and suggested that sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration under the Maharashtra Value Added Tax Act. He stated that the Government of Maharashtra proposed to grant exemption from levy of tax for such construction services where the full amount in lieu of tax was already deposited in the Government treasury along with the return for the tax period preceding the appointed day. The Hon'ble Minister from Maharashtra sought a recommendation from the Council for grant of exemption under Section 11 of the SGST Act from levy of State GST on such construction services. The Hon'ble Deputy Chief Minister of Gujarat also expressed apprehension that if Courts gave adverse judgments regarding the proposed abatement for land value, it could create problems. The Secretary stated that taking land value as per ready reckoner would create complications as flats would be of different sizes and common areas would also need to be allocated. He stated that if an option was given for abatement on the basis of ready reckoner of the land value, this would lead to exercise of discretion and could affect revenue. After discussion, the Council agreed to the proposal on the rate of tax on construction service proposed in Annexure VIII and also the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to circus, Indian classical dance including folk dance, theatrical performance and drama could be charged to GST at the rate of 18% and the rest of the entries under SI.No.l of Annexure X could be taxed at the rate of28%. The Council agreed to this proposal. 26.2. The Hon'ble Minister from Assam raised an issue as to at what rate tax on dish TV, cable TV etc. would be charged. The Secretary clarified that it would be charged at the rate of 18% under S; No. 6 of Annexure IX (all other services not specified in any exemption notification). The Hon'ble Minister from Rajasthan suggested that limit of hotel room rent for tax at the rate of 12% should be between ₹ 1,000 to ₹ 3,000 per day and that for tax at the rate of 18%, it should be between ₹ 3,000 to ₹ 5,000 per day. The Hon'ble Minister from Rajasthan stated that a separate rate of tax should be fixed for heritage hotels which were set up in remote villages and tribal areas where the cost of raw material was much higher and which provided job to the local people. The Secretary stated that value based criteria would be the most appropriate method of taxation as descriptions like heritage hotels ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to the icustoms Tariff Act, 1975 be relied upon. The Council agreed to this proposal. 29.2. The Secretary drew attention to an Addendum to Agenda Notes circulated by the GST Council Secretariat on 16 May, 2017 wherein it was mentioned that a new Chapter 99 was proposed to be added to the First Schedule to the Customs Tariff Act, 1975 which would provide 6-digit classification of services based on the United Nations Central Product Classification (UN CPC). He stated that the 5- digit classification of UN CPC (excluding '99') had been adapted to meet the Indian requirements. He informed that a Committee of officers in CBEC was constituted to recommend a scheme of classification of services for GST. The Committee had proposed a scheme of classification based on National Product Classification for Services Sector (NPCSS) developed by NSO, which in turn was based on the UN CPC. He explained that NPCSS was based on UN's 5-digit Central Product Classification (UN-CPC). Broadly, NPCSS classification followed the following formulation: "99+5 digitized UN-CPC code + 1 digit for Indian requirements". He stated that NPCSS was essentially a 6- digit expansion of the 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) To fully exempt tax on renting of rooms in a clinical establishment during the course of providing healthcare services whereas earlier it was proposed to limit this exemption only for room charges of less than ₹ 2,000 per day; (v) Annexure VII: The Council approved the proposal to levy tax at the rate of 5% on the 11 listed services; (vi) Annexure VIII: The Council approved the proposal to levy tax at the rate of 12% on the 7 listed services with the following modifications: (a) restaurants having facility of air-conditioning or central heating at any time during the year (whether serving liquor or not) to be levied to tax at the rate of 18% and restaurants not having facility of air-conditioning or central heating at any time during the year and not having license to serve liquor to be taxed at the rate of 12%, , restaurants not having facility of air-conditioning or central heating at any time during the year and having license to serve liquor to be taxed at the rate of 18%; (vii) Annexure IX: The Council approved the proposal to levy tax at the rate of 18% on the 6 listed services subject to the modification of rates in respect of renting of hotels and supply of ..... 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