TMI BlogMinutes of the 32nd GST Council Meeting held on 10th January 2019X X X X Extracts X X X X X X X X Extracts X X X X ..... eport of GoM (Group of Minister) on MSMEs 5. Issues recommended by the Fitment Committee for the consideration of the GST Council i. Proposal for boosting real estate sector under GST regime by providing a composition scheme for residential construction units ii. Proposal regarding rationalisation of GST rates on Lottery iii. Request by CAPSI (Central Association of Private Security Industry) to bring the entire security services sector including body corporate under RCM (Reverse Charge Mechanism) 6. Issues recommended by the Law Committee for the consideration of the GST Council i. Notification of provisions of the CGST (Amendment) Act, 2018; UTGST (Amendment) Act, 2018, the GST (Compensation to States) Amendment Act, 2018 and the IGST (Amendment) Act, 2018 ii. Consequential amendments in notifications issued earlier in light of bringing into force the provisions of the CGST (Amendment) Act, 2018; the UTGST (Amendment) Act, 2018; the GST (Compensation to States) Amendment Act, 2018 and the IGST (Amendment) Act, 2018 iii. Consequential amendments in Circulars and Orders issued earlier in light of bringing into force the provisions of the CGST (Amendment) Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of GST rates on Lottery), 8 (Allowing ITGRC to consider non-technical issues), and 11 (Report of GoM on Revenue Mobilisation) were placed before the Council in pursuance of the decision of the last Council Meeting to discuss these issues in a combined meeting of the Fitment Committee and the Law Committee or in the GoM and place the recommendations in the next meeting of the Council. He added that the only new substantive agenda was Agenda item 9 (Use of RFID data for strengthening enforcement of e-Way bill system under GST) which was discussed during the Officers meeting held on 9 th January, 2019 and the Council would be apprised about its deliberations when this Agenda item came up for discussion. 3.2. The Hon'ble Chairperson observed that there should be a procedure by which any pressing issue raised by a State may be brought before the Council. He stated that the Hon'ble Minister of a State could write to him or the Finance Secretary of the State concerned could write to the Union Revenue Secretary. The Hon'ble Minister from Andhra Pradesh stated that they had written to the Council on certain issues and they would write again on those issues. Many of these i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -apportioned. The Secretary stated that in March, 2019 also, some IGST amount would come into the Consolidated Fund of India and refunds would be given, and the Government would come to know about the exact amount lying in the Consolidated Fund of India only at the end of March, 2019. He further stated that they were taking legal opinion as to whether the unsettled IGST amount could be kept in the Consolidated Fund of India and whether it was devolvable. He added that this issue was also under discussion with the accounting authorities of the Central Government before taking appropriate decision. 3.6. The Hon'ble Chairperson observed that since the two Union Territories with legislature were not getting any money through devolution, their request to keep only a minimal amount under the IGST head would need to be examined. The Hon'ble Deputy Chief Minister of Delhi stated that an in-principle decision should be taken now that Union of India should keep only a minimal amount under the IGST head as this might be the last meeting of the Council during the current financial year. Dr. T.V. Somanathan, Commissioner, State Tax, Tamil Nadu, stated that the Government of Tamil Nad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he stages of manufacture and retail like renting of immovable properties, C F agent, business auxiliary service, business support service, advertisement, etc. and the revenue from them was going to be cannibalized in GST, being a levy on the final price. He stated that as per his estimate, the net revenue from Service Tax was supposed to be around ₹ 70,000 crore depending upon the exemption threshold.' (iii) In paragraph 12.20 of the Minutes, to make corrections in the first six sentences as follows (the suggested changes are in italics and underlined and suggested deletions are in strike through mode): 'The Advisor (Financial Resources), Punjab, further stated that at the time GST design was first conceived around 2008 the rate of State VAT was standard rated @12.54% and merit rate was 4% but the rates varied rose subsequently among the across the States as some States started levying 10% surcharge, some raised tax rates etc. At the time GST was ushered. Most States had a tax VAT rate of 13.5%-14% on a cascaded value, which included Central Excise in addition to CST of 2% plus tax credit reversals of 4% on stock transfers. Thus, his estimate was that most of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated Tax (Rate) 25 to 31 of 2018 UTGST Act Union Territory tax (Rate) 24 to 30 of 2018 Circulars Under the CGST Act 76 to 81 of 2018 and 82 to 86 of 2019 ROD Orders Under the CGST Act 2 to 4 of 2018 7.1. The Notifications, Circulars and Orders issued by the States, which are pari materia with the above Notifications, Circulars and Orders, were also deemed to have been ratified. Agenda Item 3: Decisions of the GST Implementation Committee (GIC) for information of the Council 8. Introducing this Agenda item, the Secretary stated that the GST Implementation Committee (GIC) took one decision between 22 nd December, 2018 (when the 31 st GST Council Meeting was held), and 2 nd January, 2019 (before the 32 nd Council Meeting). The decision related to a provisional settlement on ad hoc basis of IGST amount to the tune of ₹ 18,000 crore between the Centre and the States. The GIC had agreed to the proposal to settle this additional IGST amount, 50% to the Centre and 50% to the Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annual turnover of ₹ 1.5 crore during the pre-GST era. He stated that the annual revenue implication of this decision for all taxes put together was likely to be around ₹ 742 crore. 