Disclaimer: This update is shared for informational purposes only and should not be construed as legal advice or opinion. Before making any decisions based on this information, readers are advised to consult with legal professionals. For an accurate understanding of any statutory modifications, one should refer to the official documents (such as circulars or notifications) to be released by the Government.
This press release of the GST Council meeting is subject to notifications being issued.
1. CHANGES RECOMMENDED FOR RATES ON GOODS
1.1 GST Rate on products of Millet Flour (powder form) having 70% or more millets
GST rates for ‘Food preparation of millet flour in powder form, containing at least 70% millets by weight,’ falling under HS 1901, are recommended to be reduced as under:
- If the product is sold in a pre-packaged and labelled form, a 5% GST rate applies
- Otherwise, it would be exempt.
GBA Comments
2023 has been declared the International Year of Millets by the United Nations, a proposal strongly supported by India. To boost millet production and consumption in India, the GST Council recommends exemptions for food products with 70% or more millet content, unless sold in pre-packaged and labeled form. Previously, these products attracted an 18% GST.
1.2. IGST Exemption for Foreign-Going Vessels on Coastal Run Conversion
The Council has recommended exempting foreign-flag vessels converting to coastal runs if they plan to revert to foreign-going status within six months.
GBA Comments
Previously, a 5% IGST was applied when a foreign vessel was converted for coastal runs. The recommended exemption is conditionally applicable for vessels reverting to foreign-going status within six months. However, transportation charges during this run don’t qualify for any GST exemptions. Further, shipping companies would also be required to determine their GST registration requirement (NRTP/Regular etc.) if they do not have any place of business in India
1.3. Exclusion of ENA for Liquor Production from GST
The council has recommended keeping Extra Neutral Alcohol (ENA) used for the manufacture of alcoholic liquor for human consumption outside the GST net. The Law Committee would examine suitable amendments in law to exclude a given product from the GST ambit. Further, a separate entry for ENA used for industrial use would be introduced in GST rate notification with an 18% GST rate. Necessary amendments in Customs Tariff law would also be introduced for adding an 8-digit tariff item for rectified spirit.
GBA Comments
The States and the GST Council have long debated the taxability of ENA used for producing alcoholic liquor. While States argue for VAT/CST applicability, the GST Council, backed by the Attorney General’s opinion, believes GST should apply. The Attorney General emphasized that ENA, with 95% alcohol by volume, isn’t fit for consumption, thus falling under GST. However, in the case of “Jain Distillery Private Limited and others v. State of UP,” the Allahabad High Court ruled against Uttar Pradesh’s attempt to levy VAT/CST on ENA, adding to the industry’s uncertainty. Many suppliers have faced GST demands amid this ambiguity. The GST Council’s decision to exclude ENA from GST is viewed as a positive clarifying step. Still, this move necessitates constitutional amendments and the empowerment of States to impose VAT/CST on ENA. The core debate revolves around whether States possess the right to tax a product not categorized as ‘alcoholic liquor for human consumption’.
1.4. GST Rate for Imitation Zari Thread/Yarn Made from Metallised Polyester Film
The council has recommended clarifying that imitation zari thread or yarn made out of metallised polyester film /plastic film, falling under HS 5605, is covered by the entry for imitation zari thread or yarn and thus would attract a 5% GST rate. It has further been clarified that no refund would be allowed on polyester film (metallised) /plastic film on account of inversion.
GBA Comments
The headings 5809 and 5810 cover embroidery and zari articles. The products falling under 5809 and 5810 attract GST at 5%. While yarn falls under heading 5605 which was reduced to 5% as per the recommendation of the 50th GST Council meeting. Now in line with the above, the Council has recommended keeping the GST rate on zari yarn at 5% even if it covers the plastic film.
1.5. Reduction in GST Rate of Molasses from 28% to 5%
The GST Council has recommended reducing the GST rate on Molasses from 28% to 5%.
GBA Comments
The rate has been reduced with the intent to increase liquidity with mills and enable faster clearance of cane dues to sugarcane farmers. The Council has also provided that this would also lead to a reduction in cost for the manufacture of cattle feed as molasses is also an ingredient in its manufacture and hence the decision to reduce the GST rate is welcomed.
2. CHANGES RECOMMENDED FOR RATES ON SERVICES
2.1. Value of Personal Guarantee by Directors to Banks would be ‘NIL’
The Council has recommended that the value of personal guarantee given by director to Banks/Financial institution would be higher of the following:
– Actual Consideration
– Nil (being open market value)
GBA Comments
Recently, several corporations received notices from authorities demanding GST payments under the reverse charge mechanism for personal guarantees provided by directors to banks or financial institutions. The core argument is that such transactions, even without explicit monetary considerations, should be viewed as a supply, necessitating GST payments under reverse charge.
