[52nd GST Council Meeting] Recommends Amnesty Scheme for Taxpayers

On 7-10-2023, the Goods and Services Tax Council held its 52nd Meeting under the Chairpersonship of Union Minister for Finance and Corporate Affairs, Nirmala Sitharaman.

Recommendations relating to GST rates:

1. Changes in GST Rates of goods:

   • • Millet Flour: GST rates on preparation of millet flour in powder for, falling under HS 1901 and containing 70% millets by weight, will be:
       • ✓ 0% when sold in other than pre-packaged and labelled form;

       • ✓ 5% if sold in pre-packaged and labelled form.

   Asish Philip Abraham, Partner at Lakshmikumaran & Sridharan Attorneys

   “The concessional rate for millet flour under HSN 19.01 will attract innovation and faster adoption of the product in value chain and daily household life. This is in line with union budget announcements in relation to millet.”

2. Zari Thread: Imitated Zari thread or yarn made from metallized polyester film/plastic film, falling under HS 5605:
   • ✓ GST rates- 5%;
   • ✓ No refund allowed on polyester film (metallized) /plastic film on account of inversion.
3. Foreign Going Vessels (‘FGV’): Integrated GST to be paid when:
   • ✓ 5% on the value of vessel if it converts to coastal run;

   • ✓ Conditional exemption recommended if the foreign flag FGV converts to coastal run subject to its reconversion to FGV in 6 months.

4. Other Changes relating to Goods:

   • • Extra Neutral Alcohol used for manufacture of alcoholic liquor for human consumption should be kept outside the ambit of GST.

   Raghavan Ramabadran, Executive Partner at Lakshmikumaran & Sridharan Attorneys

   “The GST Council has recommended Extra Neutral Alcohol (ENA) used for manufacture of alcoholic liquor for human consumption to be kept outside GST. In essence, the Council has decided to cede the power to tax ENA to the States. Considering the jurisprudence on this vexed issue specifically in the context of whether ENA is alcoholic liquor for human consumption, the implementation of the Council recommendation may require Constitutional amendments.”

5. Reducing GST on molasses from 28% to 5% which will:
   • ✓ increase liquidity with mills; e
   • ✓ enable faster clearance of cane dues to sugarcane farmers;
   • ✓ reduction in cost for manufacture of cattle feed as molasses is also an ingredient in its manufacture.
6. Separate tariff HS code to cover rectified spirit for industrial use:
   • ✓ has been created at 8-digit level in the Customs Tariff;

   • ✓ GST rate notification will be amended to create an entry for ENA for industrial use attracting 18% GST.

7. Changes in GST Rates of services: The council recommends exempting the following services:
   • Water supply;
   • Public health;
   • Sanitation conservancy;
   • Solid waste management;
   • Slum improvement;

   • Upgradation supplied to Government authorities.

8. Other Changes relating to Services:

   • • Job services for processing of Barley into Malt- 5% GST

     • Electrical Commerce Operators (‘ECOs’):

       • Liability to pay GST is on ECOs, with effect from 1-1-2022;
       • Need: To arrive at a balance between the need for small operators for ease of doing business and the need for large, organized players to take ITC.
       • The council recommends exempting the bus operators organized as companies enabling them to pay GST on their supplies using their ITC.
     • District Mineral Foundations Trusts: the Council clarified that these are set up by State Governments in mineral and mining areas and therefore, being Governmental authorities, they are eligible for exemption from GST.

   Narasimhan B.L., Principal Partner at Lakshmikumaran & Sridharan Attorneys

   “The Council has clarified that District Mineral Foundation Trusts (DMFT) are ‘Governmental Authorities’ and are eligible to the same exemptions as are available to ‘Governmental Authorities’. Whether this clarification invites an exemption or applicability of RCM liability on payments to DMFT remains to be seen!”

9. Supply of goods and services by Indian Railways: this supply will be taxed under Forward Charge Mechanism enabling them to avail ITC which will reduce the cost for Indian Railways.

Measures for facilitation of trade:

1. 1. Amnesty Scheme:

      • this will be applicable to taxable persons who:
        • ✓ cannot file an appeal under Section 107 and demand order under Sections 73 or 74 of Central Goods and Services Tax Act (‘CGST’),2017 passed on or before 31-3-2023;
        • ✓ Appeals which were rejected on the ground that they were not filed within 3 months of such passing order.
      • In such cases, filing of appeal by the taxpayers will be allowed against such orders upto 31-1-2024, on payment of an amount of pre-deposit of 12.5% of the tax under dispute, out of which at least 20% (i.e. 2.5% of the tax under dispute) should be debited from Electronic Cash Ledger.
      • This will facilitate a large number of taxpayers to file appeals within the specified time period.