10.2. On an inquiry from the Hon'ble Chairperson regarding the number of persons who would avail the benefit of this scheme, the Joint Secretary, TRU-ll stated that about one lakh new taxpayers were likely to take benefit of the increase in annual turnover threshold under the Composition scheme from ₹ 10 crore to ₹ 1.5 crore. 10.3. Shri Krishna Byre Gowda, Hon'ble Minister from Karnataka, stated that from the figures indicated in the presentation, it appeared that when the annual turnover threshold for availing the Composition scheme was ₹ 1.0 crore, only 22% of the eligible taxpayers had availed the Composition scheme. He further stated that the proposed increase in the annual turnover threshold for Composition taxpayers now being made was meant to address the grievance of the MSME sector. However, as only 22% of the eligible taxpayers had availed this Scheme, it was clear that this facility was not relieving the sufferings of the bulk of the MSME units. He a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be designed by the Law Committee with details necessary for compliance verification and the FORM GSTR-4 would be suitably amended. 10.6. The Hon'ble Chairperson stated that it was a positive step forward and additional steps for simplification could be worked out in due course. The Hon'ble Minister from Karnataka reiterated that businesses wanted to stay in the tax chain as there were benefits for the same and as such there was a need to simplify compliance requirements. The Hon'ble Chairperson stated that the organised sector of business was, by and large, at ease with the GST system, but the small businessmen were finding it burdensome. Therefore, the smaller businesses may require to be offered multiple avenues of simplified system to reduce the compliance burden on them. He suggested that the Council could agree to this recommendation of GoM. The Council agreed to the same. ! 10.7. The Council agreed to the proposal to simplify the Composition scheme by providing for quarterly payment of tax and filing of only one return in a year with effect from 1 st April 2019. The Law Committee to design a tax payment declaration with details necessary for compliance v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fact that even with the existing annual turnover threshold of ₹ 20 lakh, several taxpayers whose turnover was below this limit, had taken registration and the same trend was expected when the annual turnover threshold for registration was further increased. He stated that going by the past experience, it was estimated that revenue foregone from regular taxpayers would be theoretically about 50% of the total revenue and similarly, the number of taxpayers who would go out of the GST net would be theoretically about 50% of the total number of taxpayers. Taking these presumptions into consideration in favor of the revenue, he stated that in the worst-case scenario, the total annual revenue that could be impacted would be about ₹ 5,225 crore if the annual turnover threshold for registration for supplier of goods was increased to ₹ 40 lakh; it would be ₹ 6,450 crore and 9,200 crore respectively if the annual turnover threshold for registration for supplier of goods was raised to ₹ 50 lakh and ₹ 75 lakh respectively. The total number of taxpayers expected to go out of the GST net would be about 20,64,000 if the annual turnover threshold was increased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the Central Excise regime, most of the MSMEs below the annual turnover of ₹ 1.5 crore were exempt from taking registration and they needed to be facilitated. He stated that in view of the differing opinion, the GoM had taken a view that the annual turnover threshold for payment of tax by suppliers of goods needed to be raised but a final decision could be taken by the Council. He added that the threshold limit of services should not be raised because in services, there was considerable revenue involvement even at the lower threshold base. He further stated that the operational details for differential thresholds for goods and services could be worked out by the Law Committee. He stated that the implementation of the proposal might require amendment in the GST Law but alternatively, it could be done by the exemption notification as well. 10.13 . Starting the discussion on this issue, the Hon'ble Minister from Kerala observed that the Council had already agreed to raise the annual turnover threshold for Composition taxpayers to ₹ 1.5 crore, charged a reduced tax and had simplified the compliance burden by deciding to take only one return in a year from them. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was in its initial stages. One should not attempt to wriggle out of the situation of a complicated procedure for return filing through other methods, like increasing the annual turnover threshold. for registration. The solution for the people facing complication in return filing was to simplify the return filing system and not to increase the annual turnover threshold for registration. He stated that while Delhi might not face a problem in increasing the threshold, there would be problem for smaller States like theirs. He added that his State was already suffering a severe revenue shortfall because the revenue coming from the consumers of the adjoining States had gone due to equalization of rates of tax across the States under GST. He suggested that the Council should wait for some time before thinking of increasing the annual turnover threshold for registration and take a call once the revenue position had stabilized. He stated that increasing the annual turnover threshold for registration would lead to splitting of units and large-scale tax evasion. 