TMI BlogMinutes of the 5th GST Council Meeting held on 2-3 December 2016X X X X Extracts X X X X X X X X Extracts X X X X ..... m the 4th GST Council meeting). iv. Date of the next meeting of the GST Council. v. Any other agenda item with the permission of the Chairperson. Discussion on Agenda Items Agenda Item 1: Confirmation of the Minutes of the 4th GST Council Meeting held on 3-4 November, 2016 4. The Members suggested the following amendments to the draft Minutes of the 4 th meeting of the Council (hereinafter referred to as 'the Minutes') i. The Hon'ble Minister from Tamil Nadu stated that in paragraph 29 (xv) of the Minutes, it should be recorded that the rate of Goods and Services Tax (GST) on gold shall be between 2% and 4%, so that an upper ceiling for the rate was fixed. The Hon'ble Chairperson of the GST Council (hereinafter referred to as 'the Chairperson') stated that the issue regarding GST rate on gold should be kept open and it could be considered after the completion of the rate fitment exercise. The Council agreed that no amendment was required in the Minutes on this issue. ii. The officer from Odisha stated that in paragraph 33 of the Minutes, the version of the Hon'ble Minister from Odisha recorded therein should be replaced with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t would be easier to decide on the law. The Hon'ble Minister from West Bengal strongly suggested to discuss agenda item 3 first as this had already been discussed in three meetings of the Council and in one informal meeting of the Members of the Council. The Hon'ble Chairperson observed that many other issues had been decided starting from the first meeting of the Council while the agenda on cross-empowerment kept getting discussed. The Hon'ble Deputy Chief Minister of Delhi also supported the suggestion to discuss agenda item 3 first and added that clarity was needed regarding treatment of the Integrated Goods and Services Tax (IGST). The Hon'ble Minister from Tamil Nadu observed that it was necessary to look at cross-empowerment under IGST and therefore, agenda item 3 needed to be discussed first. The Hon'ble Chairperson observed that the Council would keep discussing and re-discussing the issue under agenda item 3 till a consensus was reached. He further added that this issue could be discussed when the draft IGST Law was taken up for discussion but the entire process need not be halted for that. 7. The Hon'ble Minister from Meghalaya also suggested to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. He further observed that approval of law was not contingent upon an agreement on the administrative arrangement. 9. The Hon'ble Minister from Kerala observed that after the Constitutional amendment, the States had lost the bargaining power and had been reduced to the level of a municipality but on the administrative issue, power at State level was very important and this could not be compromised. He observed that there was a history of discussion on cross-empowerment and the agenda should have followed that sequence. The Hon'ble Chairperson observed that rights of the Centre were contingent upon States' agreement and vice versa and in that sense, both had lost their power. After reading out the paragraphs 47-49 of the Minutes of the 4th Council Meeting, he pointed out that it was clear that agenda item 3 and the Draft Model GST Laws were to be dealt on parallel track. The Hon'ble Minister from Chhattisgarh suggested that discussion could be started with agenda item 2 and the laws could be cleared so as to be presented in the Parliament. He recalled that the 5th Council meeting was earlier deferred to enable the officers to discuss the Draft Model GST Laws. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocess of extending the law further as required by the Constitution of India and the Constitution of Jammu Kashmir. The Council agreed to this suggestion. ii. Section 2 (7), 2 (8) and 2 (106) (Definitions): The Hon'ble Minister from Telangana suggested that the definition of agriculturist should not be limited to those who cultivate the land personally as small landholders might give their land to other ryots for cultivation. The Hon'ble Deputy Chief Minister of Delhi observed that tenancy was quite common in India and to make them taxable under GST would be a very big decision which needed to be discussed. The Hon'ble Minister from Uttar Pradesh suggested that the definition of 'agriculturist' should be a broad one. The Hon'ble Minister from Kamataka observed that while tenant farming was widespread, most States had laws against tenancy. He therefore posed a question whether tenancy could be legalized under the Model GST Law. The Hon'ble Chief Minister of Puducherry observed that share-cropping was prevalent in various States and this should not be taxed. The Hon'ble Minister from Haryana observed that the agriculture sector was highly stress ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orm definition. The Hon'ble Deputy Chief Minister of Delhi stated that as a nation, we should adopt a pro- agriculture policy. The CCT, Kamataka explained that exemption to agriculturists implied exemption to a person from tax whereas exemption to products like poultry implied exemption to a product from tax and not to a person. He added that the approach had been to exempt milk but not the processed products of milk whereas