Tax Experts react to 31st GST Council meeting announcements
The 31st GST Council meeting chaired by Finance Minister on Saturday, December 22, 2018 just before Christmas and New Year showered bonanza with rate reduction for around 23 commonly used goods and services such as movie tickets, digital cameras, power banks, etc. The Council’s decision to extend due date for furnishing Annual Returns upto June 30, 2019 comes as a major breather for taxpayers who were grappling with the complexities surrounding it and is definitely a welcome move.
The Council also bought clarity on taxation of EPC contracts thereby resolving ambiguity created by various AAR decisions. In addition, Council provided huge relief to Industry by creating Centralised Appellate Authority for Advance Ruling, waiving penalty, entitlement of ITC in relations to invoices for FY 2017-18 till due date of furnishing GSTR-3B for March 2019, etc.
While India Inc. cheered GST Council’s decision to slash tax rates on 23 goods and services, the Who’s Who of the Tax World react to the decisions taken by the GST Council.
“The GST councils decision to positively clarify the position of applicability of GST on solar power generation projects ends the uncertainty on tax position of solar power projects and will give huge fillip to solar mission.”
“The decision to prune down the 28% GST bracket, extending the date for filing Annual return and Audit report to 30th June, 19 and clarification on levy of interest on delayed payments only to the extent of tax payable in cash, gives a positive message to the trade and industry”
Besides welcome decisions to recommend reduction of GST rates for several items, Council has referred some pressing issues in relation to composition scheme for small service providers, taxation of residential properties and exemption threshold, for examination to Committees/GOM. Positive attitude of members of these Committees/GOM and recognition of need to reduce compliance costs and administration ease will go a long way in overall growth of businesses, revenue and economy.
Fair treatment of all equally placed people and transparency require that the concerned Committees and GOMs publish the proposals, if they have already formulated, or, the direction indicated by the GST Council, to enable businesses and affected parties to send their comments/suggestions. Announcing time lines for activities involved in the process of making recommendations including publication of drafts of final proposals, is also highly desirable.
Further, GST Council has, once again, recommended issuance of several clarifications. Some relate to classification and applicable tax rate for a particular product ( for example, printing of pictures) , applicability or otherwise of exemption in particular situations ( for example, supply of food and drinks by an educational institution provided by institution itself to students) as also applicability of exemption in specific cases ( for example, clarification to Food Corporation of India).
These clarifications seem to be issued in terms of the powers of the GST Council contained in residual clause of the mandate of the Council – clause (h) “any other matter relating to the goods and services tax, as the Council may decide” of Article 279A(4)[1] of the Constitution of India or clause (b) of this Article “the goods and services that may be subjected to, or exempted from the goods and services tax”.
Following these recommendations, Central Government and the State Governments/Union Territories will have to issue appropriate notifications/clarifications.
One would have thought that the Council is essentially, a body to make policy decisions and set out the law in general, as also tax rates and exemptions. Interpretation of the law, entries of rate schedule or exemption notifications is the function of the administration or judiciary.
Perhaps, these issues are taken up and clarifications are being issued by the Council as it has representation of all State Governments and Central Government and it will ensure uniformity in application of law and avoid divergence of views. That is a laudable objective and will also bring certainty and uniformity in application of law leading to facilitation of businesses, consumers and administrators alike.
What is then, the mechanism to take up the matters with the Council? Which is the email id that one ought to use for sending queries/representations and whom to meet to explain the issue? Will these be numbered and applicant will get acknowledgement of the same ? How does one know which item is listed for consideration of the Council so, all similar issues/items can be taken up for consideration by the Council?
Would it not be appropriate, for the sake of uniformity and clarity, that the Council also sets out the date from which clarifications recommended by it would apply?
While one loves this mechanism, it is like Parliament rather than the Supreme Court interpreting a provision. Point to debate is whether this mechanism is the most appropriate for determining disputed issues where the ground level officers and tax payers have taken different views? It will be appreciated that the Council cannot and does not give hearings.
There can be no two views that litigation ought to be reduced and if the issues can be sorted out by clarifications from the Council that is the route that must be adopted. At the same time, one would have to see how this works in practise. We have had decisions where Courts have held that the clarifications/circulars are binding on tax authorities and yet tax authorities have taken contrary views. Tax payers, of course, can still challenge them.
Would that be so in GST regime as well?
[1] Goods and Services Tax Council – Article 279A and sub-article (4) – “The Goods and Services Tax Council shall make recommendations to the Union and States on-……..”
& Aditya G Nadkarni
“The GST Council’s announcements on Saturday have certainly brought delight to India Inc. as well as the common man, as everyone gears up to usher in a new year! Although the 31st meeting may have witnessed heated exchanges among members, the decisions reflect the Council’s and Government’s intent to boost the ease of doing business initiative under the new indirect tax system.