10.16. Shri Mauvin Godinho, Hon'ble Minister from Goa, stated that while he would have normally welcomed the decision of rai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or registration to ₹ 20 lakh which was yet to be implemented and he requested the Council to allow the Special Category States to stay at the threshold limit of ₹ 20 lakh. 10.19. The Hon'ble Deputy Chief Minister of Bihar stated that his State was of the opinion that the threshold limit could be raised to ₹ 40 lakh but he suggested that the annual turnover threshold for registration could be raised to ₹ 50 lakh as the difference in revenue and the number of taxpayers as a result of raising the threshold from ₹ 40 lakh to ₹ 50 lakh was not very high. He observed that the background for the suggestion to increase the annual turnover threshold for registration was based on the erstwhile Excise Duty structure under which manufacturers up to an annual turnover of ₹ 1.5 crore were exempted from Central Excise Duty. He added that the small manufacturers were most affected, and therefore, increasing the annual turnover threshold for registration to ₹ 40 lakh or ₹ 50 lakh would not result in significant revenue loss but would take out a large number of taxpayers from the GST net. He added that for Goa and other smaller States, one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turnover threshold for registration was raised to ₹ 75 lakh. He observed that most of the taxpayers would obtain two registrations - one for intra-State supply and the other for inter- State supply. He added that tax evasion through bill-to-ship-to mechanism would increase and only large taxpayers would be left in the tax net. He added that the world over, distinction between goods and services was blurring. For example, in Europe, tyres were also sold as a service in terms of the number of kilometers of travel. He stated that if the annual turnover threshold for registration for goods was to be raised to ₹ 40 lakh, there should also be a provision in law to allow supply of services by such units up to 10% of the value of turnover of goods. He also suggested to create certain safeguards, like there should be only one PAN card for every registered taxpayer. He also suggested that there should be a negative list of goods, like pan masala, tobacco, ice cream, etc., which need not be given the benefit of increased turnover threshold for registration. He further cautioned that any increase in the turnover threshold for GST registration could also affect income tax collection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as coming from Cess, which was contributed by every State and the Council was the owner of the revenue collected from Cess. Hence, compensation was not coming from the Centre but from the mechanism devised by the Council and was being redistributed among the States. He was very concerned about revenue situation after 2022. He added that while his State could agree to the proposal to increase the annual turnover threshold for registration to ₹ 40 lakh, the views of the Hon'ble Members from Kerala, Puducherry, Goa, Chhattisgarh, Madhya Pradesh and Andhra Pradesh who had expressed their concern on this issue, should be respected. He added that one needed to remind oneself that the idea behind GST was to broaden the tax base, but the Central Government seemed to be now going away from this position. 10.27. Dr. Himanta Biswa Sanna, Hon'ble Minister from Assam, stated that though his State was a Special Category State, he was mindful that during the Central Excise regime, the annual turnover threshold for registration was ₹ 1.5 crore and small units were suffering under GST regime. He observed that employment was key to everything. He added that initially the bigge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vited other States to state their preference regarding the annual turnover threshold for registration. 10.29. Shri Sudhir Mungantiwar, Hon'ble Minister from Maharashtra, stated that he could agree to increase the annual turnover threshold for registration to ₹ 40 lakh or ₹ 50 lakh. Ms. Smaraki Mahapatra, CCT, West Bengal stated that the Hon'ble Minister from West Bengal had asked to convey that their State was in favor of raising the annual turnover threshold to ₹ 50 lakh. Shri Anirudh S. Singh, Commissioner (Tax Excise), Arunachal Pradesh, stated that the annual turnover threshold for registration for Special Category States should be kept at ₹ 20 lakh whereas for other States, it could be ₹ 40 lakh Shri Jagdish Chander Sharma, Principal Secretary (E T), Himachal Pradesh, stated that his State would prefer to retain the threshold limit of ₹ 20 lakh. He added that the procedure to ascertain the annual turnover of the taxpayer should be well thought of and should be part of an in-built system. He suggested to take up the exercise of determining the annual turnover threshold for registration at the beginning of every financial year i.e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied with a negative list of goods. He enquired whether this aspect had been examined. The Joint Secretary, TRU-II stated that such a scheme would be difficult to implement because a shopkeeper would be selling sin items as well as other items. Shri V.K. Garg, Advisor (Financial Resources) to Hon'ble Chief Minister of Punjab, stated that in Europe, certain safeguards had been built-in. For instance, the benefit of a flat rate of tax was extended only to individuals and not to a Company Act registered entity such as partnership firms, LLPs, private limited companies, etc. as otherwise, one person could take benefit through multiple companies. Secondly, certain evasion-prone commodities and commodities that did not have much input tax credit, like agro based goods, or goods on which no input tax credit had been allowed for some reason were kept out of exemption threshold. He added that the global model was to have higher threshold for registration but very few exemptions. He stated that currently there was a long list of exemptions and if the annual turnover threshold for registration was to be increased, then the list of exemptions would also need to be reviewed. For example, exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Advisor to Governor, Jammu Kashmir, stated that though his State was a Special Category State, its annual turnover threshold for registration was ₹ 20 lakh and that his State would go by the new registration threshold fixed for the country. 