if dairy as an agricultural activity was exempted, then the processed dairy products produced by an agriculturist would also be exempt. The Hon'ble Chief Minister of Puducherry observed that a very small percent of dairying, poultry farming, etc. was carried out by corporates and due to this, the entire sector should not be subject to tax. The CCT, Maharashtra stated that in his State there was no Value Added Tax 01 AT) on primary products, but processed goods like cheese, butter and ghee attracted VAT. The Hon'ble Deputy Chief Minister of Gujarat observed that milk cooperative was a big activity in Gujarat and the practice was to exempt the farmers bringing milk to the cooperative but to tax the subsequent value added products. The Hon'ble Mini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver growing rubber and tea and that each crop need not be listed separately. Based on the above discussion, the Council agreed on a modified definition of agriculture in section 2 (7) which reads as follows - agriculture with all its grammatical variations and cognate expressions, includes floriculture, horticulture, sericulture, pisciculture, the raising of. crops, grass or garden produce, and also grazing, but does not include dairy farming, poultry farming, stock breeding, piggery, apiculture, the mere cutting of wood or grass, gathering of fruit, collection of minor forest produce, raising of man-made forest or rearing of seedlings or plants. Further, the Council agreed to merge the definitions under Section 2 (8) and Section 2 (106) as follows - agriculturist means an individual or a Hindu Undivided Family, who carries on any agricultural operation on his own account- a) by one's own labour, or b) by the labour of one's family, or c) by servants on wages payable in cash or kind [(but not in crop share)] or by hired labour under one's personal supervision or the personal supervision of any member of one's family and to retain the Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge in the definition in the Central Excise Act, 1944. The Hon'ble Deputy Chief Minister of Delhi also supported this proposal. The Council agreed to this suggestion. viii . Section 3 (2) (Meaning and scope of supply): The Hon'ble Minister from West Bengal suggested that under Article 366 (29A) of the Constitution, works contract and restaurant were treated as deemed sale of goods whereas in the Draft Model GST Law, they were treated as supply of services as per paragraph 5 (f) and 5 (h) in Schedule II. He observed that this could lead to legal challenge. Commissioner (GST Policy Wing), CBEC clarified that this issue had been referred to the Union Law Ministry for clarification and if they suggested to keep these two categories of supply as that of goods, entry in Schedule II could be modified accordingly. Joint Commissioner, Commercial Taxes, West Bengal suggested that in order to avoid any legal challenge, these two categories of supply could be considered as composite supply on which all provisions relating to services shall apply. The Council agreed to this suggestion. ix. The Hon'ble Minister from Tamil Nadu observed that in the earlier version of the draft M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that this provision be amended and that the benefit of the Composition scheme shall be availed on the basis of declaration rather than permission, subject to the conditions precedent being fulfilled. xiii. Section 9 (1) (b) (Composition Levy): The Hon'ble Deputy Chief Minister from Delhi expressed concern in regard to this provision and stated that any grocery store which was selling goods not leviable to tax under OST would get excluded from the benefit of the Composition scheme. The CCT, Gujarat clarified that this provision would only apply to stores selling the 5 petroleum products and potable alcohol which were excluded from GST and they would not be entitled to avail the benefit of the Composition scheme. The Council agreed not to make any change in the provision. xiv. Section 9 (1) (Composition Levy): The Secretary pointed out that in the first meeting of the Council held on 22-23 September 2016, it was decided that manufacturers and service providers shall be kept out of the Composition scheme. He explained that this decision needed to be revisited in order to give relief to the manufacturers in the micro, small and medium enterprises (MSME) sector who curren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ouncil but shall not be less than ₹ 50 lakh. The Council also agreed to modify its original decision taken in the 1 st GST Council meeting dated 22-23 September 2016 as per which manufacturers were not to be extended the benefit of the Composition scheme and agreed to extend the benefit to manufacturers also, subject to clause (e) of Section 9 (1) of the Model GST Law. The Council also agreed that such a scheme should be limited to turnover-based composition rather than capacity based composition. xv. The Council also discussed the rate oftax under Section 9 (Composition Levy). The Hon'ble Minister from West Bengal observed that a combined tax rate of 5% on manufacturers under the Composition scheme would lead to loss of competitive advantage. The Secretary explained that the Composition scheme would normally be relevant to manufacturers making Business-to-Consumer (B2C) supplies where no input tax credit CITC) was involved. The