      Charanya Lakshmikumaran, Partner at Lakshmikumaran & Sridharan Attorneys:

      “Taking in account the number of cases where taxpayers have missed the buck to prefer appeals against orders passed by the adjudicating authority, the GST Council has recommended an amnesty scheme enabling filing of appeals beyond the condonable period of delay. The same is no doubt a facilitative and welcome measure. An outer time limit of 31st January 2024 has been recommended to prefer appeals against orders passed till 31st March 2023 subject to deposit of 12.5% of tax under dispute with a minimum payment of 2.5% through the cash ledger. Clarity is awaited if such appeals can be filed where interest/ penalty is under dispute.”

   2. Provision of automatic restoration of provisionally attached property after completion of 1 year:

      • Amendment of Rule 159 (2) of CGST Rules, 2017 and Form GST DRC- 22;
      • facilitating release of provisionally attached property after expiry of 1 year without need for specific written order from the Commissioner.
   3. Clarification on issues related to Place of Supply: Council has recommended to issue Circular to clarify the supply in following services:
      • In case where location of supplier or recipient is outside India;
      • Supply of advertising services;
      • Supply of the co-location services.
   4. Clarification relating to export of services: The Council has recommended to issue Circular to clarify the admissibility of export remittances received in Special INR Vostro account, as permitted by RBI, for the purpose of consideration of supply of services to qualify as export of services in terms of the provisions of Section 2(6)(iv) of the Integrated GST Act, 2017.
   5. Clarification regarding taxability of personal guarantee offered by directors to the bank against the credit/ loans being sanctioned to the company and regarding taxability of corporate guarantee provided for related persons including corporate guarantee provided by holding company to its subsidiary company: The Council recommended to:
      • Clarify that when no consideration is paid by the company to the director in any form, directly or indirectly, for providing personal guarantee to the bank/ financial institutes on their behalf, the open market value of the said transaction/ supply may be treated as zero and hence, no tax to be payable in respect of such supply of services.
      • To insert Rule 28(2), providing taxable value of supply of corporate guarantee as 1 % of amount of such guarantee offered or the actual consideration, whichever is higher.
      • To clarify that after insertion of the above-mentioned Rule, the value of such supply of services will be governed by Rule 28 (2) of the CGST Rules, 2017.

Asish Philip Abraham, Partner at Lakshmikumaran & Sridharan Attorneys:

“GST council has provided welcome relief to directors providing personal Guarantees to the company as a condition of availing loans. However, deemed valuation of 1 percentage for guarantees between group entities is not in alignment with commercial reality and OECD guidelines on shareholder activities. This will open a pandora’s box in relation to ongoing investigations for both domestic and international transactions with implications under FEMA and transfer pricing.”

Other measures pertaining to Law and Procedures:

1. Aligning of provisions CGST Act, 2017 with the provisions of Tribunal Reforms Act, 2021 in respect of Appointment of President and Member of proposed GST Appellate Tribunal.

2. Amendment of Law with respect to Input Service Distributor as recommended by 50th GST Council Meeting.

   L. Badri Narayanan, Executive partner at Lakshmikumaran & Sridharan Attorneys

   “The GST council has not provided any respite for ongoing investigations and SCN issued under earlier regime. The Revenue secretary reiterated the position on transactions being covered by the betting entry and tax is not retrospective. The tax on deposit regime is a concession extended. Companies have no option than to knock on the doors of court on erroneous interpretation canvassed by the department.”

   Raghavan Ramabadran, Executive Partner at Lakshmikumaran & Sridharan Attorneys

   “In a welcome move, the GST Council in its 52nd meeting has recommended various amendments to the constitution and composition of the GST Tribunal. In line with the judgement of the Hon’ble Supreme Court in Madras Bar Assn. v. Union of India, (2021) 7 SCC 369, Advocates with a minimum of 10 years’ experience will now be eligible for appointment as judicial members. Further, in line with Madras Bar Assn. v. Union of India, (2022) 12 SCC 455, the retirement age of President has been increased from 67 years to 70 years and for Members from 65 to 67 years. However, the minimum age for eligibility for appointment as President or Member has been specified as 50 years. This minimum age criteria appears to be in contradiction with MBA-IV judgement. Therefore, a challenge to the minimum age limit cannot be ruled out in future. It is also interesting to note that the Madras Tax Bar (an association of tax lawyers practicing in the Madras High Court) had recently preferred a Writ Petition before the Hon’ble Supreme Court in September 2023 pointing out amongst other issues the above deficiencies which have now been rectified by the GST Council in its 52nd Meeting.”