10.35. The Hon ble Chairperson requested the Joint Secretary, TRU-Il to explain the calculation regarding likely revenue loss and the number of taxpayers getting the benefit for the proposed different annual turnovers for registration. The Joint Secretary, TRU-Il drew attention to the slide in the presentation containing this data. According to it, if the annual registration threshold was increased to ₹ 40 lakh, the total number of taxpayers that were likely to get relief would be 20,64,000 and the revenue foregone would be about ₹ 5,225 crore. If the annual turnover threshold for registration was raised to ₹ 50 lakh, then the maximum total number of taxpayers likely to go out of the tax net would be 21,91,000 and the maximum revenue loss would be ₹ 6,450 crore and if the annual turnover threshold was increased to ₹ 75 lakh, the total number of taxpayers going out of the tax net would be 23,81,000 and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hairperson further stated that three broad points emerged - one was an agreement to double the annual turnover threshold for registration to ₹ 40 lakh; second was to give an option to the Special Category States, Goa and Puducherry to remain at ₹ 20 lakh threshold; and third was that the date of implementation for the new threshold for registration could be 1 st April, 2019. He further suggested that the Law Committee could work out the guidelines as to how to avoid splitting of businesses and also the category of goods to be excluded from availing the benefit of the enhanced turnover for registration for goods. He further stated that the representatives from Kerala and Punjab should attend the Law Committee meeting during discussion on these issues. 10.38. The Hon'ble Minister from Chhattisgarh stated that he did not agree with the proposal as there was no consensus in the House. He stated that the decision was being taken in a hurry whereas more thinking was needed on the subject. The Hon'ble Minister from Kerala stated that the States should be given an option to opt out of the proposed increase in annual turnover threshold for registration as the complia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Hon'ble Minister from Assam suggested to make the second turnover threshold as ₹ 50 lakh. 10.41. Shri Upender Gupta, Principal Commissioner (GST Policy Wing), CBIC, stated that if a taxpayer had businesses in more than one State, it would become difficult to calculate the threshold. The Secretary stated that if there were differential thresholds, then it could lead to other complications and, in future, demand could also crop up to allow different rates of tax for different States. 10.42. The Hon'ble Minister from Goa reiterated that two annual turnover thresholds could be provided, namely, ₹ 20 lakh and ₹ 40 lakh so as to ensure that the GST architecture of the States was not disturbed. The Hon'ble Deputy Chief Minister of Delhi stated that a choice could be given to the States as to ,which threshold to adopt. The Hon'ble Chairperson enquired whether the State of Goa was ready to accept the annual turnover threshold of ₹ 40 Iakh for his State. The Hon'ble Minister from Goa stated that if the Council so decided, then they would join the consensus even if it meant loss of revenue to Goa. The Hon'ble Chairperson stated that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would need to be determined whether he was required to be registered in both the States. The Hon'ble Deputy Chief Minister of Delhi stated that this was already provided for in the case of Special Category States and the situation would be handled in the same way as was being done now. 10.45. The Secretary reiterated that State-wise distinction could lead to many more demands for State specific dispensations except those for Special Category States. He suggested to have only one annual turnover threshold for registration for non-Special Category States. The Hon'ble Deputy Chief Minister of Delhi stated that, almost 90% of traders fell in the category of annual turnover between ₹ 20 lakh and ₹ 1.5 crore, where the administration of taxpayer was with the State Government. If the annual turnover threshold for registration was raised to ₹ 40 lakh, a large number of traders would go out of the tax net of the State administration and the same would be the situation for Composition taxpayers. The Hon'ble Chairperson observed that taxpayers with annual turnover of more than ₹ 1.5 crore were equally distributed between the Centre and the States and bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... threshold limit for supplier of goods and in providing for composition scheme for small service providers. 10.48. The Hon'ble Chairperson stated that the consensus seemed to be to have two annual turnover thresholds for registration, namely ₹ 20 lakh and ₹ 40 lakh, with an option to the States to choose the higher threshold. He suggested that the Council could adopt this decision. The Commissioner, State Tax, Tamil Nadu, stated that while adopting this decision, it should also be taken note of that the Council's decision was guided by the consideration that this would not affect the inter-State trade. The Hon'ble Chairperson stated that this could be part of the decision also. The Council agreed to this suggestion. The Commissioner, State Tax, Tamil Nadu further stated that a time limit should be given to the States to opt for the higher threshold. The Hon'ble Chairperson suggested that preferably one week's time could be given to the States to convey their decision regarding the annual turnover threshold that they would like to adopt for registration. The Council agreed to this suggestion. 10.49. The Joint Secretary, TRU-ll stated that the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 crore of CGST and ₹ 2,500 crore of SGST), on the assumption that 50% of taxpayers would still stay in the input tax credit chain. He further stated that this scheme was proposed to be applied for those who either supplied pure services or made mixed supplies of goods and services. Hence, it would be a residual category of Composition scheme for those who were ineligible to avail the benefit of Composition Scheme for goods up to an annual turnover of ₹ 1.5 crore. 10.51. The Hon'ble Chairperson requested the Joint Secretary, TRU-ll to present data regarding the number of taxpayers and amount of revenue involved if a Composition scheme was introduced for small service providers. The Joint Secretary, TRU-ll drew attention to the relevant slide in the presentation and informed that the total number of taxpayers Iikely to be covered by the benefit of Composition scheme for small service providers up to an annual turnover of ₹ 50 lakh would be about 33,23,766, who paid tax in cash to the tune of about ₹ 37,046 crore. He added that these numbers would also have mixed suppliers. The effective rate of tax collection in terms of cash to turnover would be in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... public, and therefore, it was not desirable to give any extra benefit to the taxpayers. 