Hon'ble Minister from Punjab suggested to levy a higher rate of GST for manufacturers as value addition for them would be higher. The Hon'ble Minister from Uttar Pradesh did not favour taxing the manufacturers and traders at the same ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had strongly represented to allow them the benefit of Composition scheme without any turnover cap. The Secretary stated that presently, works contract and restaurants were under the Composition scheme because they had elements of both goods and services. In GST, this logic was not relevant. Further, they would also get ITC for all their purchases. After deliberations, the Council decided to have a total composition rate of 1 % (i.e. 0.5% for CGST and 0.5% for SGST) for traders and a total composition rate of 2% (i.e. 1 % for CGST and 1 % for SGST) for manufacturers. xvi. Section 9 (Composition Levy) and Section 8 (Levy and Collection of Central/State Goods and Services Tax): The Hon'ble Minister from West Bengal raised the issue whether tax on reverse charge basis should be levied on Composition dealers only. He added that as the provision was not envisaged for other classes of dealers, there would be no level playing field. The CCT, Gujarat suggested that levy of tax on reverse charge basis should be applied on all supplies from unregistered persons (which is otherwise chargeable to tax) as otherwise, it would create a non-level-playing field between unregistered persons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Policy Wing), CBEC clarified that if an order was cancelled, a credit note would be issued by the supplier and there would be a corresponding reduction in the output tax liability of the supplier in the return for that month and that the supplier would not have to approach the Tax Department to get any refund as they would be allowed to self-adjust their liability. The Hon'ble Minister from Tamil Nadu supported this provision and stated that in Service Tax, it had helped in curbing tax evasion, The Hon'ble Minister from Uttar Pradesh also supported this provision. The Council agreed not to make any change in the provision. xix. Section 12(4) (Time of supply of goods): The Hon'ble Minister from West Bengal stated that the term 'voucher' was not defined and it was not clear whether it was goods or services. The CCT, Gujarat clarified that if vouchers were given for use in a grocery store, the point of supply of goods shall be fixed through this provision. The Secretary suggested to define the term 'voucher' in the Definitions section. The Council agreed to define the term 'voucher' in the Definitions section. xx. Section 15 (Value of taxa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The Chief Economic Advisor, Government of India suggested to levy a low rate of GST on electricity to allow the blocked ITC in the power sector to pass through and that this would address the problem of high cost of power generation. The Secretary clarified that electricity duty was in Schedule 7 of the Constitution (State List) and that the present value chain was exempt from tax. He added that even if ITC was allowed on capital goods in the power sector, it could not be used except possibly for wheeling charges. He also informed the Council that the Ministry of Power had suggested to levy a nominal rate of GST on electricity to enable power companies to use the credit to discharge their GST liability on miscellaneous activities like Service Tax on labour contracts. He observed that in such an arrangement, electricity duty would continue to be levied and in addition, a low rate of GST could be levied as a pass-through for ITC. The Hon'ble Minister from Uttar Pradesh wondered why credit was being allowed to pipelines and telecommunication towers while it was not permitted earlier. The Secretary clarified that in the GST regime, effort was to remove credit blockages to addres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding recovery of excess distribution of credit to one or more recipients of credit could be made clearer. The Council agreed to this suggestion. xxiv. Section 23 (Registration): The Hon'ble Minister from West Bengal observed that the progress of migration of taxpayers to GST was slow due to server errors and slow login process. He enquired as to what steps were being taken to rectify the situation. The Hon'ble Ministers from Chhattisgarh, Bihar and Jharkhand also expressed concern regarding considerable time being taken for logging in to the system for migration. Shri Navin Kumar, Chairman, Goods and Services Tax Network (GSTN) informed that migration of existing taxpayers to GSTN had commenced from 8 November 2016. He further informed that 62% of dealers from Gujarat had registered on the GSTN portal and that the experience of Maharashtra had also been good. He added that GSTN would look into the problems mentioned by West Bengal and that they were also going to circulate to all States the migration process followed by Gujarat. xxv. Section 28(1) (Tax invoice) read with Section 30 (Amount of tax to be indicated in tax invoice and other documents): The Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttar Pradesh and Bihar suggested that there should be no threshold limit for transactions to attract TDS and that all government transactions should attract TDS at the rate of 1 %. The Hon'ble Minister from