Recommendations to be made by Council
As per Article 279A (4), the Council will make recommendations to the Union and the States on important issues related to GST, like the goods and services that may be subjected or exempted from GST, model GST Laws, principles that govern Place of Supply, threshold limits, GST rates including the floor rates with bands, special rates for raising additional resources during natural calamities/disasters, special provisions for certain States, etc.
The Goods and Services Tax Council shall make recommendations to the Union and the States on-
- the taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be subsumed in the goods and services tax;
- the goods and services that may be subjected to, or exempted from the goods and services tax;
- model Goods and Services Tax Laws, principles of levy, apportionment of integrated Goods and Services Tax and the principles that govern the place of supply;
- the threshold limit of turnover below which goods and services may be exempted from goods and services tax;
- the rates including floor rates with bands of goods and services tax;
- any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster;
- special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur; Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and
- any other matter relating to the goods and services tax, as the Council may decide.
Apart from aforementioned recommendations, GST Council shall undertake the following-
- The Goods and Services Tax Council shall recommend the date on which the goods and services tax be levied on petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel. While discharging the functions conferred by this article, the Goods and Services Tax Council shall be guided by the need for a harmonised structure of goods and services tax and for the development of a harmonised national market for goods and services.
- The Goods and Services Tax Council shall establish a mechanism to adjudicate any dispute –
- between the Government of India and one or more States; or
- between the Government of India and any State or States on one side and one or more other States on the other side; or
- between two or more States, arising out of the recommendations of the Council or implementation thereof.’’
Decisions / issues considered at First Meeting of GSTC (22-23 September, 2016)
The first meeting of the newly constituted GST Council was held on 22-23 September, 2016 in which following issues were decided / considered:
- Rules for conduct of business at meetings.
- Time table of GSTC meetings was set keeping the April 1st, 2017 deadline.
- Consensus on composition scheme with gross turnover of ₹ 50 lakh as limit wherein tax payers will pay 1-2 percent tax.
- Threshold exemption limit fixed at ₹ 20 lakh in general and ₹ 10 lakh for north east states / hill states.
- Broad consensus on dual control of assessees- Taxpayers with annual turnover upto ₹ 1.5 crores shall be assessed by states and assessees with annual turnover exceeding ₹ 1.5 crore to be assessed by both centre and states (cross empowerment model).
- Existing Service Tax assessees (about 11 lakh) to remain with Central Government.
- Base year for determining compensation for revenue loss projection to be financial year 2015-16.
- Compensation formula to take into account all the cesses presently levied.
- Assessees to be divided between the Centre and States based on risk assessment. Whichever of the two tax authorities (Centre or State) has a higher risk assessment will assess.
Decisions / issues considered at 2nd Meeting of GSTC (30.09.2016)
The major agenda for the second meeting of the GST Council held on 30 September, 2016 was to consider and approve the draft rules released for GST in relation to registration, payment, return, refund etc. Though the draft rules were put in public domain only on 27th September leaving few hours for public to give feedback, the GSTC approved the said rules in just one sitting. The decisions, inter alia, are supposed to include the following –
- To continue with area based exemptions and incentives of excise duly available to north east states and hill states but to be provided by way of refund and not by way of exemptions, as presently done. Presently, centre allows such exemption to eleven states.
- There will be levy of tax on all exempted entities under GST and the Centre or the State, as the case may be, that gets the tax shall have to reimburse such tax collected to the exempted entity. However, it is not clear as to whether such refund shall be automatic through GSTN or entity will have to claim refund. States ought to agree to this.
- States have to decide on the specific industrial exemptions which they may like to continue to provide to business entities / goods / services. The details are yet to be worked out.
- Reimbursement of taxes by the Union shall be examined as about 40-48 percent of the taxes from central pool goes back to states as per devolution formula. Centre wants states to give the refund.
- Control of Service Tax assessees, though decided in first meeting, shall be re-examined as some states have raised concerns over Centre’s control on services such as works contracts, software contracts, restaurant supplies etc. It is expected that a group of CBEC officials shall work out a formula which is acceptable to all. However, this appears to be a grey area which may invite issues from the states.
- Approval of draft rules for returns, payment, registration, refund and invoices / debit notes / credit notes
- Minutes of the first meeting held on 23rd September could not be adopted / confirmed.
Agenda for 3rd Meeting of GSTC (18-20 October, 2016)
The GSTC decided to hold its third meeting on 18-20 October, 2016 wherein following issues may be considered –
- Calculation of annual incremental tax revenue to decide projection for compensation for likely possible loss of revenue to the states in GST regime.
- Dual control over assessees
- Control over Service Tax assessees
- Rates of GST
- Exemptions and negative list
It is expected that GST Council may finally decide on the above issues in its three days meeting in October, 2016.
Treatment of Cesses
While the proposed GST regime shall subsume certain taxes – both Central and of States, it is not certain as to what would be the fate of cesses such as Swachh Bharat Cess (SBC) and Krishi Kalyan Cess (KKC). While theConstitutional (101st Amendment Act) 2016 does not deal with treatment of cesses in the GST regime, GST Council is expected to decide the fate of cesses as to whether they will be subsumed in the GST rate itself or continue. According to present talks, there may be no cesses under the GST regime but for that, a decision has to be taken as cesses do not get automatically subsumed. It is understood that GSTC has agreed to subsume cesses into the GST.
Compensation to States
Compensation to States is a complex issue as some of the states have demanded that compensation for revenue loss from GST rollout should be paid on a regular basis on quarterly or bimonthly rests but that may be tough for the centre. The centre is considering the options to project revenue growth based on a fixed rate or best of three growth rates out of last five years or excluding two outlier year and average taken.
By: Dr. Sanjiv Agarwal – October 12, 2016
Discussions to this article
Regarding “dual control of assessees- Taxpayers with annual turnover upto ₹ 1.5 crores shall be assessed by states and assessees with annual turnover exceeding ₹ 1.5 crore to be assessed by both centre and states (cross empowerment model).” It seems that the assessee will be subject to assessment by both the authority. This will lead to troublesome to the dealers.