TMI BlogMinutes of the 7th GST Council Meeting held on 22-23 December 2016X X X X Extracts X X X X X X X X Extracts X X X X ..... conomic Zones and Provisions for authorization of proper officers in States 3. Provision for Cross-Empowerment to ensure Single Interface under GST 4. Date of the next meeting of the GST Council 5. Any other agenda item with the permission of the Chairperson 3. In his opening remarks, the Hon'ble Chairperson of the Council welcomed all the Members and informed that during this meeting, they would continue to discuss the draft Model GST Law (hereinafter called 'the GST Law'). However, before commencing discussion on the GST Law, he invited comments of the Members on the draft Minutes of the 6ff Council Meeting held on 11 December, 2016 before the confirmation of the same. Discussion on Agenda Items Agenda Item 1: Confirmation of the Minutes of the 6th GST Council Meeting held on 11 December, 2016: 4. Only one Member suggested the following amendment to the draft Minutes of the 6th meeting of the Council (hereinafter referred to as 'the Minutes') - i. Para 6 (xiv) of the Minutes: The Secretary to the Council informed that a letter had been received from the Government of Rajasthan to replace the version of the Hon'ble Minis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in view the guideline agreed upon in the last meeting that no arrest should be made in a case relating to any grey area in assessment. He also pointed out that the threshold for arrest was tax evasion of ₹ 2 Crore or more and arrests relating to tax evasion up to ₹ 5 Crore were bailable and arrests for tax evasion beyond ₹ 5 Crore were non-bailable. ii. The Hon'ble Deputy Chief Minister of Gujarat stated that there should not be a situation of an-est in a case where if by chance any truckload of goods for some reason moves without a document. The Hon 'ble Chairperson observed that this would not be the case as the threshold for arrest was tax evasion of₹ 2 Crore or more. The Hon'ble Minister from Bihar observed that all tax evaders needed to be punished and he expressed strong support for the original draft relating to arrest. The Hon'ble Minister from Assam also supported the original arrest provisions. The Principal Secretary, Finance, Maharashtra, stated that their State had expressed reservation on the arrest provision earlier on the ground that there was no arrest provision in the Value Added Tax (VAT) Law and that this provision cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice Tax and a similar approach was being followed in the GST regime and the circumstances of arrest were being limited to those violations which were similar to those in criminal law, namely for forgery (fake invoices), breach of trust (failing in the duty to act as agent of the Government to collect and deposit tax into government account) and cheating (moving goods without paying tax). He pointed out that in the new text, no arrest could be made where non-payment of tax was due to dispute in interpretation and that there were sufficient safeguards against harassment, namely that arrest could be only authorized by the Commissioner and tax evasion threshold for arrest was ₹ 2 Crore or more and it was bailable for evasion up to an amount of ₹ 5 Crore. iv. The Hon'ble Minister from Bihar pointed out that the Officers' Committee had drafted the law after taking into account the difficulties faced by them. The Hon' ble Minister from Assam observed that arrest should be non-bailable in respect of repeat offenders. The Commissioner, GST Council pointed out that a person could be arrested irrespective of the quantum of tax evasion if he had been convicted ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of offences under Section 97 of the GST Law under which prosecution could be waived if the evaded amount, as determined by the competent authority, was paid by the accused person as the compounding amount but this facility could be used only once. vii. The Hon'ble Minister from Andhra Pradesh observed that there was no arrest provision under the VAT law and incorporating arrest provision under SGST Act, even with the prescribed threshold, would adversely affect the ease of doing business and could create a fear psychosis amongst the traders. He added that this could also cause political problems. The Hon'ble Minister from Karnataka stated that in the last meeting, it was decided to make the arrest provisions more restrictive, and the revised formulation was acceptable, as also was the original formulation. He added that in the proviso to the explanation in the revised Section 92(1), the expression 'Central Government' should be replaced by the expression 'designated authority.' The Council agreed to this proposal. viii. The Hon'ble Minister from Kerala observed that it was important to have an understanding whether the provision for arrest was p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had suggested to the Union Law Ministry that the existing provision under Section 106 of the GST Law under which an appeal against the Tribunal's order relating to the dispute between two or more States or between the Centre and one or more State regarding a transaction being intra-State or inter-State or regarding place of supply, would directly lie before the Supreme Court could be changed and such disputes could be adjudicated by the National President and appeal