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TMI BlogMinutes of the 15th GST Council Meeting held on 3 June 2017X X X X Extracts X X X X X X X X Extracts X X X X ..... s of tax and cess to be levied on commodities remaining after the Fitment exercise during the 14th GST Council Meeting 5. Presentation on concept note on operationalizing the Anti-Profiteering Clause in GST Law 6. Any other agenda item with the permission of the Chairperson i. Applicability of GST on supply of Electricity ii. Notifying Provisions related to Composition Levy iii. Notifying Provisions related to Appointment of Officers iv. Notifying Provisions related to Registration v. E- Way Bills 7. Date of the next meeting of the GST Council 3. The Hon'ble Chairperson welcomed all the Members to the 15th Council Meeting. Discussion on Agenda Items Agenda Item 1: Confirmation of the Minutes of the 14th GST Council Meeting held on 18-19 May, 2017: 4. The Hon'ble Chairperson invited comments of the Members on the draft Minutes of the 14th Meeting of the Council (hereinafter referred to as 'Minutes') held on 18-19 May 2017 before its confirmation. 4.1.1. The Secretary informed that a written request had been received from the Commissioner of Commercial Tax (CCT), Rajasthan, to replace the version of the Hon'ble Minister from Rajasthan recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .3. The Hon'ble Minister from Punjab stated that in paragraph 19.2, it was recorded that Shri V.K. Garg, Advisor (GST), Punjab, stated that "... in Punjab, a fee was charged for giving liquor licence and as fee had the character of service, the Government of Punjab was paying Service Tax on collection of such fee from 1 April, 2016." He stated that the highlighted underlined portion was not stated by Shri V.K. Garg and suggested to delete the same. The Council agreed to delete the highlighted underlined portion from paragraph 19.2 of the Minutes. 4.4.1. The Hon'ble Minister from Punjab stated that the Council decision recorded in the last line of paragraph 19.4, namely, "the Council agreed to continue this tax on licence fee for liquor in the GST regime also and not to exempt it" was not taken. The Hon'ble Chairperson stated that the discussion was to find a way out but it was decided not to exempt GST on licence fee on liquor. The Secretary pointed out that in paragraph 19.4 of the Minutes, it was recorded that the Hon'ble Chairperson stated that the only way to address this issue was to change the taxation model where excise duty on alcohol co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icle board in paragraph 15.9 (xlviii) of the Minutes, he had stated that plywood made of eucalyptus being not in the category of an agricultural crop, should also attract tax at the rate of 12%. He stated that his version should be recorded in this paragraph. The Council agreed to record his version in the Minutes. He further stated that tax rate on plywood made of eucalyptus should be revisited when rates of other goods came up for reconsideration. 4.8. The Hon'ble Minister from Uttarakhand stated that just like dalia, other than put up in unit container and bearing a registered brand name, was exempted from tax, there should also be tax exemption to pasta and macaroni as they employed the same process as dalia. The Hon'ble Chairperson stated that these goods could be covered in the list of goods that might come for reconsideration of the rates already approved by the Council. 4.9. The Hon'ble Minister from Maharashtra stated that on page 42 in para 24.1 of the Minutes, his version was recorded as follows: "The Hon'ble Minister from Maharashtra stated that in his State, the Composition scheme was available to the restaurants at the rate of 5% where turnover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services used in construction, before the contract between buyer and the developer came into existence: Sr. No. Stage during which the developer enters into a contract with the purchaser. Rate of Abatement a) Before issue of the Commencement Certificate. NIL% b) From the Commencement Certificate to the completion of plinth level. 5% c) After the completion of plinth level to the completion of 100% of RCC framework 15% d) After the completion of 100% RCC framework to the Occupancy Certificate. 45% e) After the Occupancy Certificate 100% (b) For determining the value of supply of services as per the above Table, it shall be necessary for the dealer to furnish a certificate from the Competent Authority. This would make the levy compliant with Law laid down by Hon'ble Courts and such deduction would avoid hardship to people in Maharashtra (mainly MMRDA region). The Council agreed to record his version in the Minutes. 4.11. The Hon'ble Minister from Maharashtra stated that on page 42 and 43 in paragraph 24.3 of the Minutes, the following point raised by him was not considered while preparing the draft Minutes. He requested to insert the issues raised and pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riately in the Minutes. The Secretary stated that the full speech could not be reproduced in the Minutes but any written speech circulated by the Hon'ble Members during the Council Meeting would be taken on record and a reference to this effect would be made in the Minutes. 4.17. The Hon'ble Minister from Kerala stated that with reference to discussion on plywood and particle board in paragraph 15.9 (xlviii) of the Minutes, his version recorded in the Minutes was that he suggested that wood based particle board should be taxed at the rate of 18%. He requested to modify his version and to record that 'the Hon'ble Minister from Kerala suggested that wood based particle board should be taxed at a lower rate.' The Council agreed to record the modified version. 4.18. The ACS, Haryana, stated that with reference to discussion on plywood and particle board in paragraph 15.9 (xlviii) of the Minutes, the following should be added as the version of the Hon'ble Minister from Haryana: 'Most of the units in the ply board sector fell under micro and small enterprises with a turnover of less than ₹ 4 crore and were exempt from Central Excise duty upto the turno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Hon'ble Minister from Meghalaya: 'The Hon'ble Minister from Meghalaya stated that roofing materials like corrugated sheets were not similar to other building material as they were used by the poorest of the poor for shelter over their head, and therefore, they should be taxed at a lower rate.'; 5.4. In paragraph 19.2, to delete the following version attributed to Shri V. K. Garg, Advisor (GST), Punjab: "and as fee had the character of service, the Government of Punjab was paying Service Tax on collection of such fee from 1 April, 2016"; 5.5. In paragraph 15.9 (xlviii), to add the following version of the Hon'ble Deputy Chief Minister of Delhi: 'The Hon'ble Deputy Chief Minister of Delhi stated that if one wanted to prevent wood to be cut, then boards based on bagasse and fibre should be encouraged.'; 5.6. In paragraph 26.1., to add the following version of the Hon'ble Deputy Chief Minister of Delhi: 'The Hon'ble Deputy Chief Minister of Delhi stated that entry to circus, dance, theatrical performance, drama and Indian classical dance should be exempt from tax. '; 5.7. In paragraph 15.9 (xlviii), to add the followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iant with Law laid down by Hon'ble Courts and such deduction would avoid hardship to people in Maharashtra (mainly MMRDA region)'. 