However, a prevailing perspective is that a director’s personal guarantee isn’t a transaction directly linked to the director’s business activities. This view suggests that such guarantees shouldn’t fall under GST. Reinforcing this stance is the RBI’s directive, which mandates banks to ensure that directors don’t receive any direct compensation for such guarantees. Consequently, the role of a director isn’t seen as a commercial activity, and thus, their personal guarantees should be exempt from taxation.
The GST Council’s proposal to assign an NIL value to the open market value of these guarantees aims to eliminate potential legal disputes. As this is more of a clarification than a new rule, it might possess retrospective implications. However, the exact details and impacts will become clearer once the complete text is available. Existing taxpayers who have previously made GST payments on such transactions might face queries regarding their eligibility for credits and refunds.
- The value of the Corporate Guarantee would be higher of 1% or actual consideration
New provision to be introduced under Rule 28(2). Per the new guideline, a corporate guarantee’s value is the greater of:
· The actual consideration, or
· 1% of the corporate guarantee’s value
Further, a circular would be issued to provide that the above new provision would apply to corporate guarantees between related parties, regardless of the available ITC.
GBA Comments
Indian corporations are grappling with GST litigation concerning the taxability of corporate guarantees given by a holding company to its subsidiary. In response to multiple appeals for clarity, the GST Council has introduced guidance, especially on the valuation aspect.
This approach aligns with the Safe Harbour Rules in the Income Tax Law, promoting consistency across different legal interpretations.
2.3. Extension of GST Exemption on Essential Services to Governmental Authorities
The GST Council has recommended bringing services like water supply, public health, sanitation conservancy, solid waste management, and slum improvement and upgrading that are supplied to Governmental Authorities under the exemption list.
GBA Comments
Prior to January 1, 2022, GST was exempted on services in relation to the above activities provided to the Governmental Authorities. Now again, the Council has recommended providing for these services by amending Entry No. 3 and 3A of Notification No. 12/2017-Central Tax (Rate). These contracts with the Governmental Authorities are generally ongoing in nature; therefore, contractors would need to determine the rate of tax to be applied to transitional transactions. In this regard, one would need to refer to the provisions of Section 14 of the CGST Act (i.e., time of supply in case of change in the rate of tax) for determining the taxability of ongoing contracts.
Relief for Small E-Commerce Businesses: GST Registration Exemption
2.4. No liability on Bus transportation service where buses operated by companies
The council has recommended that e-commerce operators would not be liable to pay GST under Section 9(5) in respect of bus operators organized as companies.
GBA Comments
With effect from January 1, 2022, the liability to pay GST on bus transportation services supplied through ECOs has been placed on the ECO under Section 9(5) of the CGST Act, 2017. Now the GST Council has recommended that bus operators organized as companies would be excluded from the purview of Section 9(5) of the CGST Act, 2017, and forward charges would apply, allowing them for ITC.
2.5. Clarification on Job Work for processing barley to Malt
Clarification would be issued with regards to job work services for processing barley into malt whereby the rate will be 5%, which is similar to “job work in relation to food and food products” instead of 18%.
- DMFTs set up by the State Govt is a Governmental Authority
The circular would be issued to provide that District Mineral Foundation Trusts (DMFT) set up by the State Governments across the country in mineral mining areas are Governmental authorities and hence would be eligible for the same exemptions from GST as available to any other Governmental Authority.
2.7. Services of Indian Railways would be under forward charge
The council has recommended that the supply of all goods and services by Indian Railways be taxed under the Forward Charge Mechanism to enable them to avail of ITC. This would reduce the cost for Indian Railways.
3. MEASURES FOR TRADE FACILITATION
3.1. Amnesty Scheme for filing appeal till January 2024—MOST IMP
Taxpayers who missed the appeal deadline for demand orders under the CGST Act, 2017 until March 31, 2023, or had appeals rejected solely due to late filing, can now file appeals until January 31, 2024. They must pay a pre-deposit of 12.5% of the disputed tax, with at least 2.5% debited from the Electronic Cash Ledger.
GBA Comments
Under the GST law, taxpayers have a three-month timeframe to lodge an appeal, with an optional one-month extension given valid reasons. However, many appeals get rejected due to submission delays. Various High Courts have differing views on this. For instance, the Guwahati High Court believes in the inherent ability of writ courts to condone such delays. Conversely, the Kerala and Patna High Courts argue that if a law prescribes a specific timeframe for delays, it shouldn’t be exceeded. The recent decision to permit an extended period for appeal filings is a welcomed relief, especially for those taxpayers whose appeals were previously denied due to time overruns.