While the rate rationalisation for around 23 commonly used goods and services such as movie tickets, digital cameras, power banks, etc. and also exemption extended in some cases is a welcome move, reduction in rates for items falling in 28% bracket like air-conditioners, dishwashers, TVs above 32-inch, cement and automobile parts would have been an icing on the cake…especially considering the run-up to general elections next year. However, the Government has been mindful of the impact such changes would have on its coffers.
The GST Council has also provided a much sought-after clarity on taxation of EPC contracts in relation to solar power generating plant and other renewable energy plants; thus, resolving the ambiguity / confusion created by conflicting advance rulings on the subject matter.
The reference of important issues such as extension of composition scheme to small service providers, taxation of residential property in real estate sector (say at 5%) and threshold limit for exemption under GST regime, to various Committees and GoM, which would be taken up in the next meeting scheduled next month, showcases Government’s responsiveness to various stakeholders’ concerns.
Additionally, the amendments to the GST law slated to be notified from February 1, 2019; the in-principle approval to – (i) create Centralised Appellate Authority for Advance Ruling, and (ii) levy interest only on delayed payment of GST through electronic cash ledger; entitlement to ITC in relation to invoices issued by the supplier during FY 2017-18 till due date for furnishing Form GSTR-3B for March 2019 subject to conditions; and additional functionality to claim refunds under Form GST RFD-01A, should provide relief to a large part of the industry.
The further extension of due date for furnishing of annual returns in Form GSTR-9 and reconciliation statement in Form GSTR-9C for FY 2017-18 to June 30, 2019 along with clarificatory amendments / changes in the formats / instructions will help taxpayers as well as the auditors prepare better for undertaking this compliance. Although, one would have hoped that GST Council addressed all the challenges & critical issues concerning annual return & audit; state-wise reconciliation between audited financials and annual returns; and unavailability of mechanism to correct discrepancies / mistakes in annual return.
The 3-month trial run before the country-wide rollout of the new return filing system from July 1, 2019 gives the Government as well as GSTN ample opportunity to fix the technical glitches / issues, if any, so as to ensure a flawless, robust and long-term e-governing mechanism.”
“Pruning of the 28% rate list and restricting it to mostly top-notched luxury / sin goods (except goods like cement, automotive parts and air conditioners on account of the huge revenue implications of these products on the exchequer) is a great step in the right direction. Vital impact supplies as well considered for rate reductions like parts and accessories for disabled persons, services by banks for basic saving accounts under the Pradhan Mantri Jan Dhan Yojana and frozed vegetables. The Council addressed a highly vexed issue of the solar industry with approving a deemed valuation mechanism for calculation of the GST rate applicable on solar power setting up projects. To address the initial hiccups of this taxation reform and with the aim to reduced tax costs, the GST Council approved the granting of additional time period for claiming credits pertaining to FY 17-18. To address the IT challenges and initial hardships faced by the industry, approved additional time period for filing of Annual return, Reconciliation Statement, Form ITC-04, etc. Being cognizant of the data records maintained by the companies in the first year of GST, approved certain relaxations for disclosures in Annual Return and Reconciliation Statement. Addressing the worries of widespread companies, the GST Council approved the long-awaited creation of a Centralized Appellate Authority of Advance Ruling to resolve the issue of varied advance ruling orders in different States. To avoid unwarranted litigation, GST Council approved the legislative amendment of interest only being payable on the net tax liability ie, after taking into account the ITC admissible. Thus, overall it was quite a significant meeting of the GST Council with several industry friendly measures. Though the critics may argue that so many frequent changes makes it difficult for the GST law to stabilise; but on the positive side it only shows that the GST Council is concerned above the problems of the trade and industry and is clearly willing to alleviate these concerns”
The rate of tax reduction on a number of items is most welcome. The benefits would be felt across different product lines. While there is an announcement about a further extension of due date for Annual Return, the breather should be used to make it even more simple. In so far as the new return on trial basis, unless the portal is fully geared up, it might be better to continue with just GSTR-3B instead of trying something new in April 2019 which may have new technical glitches.
The 31st GST Council Meeting recommendations on 4 major issues are very welcome
a)Creation of Central Appellate Authority for conflicting rulings
b)The overall extension of time for Annual Returns of 2017-18 till 30 June 2019
c)The extension in time to avail ITC credit for 2017-18 till 31 March 2019.
d)A separate Committee to analyse the Composition limits for Services rendered by small service providers .
These decisions have clearly demonstrated the sagacity and willingness of GOI to take all stakeholders along and appreciate genuine concerns of Trade and Industry.