5.10. In paragraph 24.3, to add the following version of the Hon'ble Minister from Maharashtra: 'The Hon'ble Minister from Maharashtra proposed exemption from levy ofMaharashtra SGST on ongoing construction of complex, building etc. services, where lump sum amount was already paid on full consideration 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.'; 5.11. In paragraph 15.9 (xxxiv), to add the following version of the Hon'ble Deputy Chief Minister of Gujarat: 'The Hon'ble Deputy Chief Minister of Gujarat suggested that electricity should be exempted from GST. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that GSTN would also be providing backend services for 27 States/UTs. He explained that the back-end system of the State Governments and the Central Government would enable the statutory functions of approval of registration, assessment, refunds, audit and enforcement, adjudication, internal workflows to support above functions, recovery, analytics and Business Intelligence (Bl). 6.1. The Chairman, GSTN further explained that GSTN had substantially completed the task of provisioning for hardware and that all materials were received, installed and the configuration was completed. He further stated that all connectivity between their data centre and those of Central Board of Excise and Customs (CBEC) and the States had been put in place. He informed that Data Centre (DC) and Near Data Centre (NDC) at Delhi as well as Disaster Recovery (DR) and Near Disaster Recovery (NDR) at Bangalore were operational and that connectivity between DC/DR/NDC/NDR and between DC and States/ CBEC was provided by two service providers, namely, TCL and Airtel, so that if one fails, the other would take over. 6.2. As regards the status of application development, the Chairman, GSTN explained that applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the total number of Excise and Service Taxpayers enrolled on GSTN, 2.03 lakh Central Excise taxpayers and 5.63 lakh Service taxpayers were also registered under State VAT. 6.5. The Chairman, GSTN invited his colleague Shri Prakash Kumar, Chief Executive Officer (CEO), GSTN to take forward the presentation. The CEO, GSTN explained the security management system, training of tax officials on GST Application and Helpdesk for tax officers and taxpayers. 6.6. As regards the training of tax officials, the CEO, GSTN stated that they had initially trained 2,000 master trainers who in turn trained other officers. He informed that 86% of officials from all States/UT/CBEC had been trained till the end of 31 May 2017 which worked out to 53,823 officers out of a working strength of 62,558 officers. He stated that by 15 June 2017, they would complete the training of all officers. 6.7. CEO, GSTN informed that a 1 OO-seater call centre for taxpayers had become operational from November 2016 for enrolment and that a new call centre with 400 agents (including accountancy literate agents) would be operational from 1 July 2017. He stated that in order to ensure taxpayer facilitation, they had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to receive feedback based on usability/issues faced, and to utilize the feedback to provide superior user experience in filing returns. He informed that 3128 taxpayers from all States and Centre had participated by using beta version of the GST system. He informed that 11 banks took part in the payment testing and 3,200 accounts were created to test the generation of challans, Challan Identification Number (CIN), preparation ofluggage file, etc. The defects reported, while using the System, had either been resolved or were being resolved. 6.11. He stated that some of the important feedback was that offline tools did not work on old Personal Computers (PC) for which they made changes; there was validation error on excel sheet; the HSN Code was mandatory in the offline tool, which was made non-mandatory; error in making online payment which showed levy of all three taxes, i.e. CGST, SGST and IGST. He stated that they had increased the number of invoices that could be viewed on the portal from 500 to 2000, and invoices beyond that number would need to be downloaded as excel file to see on one's PC or through offline tool. He informed that one of the regular complaints was that on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the System and the server should not go down once GST implementation started. The Hon'ble Minister from Karnataka agreed with the views of the Hon'ble Deputy Chief Minister of Gujarat and stated that while they did not know the technical details, they needed an assurance that when the time for GST implementation came, the System would work. He observed that GST was a major reform and it should not get affected due to IT related issues. 6.14. The Hon'ble Deputy Chief Minister of Delhi enquired about the role of GST Suvidha Provider (GSP) and enquired whether they were ready for GST implementation. The Hon'ble Minister from Goa enquired as to how many GSPs in addition to the existing 34 were proposed to be empaneled. The CEO, GSTN, explained that the majority of tax payers would themselves come to the portal and upload their returns and would not need the services of GSP. He stated that the offline tool allowed uploading of 19,000 invoices whereas, as per data received from some States, on an average, a tax payer would generate and upload about 127 invoices each month. He stated that tax payers needing to upload 100-200 invoices can do so on the portal and those hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et been finalized and it was not clear whether software for the same could be prepared in the remaining 20 days before GST implementation. He added that not more than 40% of GSPs had tested their System. He also enquired regarding the amount of fee charged by GSP per month. He also referred to the hacking of websites of several world-renowned companies last month and enquired regarding the level of security of the GSTN System and whether STQC (Standardisation Testing and Quality Certification) had been done and the Home Ministry clearance taken. He stated that an assurance was needed that the kind of hacking that occurred last month would not affect 300 crore transactions per month on GSTN. He suggested that a white paper could be issued in a week or so on the user preparedness of small and medium enterprises for GST implementation. 