against it could lie before the Supreme Court. The Hon'ble Minister from Haryana suggested that disputes relating to subject matters of Union Territories could also be handled by the National Tribunal. x. The Hon'ble Minister from West Bengal stated that under the existing provision of Section 100 and Section 103 of the GST Law, each State Tribunal was to be headed by a President and that he was to be appointed by the State Government under the SGST Law. Commissioner (GST), CBEC informed that the Union Law Ministry had observed that there could not be a National President and a State President and it had suggested to rename the heads of State Tribunals as Vice President but they would be appointed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lie before the Supreme Court and thus the Union Territories would miss out on one level of appeal before the High Court. The Secretary to the Council observed that it would be examined whether appeal in relation to Union Territories should also first go to the High Court before reaching the Supreme Court. xii. The Secretary to the Council stated that the selection of the Vice Chairperson of the State Tribunals should be done jointly by the Centre and the concerned State, as appeal against both taxes were to be heard by the State Tribunals. The Council agreed to this suggestion. He further observed that the revised draft relating to the Appellate Tribunal would be shared with the States in advance. xiii. The Hon 'ble Minister from Haryana raised an issue regarding the status of the Tribunals created under the State VAT Acts. The Hon'ble Chairperson observed that the Tribunals created under the State VAT Acts as well as the Customs Excise and Service Tax Appellate Tribunal (CESTAT) could deal with the old cases. xiv. The Hon'ble Minister from West Bengal suggested to give the State Tribunals in law the power of a single bench of the High Court in order to avo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal could be given the power to waive pre-deposit in deserving cases. The Secretary to the Council cautioned that if the Tribunal was given such a discretion, a lot of time would be spent in deciding stay applications before the Tribunal. The Hon 'ble Minister from Haryana suggested pre-deposit to be 20% at the level of the First Appellate Authority and 10% at the level of the Tribunal. The Hon'ble Minister from Telangana suggested to keep pre- deposit at 12.5% for filing appeal before the First Appellate Authority and 25% for filing appeal before the Tribunal in order to ensure that only people serious about pursuing an appeal availed this remedy. The Hon'ble Minister from Tamil Nadu enquired regarding the provision of pre-deposit in the Central Excise and Service Tax laws and it was informed that pre-deposit was 7.5% each at the level of the First Appellate Authority and the Tribunal. He observed that raising the pre-deposit amount very high would cause difficulty to traders in view of the existing provisions in the Central Law and suggested to keep pre-deposit as 10% of the disputed amount each at the level of the First Appellate Authority and the Tribunal. The Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;Tax Return Preparer' in Section 105 (2)(e) with the expression 'GST Practitioner' as agreed in the 6th GST Council meeting held on 11 December 2016. The Council agreed to the suggestion. xviii. Sections 113 - 124 (Advance Ruling): The Hon'ble Chairperson introducing this provision, explained that the provision of Advance Ruling was often used by those making new investment, say in a manufacturing activity, to determine the rate of duty on the new product with certainty and it helps them in their financial planning. The Secretary to the Council further explained that it was not to be headed by a Judge but to consist of a Committee of tax officers and it also had an appeal provision. He observed that the experience in Income Tax was that advance ruling took a long time to settle as it had become a formal judicial process and he hoped that the proposed arrangement under the GST Law would lead to faster decisions. The Hon'ble Chairperson observed that paucity of Judges had hindered effective functioning of the Advance Ruling Authority in the Central taxation laws and it was hoped that officials familiar with the taxation matters would be able to function more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orage ease of doing business, but it was pertinent to remember that in the Goods sector, a taxpayer operating in multiple States was registered in every State. He added that it was not advisable to create an artificial distinction between goods and services, particularly when audit was envisaged for only 5% of taxpayers. He cautioned that providing special treatment to a certain category of taxpayers could lead to litigation by those who were denied such special treatment. In this view, he suggested to delete this provision. The Secretary to the Council explained that sectors like Telecommunication, Financial Services (Banking and Insurance), Airlines, Railways, IT and ITeS had raised several issues relating to registration in individual States. He explained that their main concern was that under GST law, they should be allowed to pool their Input Tax Credit (ITC) so that surplus ITC in one State could be used for payment of tax in another State. He added that as no unanimity