The GST Council meeting effectively maintained a balance between the fiscal deficit and the revenue collection. As expected, the GST Council announced several rate reductions. The National Anti-Profiteering Authority will be back in action after the rate cuts. It remains to be seen how the Government will proceed with respect to the pending refunds and the budgetary support to units in certain backward industrial zones.
As a populist measure, the reduction of rates to 18% when ticket cost is more than Rs 100 and 12% when the ticket cost is less than Rs 100 will be a welcome relief for movie goers. The theme parks and water parks will have to wait for a little while more to get their share of credit.
Advance Ruling Authorities in different States have been passing contradictory Advance Rulings over many important issues. The GST council has decided to constitute a centralised authority to adjudicate on these contradictory Rulings and pass a binding decisions on these contradictory issues. It is hoped that GST council will focus on adequate representation of judicial and non judicial members for this centralised authority.
The agenda for the next Council meeting looks very promising and pragmatic. The next meeting will decide the fate of taxability of the residential units. Home buyers filed anti-profiteering complaints against construction companies for not passing GST benefits whereas there is a conspicuous gap in the anti-profiteering law with respect to methodology. Other issues to be decided includes composition scheme for small service providers, threshold limits for exemptions, taxability of lotteries and disaster cess in case of natural calamities.
The GST Council, at its 31st Meeting – 5th and the last in the calendar year 2018 – appears to have deliberated upon a range of issues. The Council was staring at the challenges on the economic front and the GST policy as well as implementation fronts. It was therefore obvious that the Council had to take some tough and bold decisions. In the end, going by the recommendations of the Council as broadly detailed in the 5 (five) Press Releases, the Council has done a fairly good job and made a sincere attempt to address host of the structural and policy related issues.
The drastic pruning of the list of 28% rated goods was on cards! With this cut, the list covers only 28 odd items which is hardly about 10% of the number of items (about 228) originally covered in the list on the introduction of GST. Call it a compulsion or wisdom or retreat, the step which was overdue, is welcome and in the right direction. Interestingly, the pruned list now covers only about 28 items comprising of sin goods, luxury goods, automobiles and auto parts which were the original candidates for the selection under top tax bracket! The only exception is cement that continues to remain under the list due to revenue considerations, though much to the chagrin of the Infrastructure Sector and Real Estate Sector!
The recommendation of the Council to resort to deemed valuation for the goods component and service component in case of EPC Contract for the Solar Power Generating Plant and other Renewal Energy Plant, though attractive, may prove to be dispute-prone. Such artificial splitting of a composite supply for the purpose of valuation and taxation apparently lacks the backing of Statute.
On the procedural front, the recommendations of the Council to extend the due dates for furnishing GSTR-8 and GST ITC-04 as well as complete waiver of late fees for all taxpayers in case GSTR-1, GSTR-3B and GSTR-4 for the specified period are furnished before 31.03.2019 shall be greeted with a sigh of relief by the taxpayers. What has, however, come as a great relief to the taxpayers and tax professionals alike is the Council’s recommendation to further extend the due dates for filing the Annual Returns in Forms GSTR-9 and Form GSTR-9A as well as the reconciliation statement in Form GSTR-9C for the F. Y. 2017-18 till 30.06.2018. It is obvious that the GSTN Portal is not expected to be ready soon for receiving these Returns and Statements. Moreover, the Return and Statement itself are expected to undergo some major changes. Ideally, the Council may seriously consider the scrapping of this requirement for the F. Y. 2017-18 or at least, restrict it to the taxpayers with an aggregate turnover of more than Rs.10 crores in a financial year. Considering the overall scenario, this is the need of the hour!
The approval in principle granted by the Council to the amendments in the GST Acts so as to pave the way for Centralised Appellate Authority for Advance Ruling and in Section 50 of the CGST Act, 2017 to provide for charging of interest only on the net tax liability discharged in cash is quite noteworthy.
It is also quite interesting to see that the Council has apparently decided to undertake some structural reforms and has set the things in motion. The decision to refer the issues of the extension of the Composition Scheme to the small service providers and the rate of tax as well as threshold for the same and the threshold exemption limit to the specified Committee augurs well for the service providers and taxpayers, particularly in MSME Sector. One may expect some major reliefs on this count in near future!
While the Real Estate Sector may feel being laid down, there is a ray of hope for the Sector and the home buyers! The Council has decided to refer the issue of taxation of residential property to the specified Committee. It is strongly felt that the rate of tax on under construction residential properties may be brought down to 5% (with ITC) which can certainly provide a major booster dose to the Sector facing a serious challenge of lack of demand.