6.16. The Hon'ble Minister from Goa stated that if transactions between Bank branches were also taken into account, the actual number of transactions would be more than 300 crore per month and the glitches could lead to a crash of the System. He stated that given the large number of transactions, an assurance was needed that the GST System would wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at GSPs were not earlier using sand box and APls given by GSTN but now they had started using the same. He further added that the problem in e-sign was due to change in the mobile number. He further stated that in generation of One Time Password (OTP) through C-DAC (Centre for Development of Advanced Computing) and NSDL (National Securities Depository Limited) some problems were noticed after EVC system of authentication was made operational and it was being addressed. He refrained from commenting on e-way bill as it was a separate agenda item for the Meeting. As regards the concern regarding whitepaper on security of GST Systems, he stated that he would circulate a separate note on the same. 6.19. On a query from Shri R. K. Tiwari, ACS, Uttar Pradesh, he added that the security systems of States could not be addressed by GSTN as the States would have to develop their own security system. The Secretary stated that security of the IT Systems of the States could not be looked after by the GSTN. CEO, GSTN further informed that he had issued a 10-page security advisory regarding data security. Regarding the fees to be charged by GSPs, CEO, GSTN stated that GSPs would carry out differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of funds. 6.22. The Hon'ble Minister from Kerala stated that for developing their back-end modules, the business process document should be made available early. He stated that APIs were needed for Payment and Return modules. He added that if implementation of e-Way Bill got delayed, the present arrangement of check posts might need to be continued. The Secretary stated that this issue of e- Way Bill could be discussed while discussing the agenda item of e- Way Bill. The CEO, GSTN, stated that they had provided one version of SRS (Software Requirements Specification) based on December 2016 Rules and would provide updated SRS after Rules for back-end modules were approved by the Council and they would incorporate the changes. He further stated that they had already released the APIs. 6.23. The Hon'ble Minister from Punjab raised a question whether a dealer could be allowed to change his income tax PAN card. The CEO, GSTN, stated that since registration was based on PAN, if PAN was changed, registration would also change and a new GSTIN would be issued to the taxpayer. The ACS, Uttar Pradesh stated that problems were being faced in respect of the new migration window opene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appointed day without any documents evidencing payment of Central Excise duty. He stated that the Law Committee had proposed that taxpayer could be allowed input tax credit at the rate of 60% on such goods which attracted Central tax at the rate of 9% or more and at the rate of 40% for other goods, where Central Excise duty paying document was not available with the traders. He stated that there was some confusion whether similar input tax credit would be allowed for Integrated Goods and Services Tax (IGST), and to clear this confusion, it was now provided that input tax credit on deemed basis would be allowed for IGST at the rate of 30% where the IGST rate was 18% or more and at the rate of 20% where the IGST rate was less than 18%. He stated that another change made in the Transition Rules was that input tax credit would be available on the goods which were not unconditionally exempt from the whole of the duty of excise or were nil rated. He stated that a similar provision was made for credit of taxes in those States which levied tax at the first point of sale. He added that a provision had also been made for a declaration to be filed regarding the proportion of supply on which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... September of the succeeding financial year or furnishing of annual return of the preceding financial year, whichever was earlier. He then explained the changes proposed in the Rules for Goods and Services Tax Practitioner. He stated that a provision had been proposed for conducting examination for enrolment of GST Practitioners; for obtaining confirmation from registered person for any application submitted by GST Practitioners; and for deemed enrolment of GST Practitioner in other State or Union Territory. He stated that the annual return was not prepared as yet as its requirement would arise only in December 2018. 8.4. Starting the discussion on this agenda item, the Hon'ble Minister from Punjab stated that the proposed credit at the rate of 60% allowed on the stock of goods was insufficient, as in his State, tax was only levied at the first stage and approximately 80% of the items in Punjab attracted VAT at the rate of 6%. He stated that taking into account the practice of taxation in his State, which might not be prevalent in other States, a higher deemed credit of more than 60% should be allowed for his State. The Commissioner (GST Policy Wing), CBEC, stated that this is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amination for qualifying as GST Practitioner. The CCT, Gujarat, stated that in some States, even non-commerce graduates were allowed to be Tax Practitioners which might not be desirable under GST. The Hon'ble Minister from Kerala suggested that retired officers of VAT should also be allowed to work as GST Practitioners. The Commissioner (GST Policy Wing), CBEC, clarified that this was already provided for in the Rules. The Secretary suggested that all existing Tax Practitioners who had five years of experience of working as Tax Practitioner could continue to be GST Practitioner for one year and should pass the prescribed examination within this period to continue to work as a GST Practitioner beyond the period of one year. He said that for this one year, there should be no requirement for the Tax Practitioner to be a commerce graduate. The Council agreed to this proposal. 