could be reached on this issue, it was proposed to have an enabling power for the Council to prescribe a different procedure for certain classes of taxable persons. He suggested that the Council could hear the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble Chairperson observed that any special procedure could not be size-centric, rather it would depend on the nature of business. The Hon'ble Minister from West Bengal stated that the sectors highlighted for coverage under this provision accounted for a very large per cent of Gross Domestic Product (GDP) of the country and States must have a say in the administration of such sectors. He also observed that the model suggested by Gujarat had not been discussed in the Council. The Hon 'ble Chairperson stated that the Council could hear the stakeholders from Banking, Insurance, Information Technology (IT and ITeS), Telecom, Airlines and Railways for one hour in the next Council meeting. The Hon'ble Minister from Kerala stated that the proposal to have a separate special treatment for a class of taxpayers was discriminatory. The Hon'ble Chairperson observed that for a distinct class of persons, a separate procedure was possible but there could be no discrimination between Ovo equally placed persons. The Hon'ble Minister from West Bcngal posed a query whether they could be considered as a separate class and the Hon'ble Chairperson observed that if they were un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been collected and lack of a compliance rating for one year might be treated as a default if the word 'shall' was used. The Hon'ble Minister from Assam supported the proposal to replace the word 'shall' with the word 'may'. The Council agreed to replace the word 'shall' with the word 'may' in Section 138(1). The Hon'ble Minister from West Bengal stated that different rating bodies assigned different aggregate rates and enquired as to what rating principle would be followed for the taxpayers. The Secretary to the Council explained that such rating would be done by the Goods and Services Tax Network (GSTN) on the basis of the track record of each registered taxpayer. The Hon'ble Minister from Tamil Nadu stated that the Council should have access to the metrics to be used to determine the rating. The Council agreed to this suggestion and it was agreed to amend Section 138(2) by adding the phrase 'by the GST Council' at the end of the sentence. xxv. Section 142 (Disclosure of information required under section 141): The Secretary to the Council pointed out that in Section 142(3), the maximum limit set for imposing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be a ease where tax rate on a commodity was lowered in GST as compared to the existing combined rate of tax of Central Excise and VAT but the benefit of lower tax was not passed on to the customer by a commensurate reduction in the price of the commodity. He pointed out that the Malaysian GST Law also had an anti-profiteering provision which provided that the margin of profit of traders after introduction of GST should be the same as before its introduction. He explained that this provision was not successful because the Malaysian GST Law was passed a few months before the actual GST rollout and the traders used this time to doctor their books of account to show a higher margin of profit during the period before the GST rollout. He stated that this Section was only an enabling provision, which could serve as a warning to traders. The Council could also decide to entrust this work to the District Consumer Forum or to the Competition Commission at the national level. The Hon'ble Minister from Haryana stated that this clause was successfully implemented in Australia by the Australian Competition and Consumer Commission (ACCC) which maintained a list of items brought under GST a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit of ITC. The Hon'ble Minister from Punjab stated that the provision could also create a fear amongst the traders that the government was monitoring the price situation. The Hon'ble Minister from Karnataka observed that there was an agreement in the Council about the need to pass the benefit of lower tax to the consumers and any challenge relating to verification could not be a reason to remove this provision altogether. He further added that the law was very specific that this provision would apply only when the rate of tax was altered and not in other circumstances. The Hon'ble Chairperson observed that difficulty in implementation could not be a ground to remove this provision. The Hon'ble Minister from Tamil Nadu suggested having a system of self-regulation entrusted to associations as was done in the micro-finance sector when the Reserve Bank of India reduced the rate of interest for micro-finance sector. The Hon'ble Minister from West Bengal stated that during stakeholder consultation, some big industrialists had stated that passing of the benefit of duty reduction would be addressed through competition in the market. He stated that the concern of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years subsequent to implementation of GST, The CCT, Karnataka pointed out that Section gave the enabling power for audit. The Hon'ble Minister from Haryana suggested to add the words 'or after' following the word 'before' in Section The Consultant (GST), CBEC pointed out that such a provision was already