10.53. The Hon'ble Deputy Chief Minister of Bihar stated that the tax rate of 7% to 8% for Composition on services was very high and the difference in rate from the proposed rate was only about 1.7% without much loss in revenue. He suggested that a lower tax rate should be adopted. He stated that the GoM had considered that to start with, a lower rate of tax be applied for service providers under the Composition scheme and had unanimously recommended the rate of 5%. The Hon'ble Chairperson enquired regarding the view of the Officers on this subject during the meeting on 9 th January 2019. The Secretary stated that since the recommendation was from the GoM and the decision of the GoM was unanimous, the Officers did not analyse it further. He further stated that while taking a decision in the Council, it needed to be remembered that lower rate of tax would help in higher revenue realization. It was important to make this scheme attractive, and therefore, one need not stick to Revenue Neutral Rate (RNR). He also pointed out that the rate of Composition tax for restaurants was also 5%. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the annual turnover threshold of ₹ 50 lakh and the tax rate of 5% was appropriate as there was need to bring the services providers in the tax net. He added that the global experience was that lowering the rate of tax led to higher compliance. The Hon'ble Ministers from Maharashtra, Andhra Pradesh, Tamil Nadu, Uttarakhand and the Hon'ble Deputy Chief Minister of Gujarat also supported the proposal to keep the annual turnover threshold at ₹ 50 lakh and the rate of tax at 5%. The Hon'ble Minister from Rajasthan stated that the rate of tax should not be less than 8% as services sector had very few inputs and value addition in this sector was very high. 10.58. The Advisor (Financial Resources), Punjab, stated that the rate of tax on goods had been brought down over a period of time and now painters, plywood manufacturers, etc. were paying a lesser rate of tax on their input purchases as compared to the original 28%. He further stated that in the instant case, the calculation of revenue loss was notional and one needed to look at other changes taking place in tl1e economy today, such as service providers suffering lower taxes due to reduction in tax rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ategory of Composition scheme for services (including those making a mixed supply of goods and services) could be introduced in the GST Law, and the annual turnover threshold in the preceding financial year for this Composition scheme could be fixed at ₹ 50 lakh and the rate of tax could be 6% (3% CGST+3% SGST). The Council agreed to this suggestion as also the other proposals in the agenda note. (V) Provision of free Accounting and Billing Software to small taxpayers by GSTN 10.62. Shri Prakash Kumar, Chief Executive Officer (CEO), Goods and Services Tax Network (GSTN) made a presentation on this Agenda item (attached as Annexure 5 to the Minutes). He stated that the then Finance Secretary had tasked the GSTN to explore the possibility of providing free accounting and billing software to small taxpayers, with annual turnover upto ₹ 1.5 crore. He stated that after rigorous selection process involving national level Expression of Interest (Eol), evaluation by external tech experts and panel of experts from ICAI (Institute of Chartered Accountants of India), they have identified seven companies out of 43 companies, which had submitted the Expression of Interest to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11.3. The changes to be made operational from 1 st April, 2019; (III) Increasing threshold exemption for suppliers of goods 11.4. In GST Law, the States shall have an option to adopt one of the two annual turnover thresholds for registration for suppliers of goods, namely ₹ 20 lakh or ₹ 40 lakh; 11.5. Benefit of higher annual threshold for registration of ₹ 40 lakh not to be given to entities to which an individual with the same PAN is associated; to manufacturers of some sensitive items like pan mas ala, etc.; to allow supply of services to the extent of 10% of turnover; to find means to avoid splitting; and the Law Committee to work out a formulation on these issues (which should have participation from the States of Kerala and Punjab) and present it before the Council; 11.6. The changes to be made operational from 1 st April 2019; 11.7. Till amendment in law is made to give effect to this change, the scheme to be made operational by notifying exemptions from tax and registration; 11.8. Council took note that it had agreed to have an option of two annual turnover thresholds for registration to suppliers of goods only on the consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cil which might lead to substantial benefit to buyers and slight gains in revenue also. The proposal, he informed, was based on the representations received from the Confederation of Real Estate Developers Association of India (CREDAI), Ministry of Housing and Urban Affairs and Maharashtra RERA regarding various aspects relating to the sector. The proposal was to levy a flat rate of GST @ 5% (akin to composition scheme) without Input Tax Credit (hereinafter referred as ITC) for under-construction flats before the occupation certificate was issued. He further informed that CREDAI had slightly modified their demand subsequent to their first proposal by stating that either the GST rate @ 5% or @ 8% with ITC would be appropriate. However, both the proposed tax rates would lead to inverted GST rate structure in the sector leading to refund. The proposal was initially brought in the 31 st Council Meeting where considering its importance, it was referred to the Law Committee and the Fitment Committee for consideration jointly and the instant proposal was based on the recommendations arising out of such a joint meeting. 12.1. Explaining the proposal, Joint Secretary, TRU-II further sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncil, the details such as definition of ' Residential Property', 'Commercial Property , 'Transfer of Development Rights', 'transitional issues' vis-a-vis credit lying in the ledger of the builder pertaining to inputs, input services, etc. lying unused with the builder would be worked out by the Fitment Committee. 