Haryana also supported this demand and also suggested that the TDS rate should be higher. The Secretary stated that a higher TDS rate was not desirable as TDS was only meant to create an audit trail. The Hon'ble Minister from Jammu Kashmir stated that law should not be made to address the errant taxpayers and that imposing TDS for all transactions would become very cumbersome. The Hon'ble Minister from Karnataka also warned that TDS on all Government transactions would create a lot of workload for the officers. The CCT, Karnataka stated that there was an alternative provision in the Draft Model GST Law of giving a Unique Identity Number (UIN) which could be obtained by panchayats, etc. and that they could report their purchases at a fixed periodicity (say one year) and upload it on GSTN for the purpose of matching. He added that this arrangement would be less onerous than TDS for all Government transactions. The Principal Secretary (Finance), Odisha stated that com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the State of Jammu Kashmir) . Jammu Kashmir would then take the process of extending the law further as required by the Constitution of India and the Constitution of Jammu Kashmir.' ii. Section 2(7) (Definitions): To modify the definition of agriculture as follows agriculture with all its grammatical variations and cognate expressions, includes floriculture, horticulture, sericulture, pisciculture, the raising of crops, grass or garden produce, grazing, dairy farming, poultry farming, stock breeding, piggery, apiculture, the mere cutting of wood or grass, gathering of fruit, collection of minor forest produce, raising of man-made forest or rearing of seedlings or plants. iii . Section 2(8) and Section 2(106) (Definitions): To merge the definitions under these two sections as follows - agriculturist means an individual or a Hindu Undivided Family, who carries on any agricultural operation on his own account- a) by one's own labour, or b) by the labour of one's family, or c) by servants on wages payable in cash or kind or by hired labour under one's personal supervision or the personal supervision of any member of one's family and to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osition Scheme shall be such amount as may be specified by the GST Council but shall not be less than ₹ 50 lakh and to have a total composition rate of 1 % (i.e. 0.5% for CGST and 0.5% for SGST) for traders and a total composition rate of 2% (i.e. 1 % for CGST and 1 % for SGST) for manufacturers. xvi. Section 9 (Composition Levy) and Section 8 (Levy and Collection of Central/State Goods and Services Tax): To levy tax on reverse charge basis on all commodities when supplied by an unregistered person (which is otherwise chargeable to tax) to a registered person. xvii. Section 11 (Power to grant exemption from tax): To make suitable modification in the wording of Section 11 to reflect the understanding that applicability of exemptions under CGST, SGST and IGST shall be uniform. xviii. Section 12(4) (Time of supply of goods): To define the term 'voucher' in the Definition section. xix. Section 16(1) (Eligibility and conditions for taking input tax credit): To defer decision regarding ITC in respect of capital goods till data on the total quantum of ITC availed on capital goods was received from CBEC. xx. Section 16(2) (Eligibility and conditi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon'ble Chairperson invited the Chairman, CBEC to express his views on the subject. The Chairman, CBEC stated that there was useful discussion during the officers' meeting. He stated that for smooth working of CGST and SGST, cross-empowerment was essential but it should apply across the value chain without exclusion of any tax administration from any segment as Constitutionally both the administrations were empowered to tax the entire value chain. He expressed that the percentage of audit to be conducted by the Central administration could be lesser for units with turnover below ₹ 1.5 crore and could be higher for units with turnover above ₹ 1.5 crore. He observed that cross-empowerment of refund needed to be discussed further as there were legal issues relating to the Consolidated Fund of India being operated by State government officials and the Consolidated Fund of States being operated by Central government officials, the modalities of audit of such refunds, etc. On IGST, he observed that since Article 269A of the Constitution vested the power of 'levy and collection' of IGST with the Centre, it might not be legally permissible to do cross-empower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssary to allow State governments to administer IGST. The Commissioner (GST Policy Wing), CBEC clarified the fund settlement procedure under GST. He explained that if IGST was cross-utilised for payment of SGST in a State, the Central government would transfer the equivalent amount of money to that State government and if SGST was used to pay IGST in a State, the concerned State would transfer an equivalent amount to the Centre. He further clarified that as per data received by the GST Council for twenty States, the all-India average of inter-State dealers was only 27%. The Hon'ble Minister from Kamataka stated that the all-India average might be different from State specific numbers as mentioned by the Hon'ble Minister from Tamil Nadu. 17. The Hon'ble