contained in Section 182. The Hon'ble Minister from Hawana suggested to harmonise the provisions of Section and Section 182. The Council agreed to this suggestion. xxx Section 167 (Amount of CENVAT credit carried forward in a return to he allowed as input tax credit): The Principal Secretary (Finance), Odisha pointedout that in Section 167 as also in Section 169 and 171, carry-forward of credit under VAT was allowed but they had no provision of carry forward of entry tax and therefore, rationale for keeping it under the SGST Law was not clear. The CCT, Karnataka explained that credit of entry tax was available in some States like Gujarat and therefore, it was indicated in brackets and it would be included in the SGST Laws only of those States. xxxi. Section 169 (Credit of eligible duties and taxes in respect of inputs held in stock to be allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pproved the Schedule. xxxvi. Schedule Il (Matters to be treated as supply of goods or services): The Secretary to the Council explained that in order to avoid dispute, in this Schedule, certain supplies were designated as supply either of good or supply of service. The CCT Gujarat pointed out that in the 5th Council meeting held on 2-3 December 2016, it was decided that supplies of works contract (Clause 5(f) of Schedule-Il) and restaurant (Clause 5 (h) of Schedule-Il) shall be treated as composite supply on which all provisions relating to services shall apply. He therefore suggested to revisit the need for Clauses 5(f) and 5(h) of Schedule Il. The Council agreed to the suggestion and approved the rest of the Schedule. xxxvii. Schedule Ill (Activities or transactions which shall be treated neither as a supply of goods nor a supply of services) : The Secretary to the Council explained that this Schedule treated certain transactions neither as a supply of goods 'nor as supply of services. The Commissioner, GST Council suggested an addition to Clause 4 of the Schedule namely, 'or any specialized agency of the United Nations Organization or any Multilateral Financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... created to carry out work like State road services, metro planning, urban development planning, etc. and these should not be taxed. The Hon 'ble Minister from West Bengal drew attention to his suggestion made in the 5th meeting of the Council held on 2-3 December 2016 that any licence fees, user charges, and other fees arising out of statutory compliances and related to State welfare and development measures should be included in Schedule IV, and that this was duly approved by the Council. He stated that this formulation took care of the new services that might be provided by the Government in the future. The Hon'ble Deputy Chief Minister of Gujarat supported this proposal and stated that in the Smart City Project, Government was to provide wi-fi to the cities and this should not be subject to Service Tax. The Secretary to the Council suggested that the clause suggested by the Hon'ble Minister from West Bengal, with suitable modification, could also be added in the exemption list under the proposed notification. The Hon'ble Minister from Tamil Nadu stated that there were certain services which should be legitimately attracting service tax like spectrum sale on whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the exempt supplies, crossed ₹ 20 lakh and that if a government hospital, whose value of supply of exempted health services was say ₹ 50 lakhs and it also rented out a shop for an annual rent of Rs. S lakh, the government hospital would require to be registered and pay tax on the rent received. The Hon 'ble Minister from Telangana suggested to include Anganwadis, issuance of caste certificates and occupancy certificate under the exempted category. The Hon'ble Minister from Haryana stated that he suppoited the proposal of the Hon' ble Minister from West Bengal to provide for exemption of tax for specified Government services in the Schedule itself. He added that if a decision was taken to adopt the exemption route, and consensus was not reached in the Council for exempting certain Government service, then it would become liable to tax. He suggested an alternative that a generic protection to Government services from tax might be kept in the Schedule and in addition, also provide a scope to exempt certain Government services that might arise in future through an exemption. The Secretary to the Council suggested that another option could be to keep Schedule IV ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 'agriculturist' should not cover manufacturers of processed agricultural products. The Hon'ble Minister from Punjab suggested to define 'agriculture' as only primary produce from the land and the processed products should be subject to tax. The Hon 'ble Minister from Maharashtra stated that his concern was similar to that expressed by the Hon 'ble Deputy Chief Minister of Gujarat. He pointed out that by keeping the definition of 'agriculture' very wide, industrialists operating in 'agriculture' sector, like big centres of horse breeding and chicken processing would get the benefit of tax exemption. He suggested that the definition of 'agriculturist' should be limited to one who ploughed the land. The Hon'ble Minister from Telangana observed that income tax applied to dairy farming and poultry farming. The Hon'ble