12.3. The Hon'ble Deputy Chief Minister of Delhi sought clarification on the treatment of mixed projects involving part commercial and part residential development. Joint Secretary, TRU-II explained that it would be dealt with in a manner similar to a situation in GST where a manufacturer manufactured not only taxable but also exempt goods using common inputs and input services. In such cases, the input tax credit pertaining to the production of exempt goods was liable to be reversed and for this, an elaborate procedure for calculation was provided under the GST Rules. 12.4. The Hon'ble Deputy Chief Minister of Gujarat sought further clarification that in his State, it was common to have construction with first two floors being commercial and floors above it being residential. The Secretary explained that the commercial property wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impacted the availability of inventory in the market and ultimately the tax revenue. He added that the principal reasons identified for this situation were: a. The monetary situation relating to credit and liquidity in the sector created by the crisis in NBFC (Non-Banking Financial Company) sector which had stopped lending due to their own survival issues. It was manageable by taking care of monetary and liquidity situations. b. Sale of built up residential/commercial property was out of GST whereas sale of property under construction where the buyer pays in stages was taxed @ 18% giving the one-third abatement for the land component which effectively came to 12% tax rate. The flat buyers were under the impression that if they bought completed property, they would be saving this 12% tax and only paying Stamp Duty and hence waiting for the property to be completed. Since the buyers had stopped buying under construction property, the money supply to the sector had stopped and projects were not getting completed. c. It was also a fact that builder paid tax at the rate of 28% on cement, 18% on majority of other input items and 12% on some other materials and the combined lTC a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncrease by approximately ₹ 1 0 lakh in cash. Thus, in both the cases, i.e. affordable category and luxury category, there would be increase in tax incidence which would be ultimately borne by the consumer. 12.9. The Secretary explained that in real estate sector, the tax rate was 12% on normal property and with ITC available, the builder was to pay cash to the extent of 4%. However, this was one sector where not only the evasion of tax was there, but at the same time, input cost was being inflated by way of purchasing bills. Thus, ,a situation existed where neither one was getting any tax nor was the consumer getting any benefit as he was charged tax @12%/ 8% on the invoice depending on the type of property he was purchasing. Thus, the situation was similar to restaurants and by having GST rate of 5% or 3% as proposed in the Agenda, the consumer would see only the above tax rates on invoice which would be substantially lower. The safeguard of 80% purchases from the registered dealers would maintain the credit chain. 12.10. The Hon'ble Chairman further explained that the present tax structure was 8% on the affordable category and 12% on the normal or luxury category ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proposed tax@ 5% was payable on full value or on the value after adjusting I abatement for land component. If the proposal was to tax on the full value, then land would be getting taxed under GST. The current tax rate of 12% which had been arrived at after one third abatement should not become basis for this situation where tax was proposed to be levied on full value rather than the abated value of sale. 12.13. The Hon'ble Chairperson enquired from Joint Secretary, TRU-ll that if the proposal for taxing at the rate of 3% or 5% on the sale value of property was adopted, the question was whether it included the value of land. The Joint Secretary, TRU-ll stated that tax rate would be charged on the full value of the flat including the land value and that the proposed tax rate of 3% or 5% might lead to marginal increase in the ta....: on the builder which would be borne by the buyer ultimately. The Hon'ble Chairperson observed that if it was so, why such a decision should be taken, as unethical conduct of developers could be dealt with by use of Anti-profiteering proceedings or through redressal under RERA proceedings. He observed that this proposal, instead of effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on lottery authorized by State Governments was 28%. However, this differential was being misused by the trade and majority of them were paying tax @12%. He further explained that the proposal was for rationalisation of GST rates on Lottery by increasing tax rate on State run lotteries to 28 % from the present 12%. Further, if the GST rate was increased to 28% from 12%, it would lead to revenue gain of approximately ₹ 1250 crore. He added that the details are contained in agenda for removing the differential tax rates for lotteries which are as follows: - i. There was only one type of lottery allowed in the States i.e. the one which conforms to the provisions of Section 4 of the Lotteries Regulations Act, 1998. Discrimination in GST rates was leading to reduction of sales especially in major States of Maharashtra and Punjab. ii. It was beyond comprehension as to how two different rates of GST could be fixed on same product when sold in the State itself and when sold in the other States, which was against the provisions of the Competition Act, 2012. Discrimination did not exist in any other category of products. iii. The huge variation of 16% between two rates helped t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat they were not being heard in the Council. 