8.6. The Hon'ble Minister from Chhattisgarh stated that it would be difficult to capture HSN Code for Business to Consumer (B2C) supplies. He observed that outlets like Big Bazar transacted in thousands of items every day and it would not be possible for them to indicate HSN Code for all of them. The Commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or with the lowest available price of the branded goods. The Secretary stated that in most of these cases, the brand name was a registered trademark. The Hon'ble Minister from Maharashtra raised an issue that certain products were sold with Agmark and whether such products would also be considered as branded ones. The Secretary statedthat for the proposed tax, only those products would be considered to have a brand name if the brand name was registered and it would not cover an Agmark. The Hon'ble Chairperson observed that for wheat flour, there was a large difference in price between the branded and unbranded goods or cheapest of the branded goods and the question before the Council was whether such goods should be charged to Nil rate of tax or at 5%. The Hon'ble Minister from Assam stated that branded cereals, pulses and flour should be taxed. The Hon'ble Minister from Punjab supported this proposal. 9.2.2. The Hon'ble Minister from Bihar observed that since such branded cereals were not consumed by poor people, it would be reasonable to tax them, especially as the proposal was to tax only those goods which were sold under a registered brand name. The Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the 90% of sales would be of ordinary brands. He suggested that a balance should be struck between the interests of the consumers, traders and the Government. He expressed an apprehension that a distinction of tax rates based on registered brand name might encourage the existing brand owners to promote products under unregistered brand names. The Hon'ble Minister from West Bengal stated that the list of branded cereals presented in the agenda notes was not exhaustive and there were many smaller brands selling their products in the market and they would also become taxable. He suggested to get the list of all branded cereals. The Secretary stated that the food processing industry would be helped by imposing a small tax on packed cereals. The Hon'ble Chairperson observed that a big cost for branded sellers was advertising and they would get input tax credit for the same. After further discussion, the Council agreed to tax cereals, pulses and flour put up in unit container and bearing a registered brand name at the rate of 5% instead of the proposed Nil rate. 9.2.4. The Hon'ble Minister from Uttarakhand stated that pasta and macaroni should also be taxed at the rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns; (vi) Unbranded honey (GST rate already Nil); and (vii) Wick for diya could be kept at Nil GST, as part of Puja samagri. He added that in addition, lobhan, mishri and batasha could be kept at 5% (the same rate as for natural resin/sugar). 9.3.2. Starting discussion on this item, the Hon'ble Deputy Chief Minister ofGujarat suggested that agarbatti should also be kept under exempt category as it was a puja samagri and it was made at home after getting the agarbatti powder. The Hon'ble Minsters from West Bengal and Maharashtra supported this proposal. The Hon'ble Minister from Bihar observed that agarbatti was not prescribed in Vedas as puja samagri and only dhoop was used for puja. The Joint Secretary (TRUI), CBEC, stated that agarbatti had substantial embedded Central Excise duty and also attracted VAT at the rate of 5%, and exempting them under GST would put the sector at a disadvantage visa- vis imported goods. The Hon'ble Minister from West Bengal suggested that the rate of tax on agarbatti should be 5%. The Secretary stated that tax on agarbatti was decided separately as it was not a puja item and despite the combined incidence of tax on agarbatti being about ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h CST, Entry Tax, Octroi, etc., the present incidence was about 20.6% with Octroi etc. and 18.1 % without Octroi etc. He further stated that for other biscuits, taking into account Central Excise duty of 6%, VAT of 14.5% and adding embedded tax on account of post-clearance Service Tax (about 0.14%) and CST, Entry Tax, Octroi, etc. (about 2.50%), the present incidence of tax came to about 23.11 % with Octroi etc. and 20.61 % without Octroi etc. He stated that the suggestion of the Fitment Committee was to keep both the categories of biscuits at 18%. He added that as per the industry figures, the annual turnover of biscuits in the country was about ₹ 36,000 crore, of which about half was reported to be oflow priced biscuits. He stated that if rate of GST on low priced biscuits was reduced by 6%, it would lead to a revenue loss of about ₹ 2,000 crore. 9.5.2. The Hon'ble Minister from West Bengal stated that the model of tax rate followed under Central Excise was a good one and this could be adopted in GST as well, as otherwise, it would appear that the Council was taxing biscuits used by common people at a high rate. The Joint Secretary (TRU-I), CBEC, pointed out that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se Duty drawback was prescribed under the Duty Drawback Schedule as there was no request from industry, but even on these goods, there would be embedded taxes, which would be more or less the same as for the other agricultural machinery falling under HS Codes 8432, 8433 and 8436, i.e. 5%. He said that taking into account the weighted average VAT rate of about 6.2% and embedded taxes (0.09% due to post-clearance Service Tax and 2.5% due to CST, Entry Tax, Octroi, etc.), the present incidence of tax on goods falling under HS Codes 8432, 8433 and 8536 was more than 12%. He stated that taking this into account, the Fitment Committee proposed the rate of 12% for all types of agricultural and horticultural machinery falling under Chapter headings 8432, 8433, 8436 and 8437. 