Minister from Haryana suggested that exemption for Agriculturist should be available to anyone who carried out primary production on land and it should cover small, marginal farmers as well as those carrying out contract farming. The Hon'ble Minister from Tamil Nadu suggested to distinguish agriculture produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a VAT Law, there was no definition of 'agriculture' and only specific products were exempt. He stated that in his State, paddy was charged to VAT under reverse charge. He suggested not to define the terms 'agriculture' and 'agriculturist'. The Hon'ble Minister from Maharashtra pointed out that in Article 366 of the Constitution, 'agricultural income' was defined as for the purposes of the enactments relating to Indian income-tax and that the GST law should adopt the definition of agriculture from Income Tax Act. The Hon'ble Chairperson observed that States like Tamil Nadu and Odisha had argued for specific exemption for products rather than a generic exemption. He elaborated that all the produce that came out of land like paddy, wheat and pulses could be exempted as also other products like poultry, egg or milk but the Council might not want to exempt high-end products like prawn and salmon. He further observed that if the definition of 'agriculture' was to be based on process, then like Income Tax, it would be limited to land related produce whereas the view in the Council was to expand the definition of 'agriculture' to incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. The Hon' ble Minister from Kerala observed that if agriculture and commerce were to be connected, then, the agriculture part could be kept out of the tax and the commerce part could be taxed. The Hon'ble Deputy Chief Minister of Gujarat observed that if 'agriculture' was not defined, it could send a wrong political message for GST. The Hon'ble Minister from Meghalaya suggested to add handloom to the definition of 'agriculture'. The Secretary to the Council suggested that Officers of the Law Committee should examine whether or not the definition of 'agriculture' and 'agriculturist' was needed in the GST Law and to revert to the Council. The Council agreed to this suggestion. ii. Section 87A (Power to waive penalty): The Secretary to the Council stated that there was a suggestion from the Central Board of Excise and Customs (CBEC) to add a new Section 87A which read as follows: Power to waive Penalty: Notwithstanding anything contained in the provisions of section 85 or 86 of this Act, no penalty may be imposed on an assessee for any failure referred to in the said provisions, if the assessee proves that there was reasonable ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levancy of statements under certain circumstances): The Secretary to the Council informed that CBEC proposed to delete Section 95(2). The Commissioner, GST Council explained that this provision mandated that proceedings under the GST Law should also be like proceedings before a Court of law which essentially meant carrying out examination-in-chief and cross- examination of every person whose statements were relied upon in a Show Cause Notice. He explained that in civil proceedings, such an elaborate procedure need not be followed and would lead to delay in adjudication. The Council agreed to delete this provision. iv. Section 16 (Eligibility and conditions for taking input tax credit): The Secretary to the Council recalled that in the 5th meeting of the Council held on 2-3 December 2016, it was decided to defer decision regarding ITC in respect of capital goods till data on the total quantum of ITC availed on capital goods was received. The Additional Secretary to the Council stated that based on figures gathered from the GAIL and the Department of Telecommunication, the approximate incidence of input tax credit on account of pipelines and telecom towers could be between S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant decisions/observations as recorded in the Minutes of the 5th and 6th Council meeting on this agenda and as recorded below. It was also agreed that a revised draft incorporating the changes agreed upon in the Council and the suggestions of the Union Law Ministry after the legal vetting would be placed before the Council in the next meeting. i. Section 2(7), 2(8) and 2(106) (Definitions): Officers of the Law Committee to examine whether or not the definition of 'agriculture' and 'agriculturist' is needed in the GST Law and to revert to the Council. ii. Section 2(110) (Definitions): The Law Committee of officers to look into the definition of Works Contract so as to include both movable and immovable property. iii. Section 4 (Classes of officers under the Central Goods and Services Tax Act) and Section 5 (Classes of officers under the State Goods and Services Tax Act): To address the contradiction between Section 4(2) and Section 5(2) in respect of the authority that would specify the jurisdiction of officers other than of the Commissioner. iv. Section 16 (Eligibility and conditions for taking input tax credit): To modify the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring Measure): To amend Section 163(1) by replacing the phrase 'by law' by the phrase 'on the recommendation of the Council by a notification'. Additionally, the requirement of passing the benefit of duty reduction to the consumers should be