Minister from Karnataka observed that the Central Government could allow States to administer IGST on its behalf. The Hon'ble Minister from Uttar Pradesh supported this view and stated that Article 258 of the Constitution permitted the Central Government to delegate its powers to the States. The Hon'ble Minister from Odisha stated that cross-empowerment must be given under IGST as was the case under CST. The Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Union and the States. The Hon'ble Chairperson observed that one interpretation was that under Article 269, the Central Government was empowered to assign the whole of the tax to States and CST was assigned to the States exercising this power, whereas Article 269A provided for apportionment of tax between the Centre and the States, which meant sharing a portion. The CCT Gujarat stated that without cross-empowerment under IGST, GST could not be implemented efficiently and the distinction between Origin State and Destination State was an artificial one. He emphasized that the Origin State also had a stake in IGST. The Hon'ble Minister from Rajasthan stated that cross-empowerment was required in all three Acts as otherwise, the aim of single interface would not be achieved. The Hon'ble Chairperson observed that in case there was no Constitutional problem for cross-empowerment under IGST, one needed to look at an optimal solution. The Hon'ble Minister from Karnataka stated that one solution could be to do cross-empowerment and provide for a small percent of audit of taxpayers below ₹ 1.5 crore turnover by the Central administration. The Hon'ble Minister fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in respect of all key processes except refunds. The work relating to adjudication, appeals would be done by that tax administration which had initiated the return scrutiny or audit scrutiny. Further, the law itself provided the single interface model in respect of registration as it provided that registration by one authority would be deemed to be the registration by the other authority, and cancellation by one authority would be deemed to be cancellation by the other authority. It was further clarified that cross-empowerment of refund required examination of the issue whether an officer of the Central administration could draw funds from the Consolidated Fund of the States and whether an officer from the State administration could draw funds from the Consolidate Fund of India. The Hon'ble Minister from Tamil Nadu observed that the model suggested by the Centre would require creation of more offices of the Central Government. The Chairman, CBEC clarified that the reorganization of CBEC did not envisage any expansion of the manpower and that the entire work would be performed by the existing manpower. He also pointed out that in Service Tax, the Central tax administration had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ointed out that all States did not unanimously want control over taxpayers with turnover below ₹ 1.5 crore. The CCT, Karnataka explained the proposed solution with an illustration saying that out of the units to be audited by the Centre, say only 20% would fall below the turnover of ₹ 1.5 crore. So, if the Central administration had to do country-wide audit of 50,000 taxpayers, then 20% of this, i.e. 10,000 taxpayers would be those below the turnover of ₹ 1.5 crore whereas the remaining 40,000 taxpayers that the Central administration would audit would be units above the turnover of ₹ 1.5 crore. The Hon'ble Minister from Telangana stated that if horizontal division was not acceptable, then there could be a vertical division where 65% of taxpayers should be allocated to the States and 35% should be allocated to the Centre. The Hon'ble Minister from Punjab stated that there was nothing sacrosanct about the turnover threshold of ₹ 1.5 crore and there was a need to explore whether exclusive control for the States could be for a lower threshold, say ₹ 1 crore or even lower. 20. After these deliberations, the Council decided to defer a decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad an assurance regarding the compensation. He suggested that demonetization should be discussed separately with the Hon'ble Union Finance Minister. The Hon'ble Minister from Kerala stated that States were also facing the crisis of currency and there was a need to exchange ideas on how to face the situation. He also observed that revenue of the States had taken a big hit and this also needed to be discussed. The Hon'ble Minister from Telangana observed that demonetization would lead to problems of finances for States due to loss of revenue in the coming few months. The Hon'ble Minister from Odisha suggested to release outstanding Central Sales Tax (CST) compensation at the earliest to tide over the problem. The Deputy Chief Minister of Gujarat observed that as an assured 14% rate of growth of revenue was decided for compensation, the States should not be very concerned. He observed that the GST Council had its own agenda and it should discuss those rather than discussing other issues. He emphasized that the Council was not like the Parliament and therefore, demonetization needed to be discussed separately. The Hon'ble Minister from Kamataka stated that it had al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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