9.6.2. The ACS, Haryana stated that tax on agricultural machinery would add to the input cost of the farmer, and States which had been part of green revolution did not want this to happen. He also pointed out that goods falling under Chapter heading 8437 were largely manufactured in the small-scale sector, and therefore, they would be exempt from tax. He also pointed out that the present incidence of tax on Chapter he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Secretary stated that putting all parts of different types of motor vehicles in the tax rate of 12% could lead to large scale evasion of tax but it could be examined whether spare parts used only for tractors could be put in the tax bracket of 12%. The Hon'ble Minister from Tamil Nadu stated that this issue was very important for them and the Hon'ble Chief Minister of his State had desired that this issue should be raised in the Council. The Hon'ble Chairperson stated that it was important not to lose the big picture of achieving revenue neutrality and to meet the commitment of assured compensation to the States at the growth rate of 14%. He stated that if revenue rates were fixed very low, the compensation formula might need to be revisited. The Secretary stated that this issue could be taken up later along with other items for which the tax rate might come up for reconsideration. Footwear (Chapter 64) 9.7.1. The Joint Secretary (TRU-I), CBEC, explained that the tax rate structure on footwear, both under Central Excise and VAT, was somewhat complicated. He stated that in Central Excise, all footwear with retail sale price of less than ₹ 500 were exempt but the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... society, footwear with retail sale price of less than ₹ 500 could be taxed at the rate of 5% and the other categories offootwear could be taxed at the rate of 18%. The Hon'ble Minister from Uttar Pradesh suggested to have a lower rate for footwear made of rubber and plastic. The Secretary stated that the Fitment Committee had considered this suggestion and had come to a conclusion that it was difficult to check which types of footwear were made of rubber and plastic. The Hon'ble Minister from Meghalaya supported the proposal to tax footwear with retail sale price of less than ₹ 500 at the rate of 5%. He said that keeping in view the need to make available good quality sports shoes to the poor to enable them to take part in sports activities, footwear with retail sale price between ₹ 500 and ₹ 2,000 could be kept in the 12% tax bracket and the rest of the footwear could be taxed at the rate of 18%. The Secretary stated that for sports promotion, States could give budgetary support instead of tax concession. After discussion, the Council agreed that the rate of tax on footwear with retail sale price of less than ₹ 500 would be 5% and for the othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x net in GST, one had to keep in mind the sensitivity of the power loom and handloom sector which employed about 6 lakh spindles. He stated that presently, there was no tax on fabrics including on silk fabrics and the broad suggestion of the Fitment Committee was to tax fibre and yarn at the rate of 5%; cotton fabric at the rate of 5% (which would also include products of daily use like dhoti and sari) while other fabrics at the rate of 12%, and re dymade garments (including blankets etc.) at the rate of 12%. He stated that the textile industry had demanded fibre neutrality for taxation under GST. He further stated that man-made fibre was proposed to be taxed at the rate of 18%. 9.8.3. Starting the discussion on the proposals, the Hon'ble Minister from Kerala raised a question regarding the impact of relative position of taxation on account of the proposed rates. The Joint Secretary (TRU-I), CBEC, stated that the proposal to tax cotton fibre, cotton yarn, and cotton fabric at 5% was close to the present position of tax and the proposal to tax other fabrics and garments of all types at the rate of 12% would lead to least amount of credit overflow and thus a demand for tax refun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... co were agricultural products but they could not be kept at Nil rate of tax. 9.8.6. The Hon'ble Chairperson suggested that fibre of silk and jute could be kept at Nil rate of GST as they were presently exempt, and cotton and other natural fibres could be taxed at the rate of 5%, while man-made fibres could be taxed at the rate of 18%. He further stated that apparels could be taxed at the rate of 12% but those which were sold at a value of less than ₹ 1,000 could be taxed at the rate of 5%. He further suggested that if there was credit accumulation on account of inverted duty structure, no refund of the same be given. The Secretary stated that weaving would be coming under tax net after a long time and therefore, it should be taxed at a reasonable rate of 5%. He further stated that handloom should not be exempt, as it used both machine made and hank yarn. He further suggested that khadi yarn made from charkha could be exempt from tax instead of the proposed rate of 5%. The Council agreed to this suggestion. 9.8.7. The Hon'ble Minister from Karnataka stated that silk yarn should be kept under exempt category while silk fabric which also did not attract tax earlier wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saris. The Secretary responded that keeping this into account, the rate of tax for all types offabrics was proposed to be kept at 5%. The Council agreed not to exempt hand loom fabric. 9.8.9. The Hon'ble Minister from Kerala raised a question as to why rate of tax on man-made fabrics was being lowered from 12% to 5%. The Secretary stated that most of the fabric were of mixed type and it would be very difficult to distinguish between man-made fabric and other types of fabric. He further added that power looms and hand looms also survived on polyester in places like Surat and presently the tax on fabric was zero, and therefore, it was desirable to keep the rate of tax on fabrics at 5% during the initial stage of GST implementation. 9.8.10. After discussion, the Council agreed to keep raw silk and raw jute at Nil rate of GST; tax cotton and other natural fibres at the rate of 5%; tax man-made fibre and yarn at the rate of 18%; tax all fabrics at 5%; tax apparels sold at a value exceeding ₹ 1,000 per piece at the rate of 12% and tax apparels sold at a value not exceeding ₹ 1,000 per piece at the rate of 5%. The Council also agreed that if there was credit accumulation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the rate of 5%, the hand-made carpet should also be taxed at the rate of 5% instead of 12%. The Hon'ble Chairperson observed that consumers of carpet were wealthy persons and they could pay tax at the rate of 12%. Bidi wrapper leaves (tendu patta - Chapter 14) and Bidi (Chapter 24): 9.9.1. The Secretary stated that the Fitment Committee had proposed the GST rate of 5% for tendu patta as the present incidence of tax on this item was 8.41 % with CST, Octroi etc. and 5.91 % without Octroi etc. (embedded Central Excise duty - 0.85%; post-clearance Service Tax embedding - 0.14%; VAT - 5%; CST, Entry Tax, Octroi, etc. - 2.5%). He added that the Fitment Committee had proposed the GST rate of 28% on Bidi taking into account the fact that the total tax incidence on Bidi was 25.68% (Central