incorporated in the relevant provisions of the GST Law in addition to that contained in Section xiv. Section 164 (Repeal and saving): To harmonise the provisions of Section and Section 182. xv. Section 169 (Credit of eligible duties and taxes in respect of inputs held in stock to be allowed in certain situations): The Rules Committee of Officers to provide for allowing ITC of embedded VAT through Rules to be made in this regard. Further, the requirement of passing the benefit of duty reduction to the consumer to be added in the relevant provisions of the GST Law as done in Section 169(l)(ii). xvi. Sections 165 - 197 (Transitional Provisions): The Council tentatively approved these Sections with the understanding that suggestions, if any, in respect of these Sections shall be sent in writing to the Council before its next meeting. xvii. Schedule II (Matters to be treated as supply of goods or services): To re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... da item, the Hon'ble Minister from Uttar Pradesh raised the question as to what percentage of sale of property was fully-constructed vis- - vis those under construction. The Secretary to the Council stated that such data was not readily available. The Hon'ble Minister from Uttar Pradesh observed that most property sales would be of under-construction property as it would be difficult for developers to fully fund by themselves the development of a property. The Hon'ble Minister from Uttarakhand stated that the hill States should have special exemption. The Hon'ble Chairperson observed that this would be decided once the main issue was settled. The Hon'ble Minister from Punjab observed that if a developer constructed the property on his own, then the completed project's cost would be higher as the developer would also recover the cost of capital investment. The Hon'ble Deputy Chief Minister of Gujarat did not support the proposal under this agenda item. He observed that in almost 90% cases, an under-construction flat was booked by customers and money was paid by them for construction. He stated that stamp duty was on value addition and the proposal made no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a item. He observed that the Transfer of Property Act gave power to States to levy stamp duty on the transfer of property after completing the paper work. He informed that in Kerala, rebate of stamp duty was given against payment of VAT. He further stated that cement, etc. were not obtained from the grey market as this could risk collapse of the building. He emphasised that stamp duty was a source of revenue for the State government and that it should be left with the States. The Hon'ble Minister from Tamil Nadu stated that the proposal under this agenda item appeared to be unconstitutional as stamp duty was constitutionally retained. He also added that the definition of goods in the Constitution did not include land and building. The Hon'ble Chairperson summed up the two broad viewpoints namely that incidence of tax was likely to go up and the other that the tax amount would remain the same due to availability of ITC on inputs used as construction material. The Hon 'ble Minister from Punjab observed that if GST was imposed on land and building, the cost for the customer would go up. The Chief Economic Advisor stated that if GST was extended to land and building, it wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment and ITC reversal should also be specifically reflected in the law as Section 5(l)(h). He also suggested to modify the heading of Section 10 by adding the words and other revenue after the word cess . He further suggested to amend Section 10(2) of the Compensation Law as follows: All amounts payable to the States under Section 7 shall be paid from the Goods and Services Tax Compensation Fund. Explanation I: The Goods and Services Tax Compensation Fund shall comprise of the Compensation Cess and such other revenues that the Central Government may transfer to it. Explanation II: In case the proceeds of Compensation cess is insufficient to meet the compensation needs of the States, the Central Government shall transfer sufficient funds to the Compensation Fund to meet the loss of revenue of States on account of implementation of the Goods and Services Tax. The Hon'ble Minister from Telangana supported these proposals. 13. The Hon'ble Minister from Odisha stated that as he had stated in the 3rd meeting of the Council, the rate of royalty on coal fixed at 14% ad valorem had had not been received for more than four years. He added that even though the Ministr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Central Government. He recalled that when VAT was introduced, compensation was paid from the Consolidated Fund of India. The Hon'ble Minister from Maharashtra suggested giving compensation every month. He further suggested and that in view of abolition of the Local Body Tax (LBT) in his State, the following explanation should be added at the end of Section 5 of the draft GST Compensation Law: 'Explanation - For the purpose of clause C above, the term 'Revenue Collected' shall mean the amount of tax leviable under the erstwhile Entry 52 of List Il of the Seventh Schedule to the Constitution prior to bringing into effect the provisions of the Constitution (One Hundred and First Amendment) Act, 2016 that could have been collected in the Base Year had the same not been