14.3. The Hon'ble Chairperson explained the issue further and stated that when the rates on lottery were fixed by the Council at the time of GST implementation, the issue was thoroughly examined and a two-tier rate structure was adopted. One was lotteries run by State Governments, like Kerala model, where GST was fixed @ 12%. Thus, Kerala ran its own lottery, not allowing any other private lotteries in the State and it was taxable @ 12% and they used the profit earned out of this lottery system for social welfare and health care scheme. Second model was a purely private party run model which attracted GST@ 28%. In addition, there was a third hybrid model where lotteries were run in the name of the State but were effectively private lotteries, i.e. it carried only authorisation by State Governments. In that model, the State took some fixed amount based on some percentage, whereas the whole operation was private thereafter and was misdeclared so as to pay tax @12%. Despite the higher rate of GST being applicable to these lottery owners, there was low GST collection because of this hybrid structure which was leading to evasion of ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e which was directly running the lottery had to pay GST @ 12% arid any middleman/contractor run lottery would attract 28% GST. Punjab, Maharashtra, Goa or any other State which were running lottery directly were liable for tax rate of 12% within the State and contractors should not point out that all lottery supply should be taxed @ 28%. 14.5. The Hon'ble Chairperson stated that on this issue, one would not have too many conflicting views to the situation where States were merely a name lender; but the question was how one could ensure that 28% GST was charged on such private players. Thus, for this purpose, one needed to have some strict guidelines. 14.6. The Hon'ble Minister from Kerala stated that Council took the decision which was challenged in the Hon'ble Kolkata High Court which held that Council had legally the right to take such a decision. Thus, to take benefit, other States may also avoid middlemen and run the lottery by themselves. Kerala Government could provide the technical support to other States who wanted it. 14.7. The Hon'ble Minister from Assam stated that North Eastern States have lottery system, but they lacked proper infrastructure to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... teries were being shown as run in States but tickets were sold secretly outside States and because of two tax rates, a lot of litigations were also taking place. This being a sin item, needed to be discouraged and therefore, 28% rate should be imposed on the lottery as was the original proposal in the past. However, it was decided in the Council that there should be some distinction between State operated lottery and private lottery but there was now requirement of a uniform rate to plug the revenue leakage and distortions. 14.10. The Hon'ble Minister from Kerala stated that lottery was not a normal commodity and one should question as to whether it was like any other commodity for which a freedom of trade all over India under GST regime had to be given. Lottery was not a normal commodity and that was why central law on lottery existed which had prohibited the middlemen running lottery at other places. CAG report clearly indicated that some middlemen from some States were running it in an inappropriate way. Therefore, the proposal could not be accepted. 14.11. The Hon'ble Minister from Punjab stated that differential rate in lottery was contested by lottery group/asso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn State was punished by these two different rate slabs. The present system was running smoothly, and should not be disturbed. 14.15. The Hon'ble Minister from Assam stated that North Eastern States were lacking resources and should not be compared with other States such as Punjab or Kerala and for their inability to develop a system, they should not be punished. There were various challenges in running a government mechanism for lottery vis a vis North East States which needed to be addressed and they needed special consideration. 14.1 6. The Hon'ble Minister from Goa stated that Goa had lottery in the State but was losing revenue because there was no rationalization in rates for lottery. Kerala was selling lottery outside the State and other States were losing because of twin GST rates. Thus, all should rise, think for the country, and suggest best practices and way forward, i.e. ways to plug revenue leakages. He added that in the Council, one should talk about streamlining the revenue and better working of Tax administration. One had to look to fix leakage in revenue and as to why all taxpayers were not coming in the system, evading GST and needed suggestions on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eipt of payments from the clients. The matter had been taken up in the 31 st Council meeting on their earlier representation and a Notification 29 of 2018 dated 31.12.2018 (Sl. No.14 of the Notification) had been issued which provided that the security services provided by any person other than a body corporate to a registered person except Government Departments who had taken registration for TDS and entities registered for Composition scheme had been put under RCM. He further informed that the matter was discussed in the Officers' meeting a day before and the view taken was that no further change was required. The Secretary suggested that in view of the discussion in the Officers' meeting, the recommendation of the TRU to reject the request of the CAPSI to bring the entire Private Security Service sector including body corporates under RCM may be agreed to. The Council agreed to the proposal. 17. For Agenda item 5(iii) , the Council decided not to agree to the request of CAPSI (Central Association of Private Security Industry) to bring the entire security services sector including body corporate under RCM (Reverse Charge Mechanism). Agenda Item 6: Issues recommen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Acts, except the provisions corresponding to Sections 8(b), 17, 18, 20(a), 28(b)(i) and 28(c)(i) of the CGST (Amendment) Act, 2018. The Amendments shall be issued after due vetting of the notifications by the Union Ministry of Law. The Council approved the proposal. 19. For Agenda item 6(i) , the Council approved to notify the provisions of the CGST (Amendment) Act, 2018; the UTGST (Amendment) Act, 2018, the GST (Compensation to States) Amendment Act, 2018 and the IGST (Amendment) Act, 2018 except the provisions contained in Sections 8(b), 17, 18, 20(a), 28(b)(i) and 28(c)(i) of the CGST (Amendment) Act, 2018. The States shall also be required to notify amendments to the enabling provisions of the SGST (Amendment) Acts, except the provisions corresponding to Sections 8(b), 17, 18, 20(a), 28(b)(i) and 28(c)(i) of the CGST (Amendment) Act, 2018. Agenda Item 6(ii): Consequential amendments in notifications issued earlier in light of bringing into force the provisions of the CGST (Amendment) Act, 2018; the UTGST (Amendment) Act, 2018; the GST (Compensation to States) Amendment Act, 2018 and the IGST (Amendment) Act, 2018 20. Introducing this Agenda item, the Principal Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mposition scheme, value of supply of exempt services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount shall not be taken into account. 