Excise duty - 3.72%; Weighted average VAT rate - 19.46%; CST, Octroi, etc - 2.5%). He added that the Fitment Committee had left open the issue of Compensation Cess on Bidi. 9.9.2. The Hon'ble Minister from Madhya Pradesh suggested that no Cess should be imposed on bidi. The Hon'ble Minister from Kerala stated that presently the relative incidence of tax on bidi and cigarette was not equa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduct. He pointed out that 14% people in India smoked tobacco and around 73 million persons smoked bidi and 45 million persons smoked cigarette. He stated that most of the bidi smoking persons came from economically weaker background and cancer detection in that segment of population was very late leading to the disease becoming terminal. He stated that awareness campaigns regarding harmful effects of smoking should be combined with an economic instrument and no difference should be made in the tax rate for cigarette and bidi. The Hon'ble Minister from Kerala asked as to why there was no VAT on bidi in Karnataka and the Hon'ble Minister from Kamataka responded that his State was contemplating to levy VAT on bidi about one and a half years back but decided to wait for implementation of GST. 9.9.5. The Hon'ble Minister from Kerala reiterated that if bidi was taxed at a rate similar to cigarette, then market demand would shift towards cigarette. He referred to a study by the Tobacco Institute ofIndia which stated that if there was a uniform taxation policy on cigarette and bidi, then market preference would shift towards cigarette. He stated that in Kerala, smoking had come d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be taxed at the rate of 28%. The Hon'ble Minister from West Bengal stated that he wanted his dissent to be recorded for levying tax on bidi at the rate of 28%. The Secretary stated that tax on bidi should not be reduced from the existing incidence of tax which came to about 25.68%. The Hon'ble Minister from Telangana stated that he strongly objected to taxing bidi and tendu leaves at a higher rate as presently in his State, tendu leaves was charged to tax at the rate of 5% and bidi at Nil rate. The ACS, Uttar Pradesh stated that if tendu leaves was proposed to be taxed at the rate of 18%, bidi should not be taxed at the rate of 28% as it was not a luxury product. The Hon'ble Minister from Kamataka stated that bidi merited to be taxed at the rate of 28% as it was a sin good. The Hon'ble Minister from Assam stated that cultivators could be encouraged to shift from tendu leaves cultivation but no tax incentive should be given as bidi posed a serious health hazard. 9.9.7. The Hon'ble Minister from Kamataka stated that Governments should be mindful that the cost of treating the poorer sections of the society would also largely fallon the Government. The ACS, Utta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s taxed jewellery at the rate of 1% with the exception of Kerala (5%), Maharashtra (1.2%) and Tripura (2%). He further stated that VAT rates for diamonds and other precious and semi-precious stones in different States were same as that for jewellery except in the case of Gujarat which had Nil VAT on rough diamonds. As regards the market size, he informed that total jewellery market size in India was, about ₹ 4.5 lakh crore and gold consumption in jewellery sector was about 527 per metric tonne during 2016-17 and 606 per metric tonne during 2015-16. He also informed that according to the Report of the GST Revenue Neutral Rate Committee, consumption of gold by top 2 income deciles accounted for about 80% of the total consumption while the consumption by the bottom 4 deciles was only 0.2%. 9.10.2. Starting the discussion, the Hon'ble Minister from Assam enquired about the Fitment Committee's recommendation on the rate of tax on these items. The Joint Secretary (TRU-I), CBEC, stated that in the 4th Meeting of the Council, it was decided that the rate of tax on Gold shall be decided by the Council after the completion of the fitment exercise by the Fitment Committee. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pradesh stated that gold should be taxed at the rate of 5% in order to achieve revenue neutral rate. 9.10.3. The Hon'ble Minister from Chhattisgarh stated that the main issue in respect of gold was evasion of tax and a low rate of tax should be kept in order to bring gold in the tax net. The Hon'ble Minister from Jammu & Kashmir stated that there was no justification to keep gold at a low tax rate and suggested to minimise the tax rate slabs and tax gold at the rate of 5%. The Hon'ble Minister from Jharkhand stated that almost all States charged VAT on gold at the rate of 1 % and the poorest people also wanted to buy gold for marriage ceremony. He suggested to keep the rate of tax at 2% but expressed flexibility to increase the rate to 5%. The Hon'ble Minister from Karnataka suggested to tax gold at the standard rate of 5% and observed that when consumption of gold was not affected due to 300-400 fold increase in price, it should also not get affected by a 3% increase in tax. 9.10.4. The Hon'ble Chairperson asked the preference of all the members regarding the rate of tax on gold. The Hon'ble Ministers from Nagaland, Meghalaya, Arunachal Pradesh, Odisha, M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roducing this subject, the Secretary stated that the Canteen Stores Department of the Armed Forces (commonly referred to as CSD), was created to provide easy access to quality products of daily use, at prices less than market rates to the soldiers, ex-servicemen and their families and it was not driven by profit motive. He stated that the Canteen Stores Department had 34 depots strategically located across India which in turn catered to thousands of Unit Run Canteens (URCs) which it was mandated to serve. He explained that presently, CSD enjoyed partial or full exemption (which varied from State to State) on procurements by CSD, supplies by CSD to the URCs and supplies by URCs to the customers. He stated that during 2015-16, sales from CSD was about ₹ 15,828 crore; sales net of liquor sales was ₹ 13,421 crore; total VAT exemption benefit on non-liquor sales was ₹ 1376 crore; and percent of VAT concession on items other than liquor was 10.3%. He stated that the Council could consider 50% concession from GST on supplies to CSD through a reimbursement mechanism but no concession need be extended from Compensation Cess. He further added that presently, there was no Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeared at more than one place in the GST rate Schedule. In order to rectify these anomalies, an Addendum to the GST rate Schedule for Goods was placed before the Council which inter alia clarified the rate of tax for goods like edible mixtures or preparations of vegetable fats or vegetable oils; organic manure put up in unit containers and bearing a brand name; erasers; other refractory ceramic goods; and glass beads. The Council approved the amendments proposed in the Addendum. 