Unpacking the Latest GST Council Recommendations: A Comprehensive Analysis

The GST Council is proposing the phased nationwide implementation of biometric-based Aadhaar authentication for registration applicants.

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The 53rd meeting of the GST Council took place in New Delhi yesterday, presided over by the Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitharaman. In the meeting, the Goods and Services Tax (GST) Council put forth a series of pivotal recommendations to refine tax rates, facilitate trade, and streamline compliance. These changes span various sectors and are designed to address interpretational issues, enhance efficiency, and provide much-needed relief to taxpayers. This will bring significant changes and potentially impact the Indian economy.

Changes in GST Tax Rates on Goods

Aircraft Maintenance and Parts: A uniform 5% Integrated Goods and Services Tax (IGST) rate will now apply to import parts, components, testing equipment, tools, and toolkits for aircraft maintenance, repair, and overhaul (MRO) activities. This move is expected to bolster the MRO sector by simplifying tax structures and reducing costs, enhancing India’s position as a global MRO hub.

Milk Cans and Packaging Materials: All milk cans made of steel, iron, or aluminium will now attract a 12% GST. This standardization simplifies the tax structure, potentially lowering operational costs for dairy farmers and processors. Additionally, the GST on cartons, boxes, and paperboard cases has been reduced from 18% to 12%, benefiting the packaging industry and reducing costs for businesses that rely heavily on these materials.

Solar Cookers and Poultry Machinery: All solar cookers will now attract a 12% GST, promoting renewable energy usage in domestic cooking. The amendment clarifies that parts of poultry-keeping machinery are also subject to 12% GST, regularizing past practices and resolving interpretational issues that previously plagued the industry.

Miscellaneous Exemptions: The Council extended IGST exemptions for imports related to defense forces and research programs like the RAMA project, supporting critical national interests. Notably, the exemption on compensation cess for SEZ units and developers has been applied retroactively from July 2017, facilitating smoother operations within SEZs.

Changes in GST Tax Rates on Services

Indian Railways: Services provided by Indian Railways, such as selling platform tickets, retiring rooms, cloakroom services, and battery-operated car services, are now exempt from GST. This exemption extends to intra-railway transactions and retroactively applies from October 2023, simplifying operations and reducing costs for railways and passengers.

Special Purpose Vehicles (SPVs): SPVs providing infrastructure to Indian Railways during concession periods are also exempt from GST, encouraging private investment in railway infrastructure.

Accommodation Services: A new entry exempts accommodation services valued up to Rs. 20,000 per month per person, provided for at least 90 continuous days. This exemption is retroactive, offering relief to long-term accommodation providers.

Measures for Trade Facilitation

Waiver of Interest and Penalties: Section 128A of the CGST Act will be inserted to provide conditional waivers of interest or penalties for tax demands from FY 2017-18 to FY 2019-20, addressing taxpayer difficulties during GST’s early implementation years. This waiver is contingent upon full tax payment by March 2025, excluding erroneous refunds.

Reduction in Government Litigation: To reduce government litigation, the department has set monetary limits for filing appeals. The thresholds for appeals to the GST Appellate Tribunal, High Court, and Supreme Court will now be Rs. 20 lakhs, Rs. 1 crore, and Rs. 2 crore, respectively.

Pre-Deposit Requirements for Appeals: The pre-deposit amounts for filing appeals under GST have been reduced, easing cash flow and working capital constraints for taxpayers. The maximum quantity for appellate authority appeals has been lowered to Rs. 20 crores CGST and Rs. 20 crores SGST, while for the Appellate Tribunal, it has been reduced to 10%, capped at Rs. 20 crores CGST and Rs. 20 crores SGST.

Streamlining Compliance and Procedures

ENA Taxation: The GST law will be amended to exclude Extra Neutral Alcohol (ENA) from GST when used for manufacturing alcoholic liquor, addressing industry concerns and aligning with legal interpretations.

Electronic Commerce Operators (ECOs): The TCS rate for ECOs will be reduced from 1% to 0.5%, alleviating financial burdens on suppliers using these platforms.

Time for Filing Appeals: Section 112 of the CGST Act will be amended to allow a three-month window for filing appeals before the Appellate Tribunal, providing ample time for taxpayers.

Relaxation in Section 16(4): The GST Council recommended retrospective amendments to relax the provisions of Section 16(4) for the initial years of GST implementation, easing taxpayers’ compliance burdens.

Extended Due Dates for Composition Taxpayers: The due date for filing returns in FORM GSTR-4 has been extended from April 30 to June 30, giving composition taxpayers more time.

Interest Calculation Amendments: Rule 88B of the CGST Rules will be amended to exclude amounts available in the Electronic Cash Ledger on the due date from interest calculations, reducing interest liabilities for delayed returns.

Regularization of Common Trade Practices: Section 11A will be inserted into the CGST Act, allowing the government to regularize non-levy or short-levy of GST due to standard trade practices, reducing compliance uncertainties.

Refund Mechanisms: The Council proposed a mechanism for claiming refunds on additional IGST paid due to price revisions post-export, which would benefit exporters.

Valuation and ITC Clarifications: Clarifications on various valuation and input tax credit (ITC) issues aim to reduce litigation and provide clear guidelines for taxpayers.

Bio-Metric Aadhaar Authentication: The Council recommended rolling out biometric-based Aadhaar authentication nationwide, strengthening the registration process and curbing fraudulent ITC claims.

Uniform Time Limits for Demand Notices: Amendments in Sections 73 and 74, along with the insertion of Section 74A, will unify the time limits for issuing demand notices and orders, streamlining enforcement procedures.

Sunset Clause for Anti-Profiteering: A sunset clause for anti-profiteering provisions will be introduced, with the Principal Bench of GSTAT handling cases post-April 2025.

Curtailment of IGST Refunds: Amendments to restrict IGST refunds on goods subject to export duty ensure compliance with tax regulations and prevent revenue leakage.

The GST Council’s recommendations mark a significant stride towards simplifying the GST framework, addressing taxpayer concerns, and fostering a more efficient and equitable tax system. Refining tax rates, easing compliance, and reducing litigation are poised to bolster economic growth and ensure a smoother operational landscape for businesses across India. As these recommendations are implemented, continuous monitoring and feedback will be crucial to adapting and perfecting the GST system to meet the evolving needs of the economy.