22.1. He sought the approval of the Council for the above proposal. The Council. approved the same. 23. For Agenda item 6(iii) , the Council approved the proposed amendments to the list of Circulars and Orders issued earlier as per Annexure A of Agenda notes to Agenda item 6(iii) and to also rescind the Removal of Difficulty Order No.01/2017-Central Tax dated 13 th October, 2017 and to issue a new Removal of Difficulty Order providing for extension of the following beneficial condition for all Composition dealers: that for computing the aggregate turnover in order to determine eligibility for composition scheme, value of supply of exempt services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount shall not be taken into account. 23.1. The Removal of Difficulty Order shall be issued in consultation with the Union Ministry of Law. The States shall also issue similar Circulars and Orders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any decision on those issues that did not fall in the category of technical glitches. He further explained that since there was no appeal mechanism for filing Forms TRAN-1/TRAN-2 under GST law, hence more and more taxpayers were approaching various Hon'ble High Courts for consideration and obtaining favourable orders and in some cases, Hon'ble High Courts had given specific directions to take up the cases as per the Grievance Redressal Mechanism. The -.. ITGRC recommended to refer the issue to the Council to empower it to consider and decide cases for extending the benefit of allowing filing of any Form or Return prescribed in law or amending any Form or Return already filed for bona fide non-technical mistakes of the taxpayers. He stated that this Agenda item was discussed in the Law Committee and the formulation recommended by the Law Committee was discussed in the meeting of the Officers held on 9 th January, 2019. During the Officers meeting, it was agreed to expand the mandate of the ITGRC to consider cases of non-technical glitches but in a very limited manner. 28.1. The formulation agreed upon during the Officers meeting held on 9 th January, 2019 was presente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned jurisdictional Commissioner or an officer authorised by him in this behalf (in case of credit of Central taxes/duties, by the Central authorities and in the case of credit of State taxes, the State authorities, notwithstanding the fact that the taxpayer is allotted to the Central or the State authority). Agenda Item 9: Use of RFID (Radio-frequency Identification) data for strengthening: enforcement of e-Way Bill system under GST 30. The Secretary informed that during the Officers Meeting held on 9 th January, 2019, the Agenda item was discussed and a presentation was made on this Agenda item (attached as Annexure 7 to the Minutes) and several issues arising out of reports of GSTN and Member (Budget), CBIC and recommendations were identified such as adoption of FASTag, legal requirements thereof and inter-operability of existing systems, etc. The officers were unanimous in implementing Stage-1, where data was used for passive Risk-based intervention as suggested in the proposal at the earliest. As regards Stage-TI where data was proposed for active real time intervention, they raised the issue that while implementing it, one should preserve the good attributes of GST ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estigation reports were received by the NAA from the Directorate General of Anti-Profiteering (DGAP) while they already had 29 investigation reports pending as on 30.09.2018 forwarded by the DGAP. During this period, out of these 70 investigation reports, NAA had passed orders in 20 cases which were all unanimous. Profiteering was established in 6 cases involving anti-profiteering amount of ₹ 542.59 crores. Major among these were the case of M/s. Hindustan Unilever Limited and M/s. Hardcastle Restaurants Private Limited involving profiteering amount of ₹ 534.890 crore and ₹ 7.59 crore respectively. Profiteering was not established in remaining 14 cases. Thus, as on 01.01.2019, 37 investigation reports were pending disposal with the NAA while 13 cases were referred back to the DGAP for further investigation. 32.2. In the written speech circulated by the Hon'ble Minister from Tamil Nadu, he reiterated his stand taken earlier that the amount lying with the NAA should be shared between the Centre and the States. 33. For Agenda item 10 , the Council took note of the facts reported by the National Anti-profiteering Authority (NAA) in its report for the quarte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Whether it would be sufficient for meeting the requirement on account of relief and rehabilitation? vi. Mechanism for raising of resources for disaster management within the framework of Disaster Management Act, 2005 and how it should be dovetailed with the recommendations of Finance Commission. 34.2. The suggestions received from the States as well as Officers were considered and the following were recommended by the GoM: i. The NDRF norms should be considered for revision after due consultation with State Governments. ii. The Council might consider allowing levy of a cess on intra-State supply of goods and services within the State of Kerala at a rate not exceeding 1% for a period not exceeding two years. iii. Regarding FRBM limits of fiscal deficit, GoM felt that for the purposes of reconstruction after the initial impact of natural calamities, Central Government might consider allowing States to incur a fiscal deficit higher than the FRBM without impacting their ongoing development programmes. GoM felt that this could either be done by excluding the reconstruction expenditure outside the FRBM limits or by providing additional borrowings over and above the FRBM t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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