10. For agenda item 4, the Council approved the rates of GST on supply of goods as listed in Volume-2 of the detailed agenda notes with the following modifications: - (i) to tax cereals, pulses and flour put up in unit container and bearing a registered brand name at the rate of 5% instead of keeping them in the exempt category; (ii) to tax goods falling under Chapter heading 8437 (cleaning, sorting, grading machinery; milling machinery) at the rate of 5% instead of the proposed rate of 12%; (iii) to tax footwear with retail sale price of less than ₹ 500 at the rate of 5% instead of the proposed rate of 12%; (iv) to tax raw jute at Nil rate instead of the proposed rate of 5%; (v) to tax kh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficers made many suggestions regarding the draft Rules which would require to be reworked. He stated that the basic concept was that when a complaint was received, it would be referred to a Standing Committee appointed by the Council which would decide whether an inquiry should be initiated on the complaint. He added that this provision was largely meant to apply to major players producing a basket of goods and not to small, individual suppliers. He further stated that once the Standing Committee recommended an inquiry, the actual investigation would be carried out by DG, Safeguards, in the CBEC, Who have the experience of carrying out investigation in relation to applications for Safeguard action under the WTO Agreement on Safeguards. He stated that inquiry report with its recommendations would be referred back to the Standing Committee and then either the Council itself or a Committee constituted by the Council could take a final decision. 11.2. The Secretary informed that during the meeting of officers of the Central and the State Governments held in the morning, a major doubt expressed was whether the Council should itself take a decision as there could be several Court cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision. The Hon'ble Chairperson observed that Section 171 dealing with Anti-profiteering was part of the law and to shorten its life, a legal exercise would be required. He observed that one could observe during the course of the year whether its provisions should actually be put to use. He suggested that ifit was to be put to use, a Committee of officers consisting of one officer from the Central Government and four officers from the State Governments (with a quorum of three), could meet every month or once in two months, take up some serious cases for investigation and make that as an example for others. He stated that this provision should not be used in a large-scale manner. The Hon'ble Minister from Kerala observed that if the whole matrix of tax incidence, maximum retail price, etc. was to be made available in public, it could also possibly be part of the Anti-profiteering Rules. He stated that the Rules could enjoin the authority to publish list of commodities, the past tax incidence and the new tax incidence. The Secretary stated that the Government could publish such information only commodity-wise and not company-wise. He added that it would be advisable to first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... broad principles of the draft Anti-profiteering Rules, namely, that when a complaint was received, it would be referred to a Standing Committee which would decide whether an inquiry should be initiated on the complaint and once the Standing Committee recommended an inquiry, an investigation would be carried out by an Authority and its inquiry report with the recommendations would be referred back to the Standing Committee. The Council also approved that the Anti-profiteering Rules would be worked upon further on the basis of the discussions held in the Council. Agenda Item 6: Any other agenda item with the permission of the Chairperson . i. Applicability of GST on supply of Electricity ii. Notifying Provisions related to Composition Levy iii. Notifying Provisions related to Appointment of Officers iv. Notifying Provisions related to Registration v. E-Way Bills Applicability of GST on supply of Electricity: 13.1. Introducing the agenda item on the applicability ofGST on supply of Electricity, the Secretary recalled that in the last Council Meeting held on 18-19 May, 2017, a point was raised whether supply of 'electricity' would come within the ambit of GST. He r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by the Union Ministry of Law, it was proposed that the Council could recommend that the supply of 'electricity' be exempted from the levy of GST. 14. After discussion, the Council agreed to exempt the supply of 'electricity' from the levy of GST. Notifying Provisions related to Composition Levy 15.1. Introducing this agenda item, the Secretary stated that Section 10 of the CGST Act, 2017 provided that a registered person, whose aggregate turnover in the preceding financial year did not exceed ₹ 50 lakh, could opt to pay tax under Composition levy. Under this option, which was essentially meant to reduce compliance cost for small taxpayers, a person could pay tax at an alternative rate on the turnover. He stated that the taxpayers who were registered under the existing laws were being migrated to GST and that the process of migration had already started in November, 2016. The migrated taxpayers had been allotted a provisional registration. At the time of giving Goods and Services Tax Identification Number (GSTIN), the migrated taxpayer would be asked to declare whether he wished to avail Composition scheme, i.e. an existing taxpayer was required to decla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these Acts came into effect for notifying different provisions of the said Acts. He proposed that the Council could approve notifying Sections 1, 3, 4 and 5 of the CGST Act, 2017 and Sections 1 and 3 of the IGST Act, 2017 from 19 June, 2017 and the States that had enacted their SGST Act, could also notify the same Sections (other than the IGST Act). The Council approved this proposal. Notifying Provisions related to Registration 17.1. Introducing this agenda item, the Secretary stated that Sections 22 to 30 of the CGST Act, 2017 provided for registration of taxpayers under GST. However, persons already registered under the existing law (Central Excise, Service Tax, Value Added Tax, Central Sales Tax etc.) were proposed to be