The Council, it seems, is also conscious of the disturbing revenue trends under GST regime and the deviations from the revenue collection targets vis-à-vis original assumptions. The Council has approved the proposal to set up a Group of Ministers to be assisted by the experts from Central Government, State Government and NIPFP and to undertake the study of revenue trends, the reasons for deviations, the bottlenecks and other related issues and submit their findings and recommendations.
To sum up, the recommendations and the decisions of the Council have come as a ‘parting gift’ for the year 2018 and bringing ‘rays of hope’ for year 2019! It seems that the taxpayers and the tax professionals may have a lot to look forward to in 2019 and considering the turbulent first 18 months of the GST regime, that is not a mean achievement!
It is good that the authorities are continuing the good work in fine tuning the laws and rationalising the rates. In the interest of ease of doing business, we expected that the SEZ online and ICEGATE will be integrated with GSTN, but still we need to wait for this to happen. Similarly duty paying challan should have been recognised as one of the credit taking documents. Insisting on filing the annual audit report for FY 17-18 appears to be not a good idea, though time limit has been enhanced. The threshold limit should have been extended to atleast 5 crores for the annual audit. May be some of these recommendations will be considered favourably in the days to come.
At the press conference, the Finance Minister stated that GST compensation should be around INR 60,000 crores for 2018-19, lesser than the amount of INR 83,000 crores which is estimated based on last years compensation. It needs to be noted that the budgeted expenditure towards compensation in the last Union Budget is INR 90,000 crores for 2018-19.
The Finance Minister also stated that the monthly average collection in 2017-18 was around INR 89,000 crore and in 2018-19 it is around INR 96,500 crore. The growth is approx. 8.4%. It needs to be noted that the budgeted growth as per last Union Budget is 11.5%.
The formation of GoMs / Committees including to study the revenue trends and taxation of residential property in real estate sector is a welcome move.
Creation of a centralised Appellate Authority for Advance Ruling would give certainty to taxpayer. Amendment of section 50 of the CGST Act to provide that interest would be charged only on the net tax liability of the taxpayer - is likely to open an opportunity for the tax administration to litigate for earlier period. To resolve the dispute on GST on solar power generating plant and other renewable energy plants, the recommendation of deemed value of goods to be 70% and remaining portion (30%) as value of taxable service attracting standard GST rate, is likely to be challenged where it is not beneficial to the tax payer.
Extension of the due date for furnishing the annual returns and reconciliation statement to June 30, 2019 would give relief to the GST Auditors. Verification by taxpayer of the reconciliation statement records the onus of taxpayer. However, ‘solemn affirmation’ by the GST Auditors, seems to have been continued.
Extension of date (upto April 20, 2019) of availing ITC in relation to invoices issued by the supplier during FY 2017-18 will be welcomed by the industry.
Taxpayers who have not filed the returns for two consecutive tax periods shall be restricted from generating e-way bills. This strengthens the anti-evasion measure.
The new return filing system to be introduced on mandatory basis effective from July 1, 2019; i.e. after the elections in May 2019.
Amendments made in CGST / SGST / IGST Acts to be made effective from February 1, 2019. This gives enough time to the tax payer to prepare for the same.
“The recommendations of the GST Council continue to address the concerns of the assessees ranging from delays in processing of refund claims, taxability of various supplies, their classification and valuation to dichotomy in the rulings of the AARs.
The noteworthy outcome of the recent meeting are:
1) providing of a single authority for online applications and disbursal of refunds;
2) issuance of guidelines for refund claims involving invert duty structure scenario and accumulated ITC of compensation cess;
3) in-principle approval for setting up of a Centralised Appellate Authority for Advance Ruling to deal with cases of conflicting decisions by Appellate AARs of two or more States;
4) in-principle approval for computation of interest on the net tax liability (after taking into account the admissible input tax credit);
5) clarity on the availability of exemptions, taxability, and valuation of various supplies undertaken by education, development banking, OMCs, transport, etc. sectors;
6) setting up of committees for analysing the prospects for extending the composition scheme to small service providers, altering the threshold limit of exemption, changing the rate of GST on lotteries, etc.
Interestingly, the highly disputed issue of the applicable rate of GST on supply of solar power plants has also been addressed by the GST Council in the said meeting. GST Council has recommended for the applicability of different rates of GST on different components of valuation of such transactions which wouldeffectively reduce the applicable GST rate on such supplies. Additionally, the tax rates have also been reduced on various products and services such as supply of cinema tickets, electronic goods, automobile parts, air travel of pilgrims, etc. With the cutback in rates, a re-evaluation of their product pricing mechanisms is presently imminent for ensuring compliance with the anti-profiteering provisions.
Although most of the recommendations are welcoming, it is now a wait for the notifications and clarifications to determine if there are any surprises in the fine print.”