discontinued either fully or partially, during the course of the year.' He also suggested to release compensation based on self-certification by the State Government instead of CAG certification, or as the case may be, by the Audit Department of the State Government. He observed that if cess was not sufficient to pay compensation, then it should be paid from the Government of India fund. He als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... collection of compensation amount of about ₹ 55000 Crore might not be sufficient and there was a need to provide in the Act that if there was a shortfall in collection of cess, compensation shall be paid from the Consolidated Fund of India or from some other source. The Hon 'ble Minister from Meghalaya stated that North Eastern States had less resources and compensation should be given on monthly or bi monthly basis. He added that it had been agreed by the Council earlier that tax exempted under the Industrial Policy of Special Category States shall be added to their base year revenue. He observed that this would give them only limited benefit and he urged that additional mechanisms be adopted for the benefit of North Eastern States for them to derive full benefit from GST. 18. The Hon'ble Minister from Assam supported the suggestion of Odisha in respect of addition of revenue from Entry Tax to the base year revenue. He also observed that monthly release of compensation was very important and that there should be a commitment for 'compensation from any other source of Government of India' if cess collection fell short of the compensation requirement. The Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... First Amendment) Act, 2016 read with Entry 66 of the State List in Schedule 7 of the Constitution. With regard to the suggestion from the Hon'ble Minister from West Bengal, he informed that Section 8 had already been revised and that the revised version had been circulated in the meeting. He stated that as regards the suggestion from the Hon'ble Minister from Odisha and a few other Hon'ble Members, regarding non-inclusion of Entry Tax in the revenue collection of the relevant year, the Council had already agreed earlier that whatever revenue was actually collected by the States would be considered as revenue collected except to the extent that had already been agreed for the Special Category States and that this decision would stand unless the Council agreed to change it. As regards the suggestion of the Hon'ble Deputy Chief Minister from Gujarat regarding refund of cess on exported goods, he pointed out that Section 9 of the Compensation Law provided that all provisions of furnishing return and claiming refund of CGST and IGST shall apply to the Compensation Act. He agreed to the suggestion for changes in Section 5(4) and Section 5(5) made by the Hon'ble Minist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g subsumed under GST. 21. The Hon'ble Chairperson stated that the issue of compensation had been discussed earlier for two or three days and certain decisions were taken. He observed that while infirmities and ambiguities in the language of the Compensation Law could be addressed, the basic principles regarding compensation decided earlier in the Council could not be reopened at this stage. He stated that in the earlier meetings, the mechanisms for funding compensation was discussed like through taxation or through the Consolidated Fund of India and finally the formulation that was agreed upon was the one which was least burdensome for consumers, namely to collect cess on certain luxury and demerit goods in excess of 28% tax, and that after five years, this cess could be merged with the tax. He added that revenue for the base year 2014-15 was to be based on actual tax collection figure and not on some hypothetical basis of collection. He added that the projected growth rate of 14% on the base year collection was linked to the overall agreement reached regarding compensation and it was not possible at this stage to open only one limb of the agreement. He mentioned that the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Council shall arrive at ways to meet the shortfall. The Hon'ble Chairperson observed that there was Constitutional commitment for the Central Government to provide hundred per cent compensation and how it would be done was for the Council to decide. 22. The Hon'ble Minister from West Bengal observed that the principles for compensation were decided earlier in the Council after three days of extensive discussion, but at that time there was no demonetisation. He added that after demonetisation, revenue shortfall to the tune of 20% to 30% was expected in the third quarter and it could be worse in the fourth quarter. He observed that the Centre might also suffer revenue shortfall and then where would the compensation money come from. The Hon'ble Chairperson stated that the Central Government's tax collection data for November 2016 as on 5th December, 2016 showed increase in income tax collection by 13.5% and of Central Excise collection by 23%. He added that there was fall in revenue in Service Tax but this was also the trend in the last year and was possibly due to the effect of post-Diwali festival. The Hon'ble Minister from Kerala observed that there sho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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