migrated to GST through a simpler process so that the existing taxpayers were not required to apply for fresh registration for GST. The existing taxpayer would be migrated under the provisions of section 139 of the CGST Act. He informed that the process of migration of presently registered taxpayers had already started in November, 2016. He informed that the migrated taxpayers had been allotted a provisional registration. He further stated that during the 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vement. The limit was very low as compared to the high compliance burden for transporters. ii. The rules provided that it would be applicable to any kind of movement of goods both, intra-State or inter-State. The draft e-Way Bill had gone beyond the present system and was proposed to be applicable to any kind of movement, both intra-State and inter-State. iii. The draft rules provided that it would be applicable to movement of all kinds of goods. There was no demarcation for the goods as to whether they were evasion prone or not. This universal application of the rule to all kinds of goods meant that there was no adoption of risk management approach which was the essence of a modern day tax administration. iv The draft rules provided for strict timelines for completion of transport operation, which appeared to be impractical and removed from reality. Further any violation of time lines had penal consequence. v. The coverage of the rules was ubiquitous and did not provide for relaxation for any kind of movement such as that for imports or exports. So any movement of the export goods from the ICD to the Gateway port or for the transhipment of the imported goods from gateway p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was functioning well. The Hon'ble Minister from Bihar stated that as the CGST and the SGST Acts had been passed, e-Way Bill system could not be kept in abeyance. The Secretary responded that the CGST and the SGST Acts had an enabling provision to create an e-Way Bill and the main reason for creation of the e- Way Bill system was to check evasion of VAT due to the tax arbitrage available on account of differential rates of tax under the Central Sales Tax Act and the concerned VAT Act. He observed that in GST, for inter-State supplies, the tax paid as IGST would be the same as the sum total of CGST and the SGST for intra-State supplies and therefore, the incentive for tax evasion would be much less and there would be no requirement for check posts at the State borders. The Hon'ble Minister from Assam stated that many times, in the garb of exempted goods, taxable goods were transported. The Hon'ble Minister from Karnataka stated that the States which were already operating the e- Way Bill system should not go to a manual system as this would lead to tax evasion and harassment. He stated that having a borderless system would be a problem and wondered whether an agency, oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gujarat, stated that the Law Committee would try to finalise the e- Way Bill system at the earliest and that the NIC (National Informatics Centre) could possibly do this work in the shortest time span. The Secretary enquired whether the existing e-Way Bill system of Karnataka could be scaled up to make it operational at all-India level. The CCT, Karnataka, stated that such a system could only be created by NIC, Delhi. The Secretary stated that even for NIC to take up this work, e- Way Bill Rules would need to be finalised. The Hon'ble Minister from Andhra Pradesh stated that they could not scrap the e- Way Bill system as this would lead to considerable loss of revenue and suggested that the existing e- Way Bill system should continue. The Hon'ble Minister from West Bengal also supported this proposal. The Secretary suggested that the GSTN in coordination with CCT, Kamataka could check from the NIC whether they could develop an e-Way Bill system. He suggested to defer a decision on the e-Way Bill system and to ascertain whether NIC along with GSTN could create an all-India e- Way Bill system in a short time frame. The Council agreed to this suggestion. Issues raised by Uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g mixture of spices of all forms and in all varieties"; unbranded sugar confectionery be taxed at 5% instead of 18%; sea shells and handicraft items made from them should be Nil rated; pickles be taxed at the rate of 5% instead of 18%; electrical apparatus irrespective of capacity should be taxed at 18%; roasted gram should be included in Chapter 7, item 11 as "fried grams"; glass for corrective spectacles and frames and mounting for spectacles should be kept at 12% instead of 18%; attachments to tractors should be taxed at 12%; cess on motorcycle should be only for engine capacity above 500 cc; concrete blocks/bricks be taxed at a rate lower than 18% and fly ash bricks should be taxed at 5%; wet grinder should be taxed at 18% instead of 28%; air compressors and weighing machineries should be taxed at 18% instead of 28%; power driven pumps should be taxed at 5% instead of 12%; non air-conditioned restaurants should be taxed at the rate of 5% instead of 12%; ordinary AC restaurants which do not serve liquor should be taxed at 12% instead of 18%. 20.3. The Hon'ble Minister from Kerala also circulated a written speech in which he inter alia suggested that assistive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... States that had enacted their SGST Act could also notify the same Section; 22.3. to notify Sections 1, 3, 4 and 5 of the CGST Act, 2017 and Sections 1 and 3 of the IGST Act, 2017 from 19 June, 2017 and the States that had enacted their SGST Act, could also notify the same Sections (other than the IGST Act); 22.4. to notify Sections 22 to 30 and Section 139 of the CGST Act, 2017 and Section 20 of the I G ST Act, 2017 from 19 June, 2017 and the States that had enacted their SG ST Act, to also notify the same Sections (other than the IGST Act); 22.5. to defer a decision on the e- Way Bill system and to ascertain whether NIC along with GSTN could create an all-India e-Way Bill system in a short time frame; 22.6. all representations regarding reduction in rates of tax to be submitted within a day or two and these shall be considered by the Fitment Committee of officers and their recommendations shall be placed before the Council; 22.7. the deadline for GST implementation shall continue to be 1 July, 2017. Agenda Item 7: Date of the next meeting of the GST Council: 23. The Hon'ble Chairperson suggested that the Council could meet in a week's time to consider the representa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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