3.2. Automatic restoration of provisionally attached property after one year
The council has recommended that Rule 159(2) of CGST Rules, 2017 and FORM DRC-22 be amended to provide that the order for provisional attachment would not be valid after the expiry of one year from the date of the said order.
GBA Comments
Under the existing law, the Commissioner must release a provisional attachment either upon their order or after one year from the provisional attachment date, whichever comes first. This was reiterated in the CBIC guidelines from February 23, 2021. More recently, the Commissioner (GST Investigation) issued an instruction detailing that once provisional attachments end after the one-year period, banks or relevant authorities should be informed about the property release. The amendment to Rule 159(2) of the CGST Rules, 2017, and Form DRC-22 aim to streamline this process, allowing for the release of provisionally attached properties after one year without requiring a distinct written order from the Commissioner. This revision is beneficial for the industry, addressing challenges related to the release of provisional attachments, notifying banks to access frozen accounts, and obtaining Commissioner permissions for release.
3.3. Clarification on various issues related to Place of Supply:
The Council has recommended that CBIC issue a circular to clarify the Place of Supply (POS) in respect of the following supply of services:
a. Supply of service or transportation of goods, including by mail or courier, in cases where the location of the supplier or the recipient of services is outside India.
b. Supply of advertising services.
c. Supply of the co-location services.
GBA Comments
The objective behind clarifying the POS for the aforementioned services specifically seems to stipulate a dedicated POS for these services. Currently, Section 13 of the IGST Act, 2017 does not have any explicit provision for the above services. One would have to wait for the relevant clarifications in order to actually understand the prescribed POS. Industries with the above service where either the service recipient or supplier is outside India must watch this space and should be geared up to understand its impact on their business.
Place of Supply in GST for Goods Exports: Shipping Destination and Customs Clearance
3.4. Issuance of clarification relating to export of services
The Council has recommended that a circular be issued to clarify the admissibility of export receipts in the Special INR Vostro account, as permitted by RBI, for the purpose of considering the supply of services to qualify as exports of services in terms of Section 2(6)(iv) of the IGST Act, 2017.
GBA Comments
Recently, the RBI has allowed certain banks operating in the country to open INR vostro accounts of partner banks from 22 countries as part of efforts to promote bilateral trade in local currencies. The Council has recommended that CBIC issue a circular to ensure that export consideration received in such accounts is not a hurdle for an exporter to claim GST export benefits. This would be a worthy facilitation measure for the export community.
- Allowing supplies to SEZ units and developers with payment of IGST
The Council has recommended amending Notification No. 1/2023-IGST dated July 31, 2023, w.e.f. October 01, 2023, so as to allow the suppliers to a SEZ developer or a SEZ unit for authorized operations to make the supply of goods or services (except the commodities like pan masala, tobacco, gutkha, etc. mentioned in the Notification No. 1/2023-IGST dated July 31, 2023) to the SEZ developer or the SEZ unit for authorized operations on payment of IGST and claim the refund of tax so paid.
GBA Comments
The CBIC, via Notification No. 1/2023-IGST dated July 31, 2023, permits tax payment for all exports of goods and services, barring specific goods like cigarettes, pan masala, and other tobacco-related products. However, there was no clarity to permit supplies to SEZ units or developers with the payment of IGST. With this recommendation being implemented, the same shall close the loop on making zero-rated supply on payment of tax.
3.6. Appointment of President and Member of the proposed GST Appellate Tribunals:
The Council has recommended amendments in Section 110 of the CGST Act, 2017 to provide that:
a. an advocate for ten years with substantial experience in litigation under indirect tax laws in the Appellate Tribunal, Central Excise and Service Tax Tribunal, State VAT Tribunals, by whatever name called, High Court or Supreme Court to be eligible for the appointment as a judicial member;
b. the minimum age for eligibility for appointment as President and Member to be 50 years;
c. The president and members shall have tenure up to a maximum age of 70 years and 67 years, respectively.
3.7. Amendment for ISD as recommended by GST Council in its 50th meeting
In its 50th meeting, the GST Council recommended that the ISD procedure as laid down in Section 20 of the CGST Act, 2017 may be made mandatory prospectively for the distribution of ITC in respect of input services procured by Head Office (HO) from a third party but attributable to both HO and Branch Office (BO) or exclusively to one or more BOs. The Council has now recommended amendments in Section 2(61) and Section 20 of the CGST Act, 2017 as well as amendment in Rule 39 of the CGST Rules, 2017 in respect of the same.
GBA Comments
The proposal to make ISD mandatory in the 50th GST Council meeting has been recommended to be implemented by amending relevant provisions. Companies that have not yet made changes to their existing cross-charge mechanism would have to proactively obtain ISD registration and set up the necessary processes and systems to initiate compliance with the same.
