In its 52nd meeting, the GST Council has provided recommendations on some long pending contentious issues, including the taxability of personal guarantee provided by Directors to the bank or corporate guarantee provided for related persons. The Council has also recommended a few measures for trade facilitation and measures relating to GST law and procedures compliances. The key decisions taken by the GST Council in the said meeting are as follows:
| Changes relating to GST Rate on goods and services |
- GST rate on millet flour in powder form (containing at least 70% millets by weight) has been proposed as follows:
- 5% if sold in pre-packaged and labeled form.
- 0% if sold in other than pre-packaged and labeled form.
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Our Comments
In the Budget Speech, the Hon’ble Finance Minister announced that India wants to be the global hub for millets. The government has, since 2018, started promoting bajra and ragi, considering their nutritious value. The Indian Government even convinced the UN to declare that 2023 would be the “International Year of Millets.” Reducing the GST rates from the existing 18% is another way of promoting millets in India.
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- It has been clarified that imitation zari thread or yarn made out of metalized polyester film/plastic classified under HS code 5604 will also attract 5% GST rate as applicable. However, refund will not be allowed on account of such inversion.
- Currently, 5% IGST rate is applicable on ships/vessels imported into India. Thus, foreign going vessels when converted for coastal run will have to pay 5% IGST on the value of the ship. The GST Council has recommended providing conditional exemption to foreign flag foreign going vessel when it converts to coastal run, provided it is re-converted to foreign going vessel in six months.
- It has been recommended that Extra Neutral Alcohol (ENA) used to manufacture alcoholic liquor for human consumption be kept outside the GST net. The Law Committee will examine and make suitable amendments to the law to ensure the same.
Furthermore, it has also been clarified that the job workers providing services by way of processing of barley into malt will attract GSTat 5% as applicable to job work in relation to food and food products.
ENA for industrial use will attract 18% GST. A separate tariff HSN code at the 8-digit level in the Customs Tariff Act has been created. GST rate notification will be amended to create an entry for ENA for industrial use.
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Our Comments
The above recommendation of the GST Council provides an opportunity for state(s) to levy taxes on ENA if they wish to do so. However, the implementation of the above recommendation may require Constitutional amendments. The said recommendation will also help settle the vexed issue of whether ENA is liable to VAT/CST or GST.
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- The GST rate on molasses has been proposed to be reduced from 28% to 5%.
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Our Comments
The above proposal should result in faster clearance of cane dues to sugarcane farmers and also increase liquidity with mills. Also, the above rate reduction will reduce the overall cost of manufacture of cattle feed as molasses is an ingredient in its manufacture.
In addition to the above benefits as highlighted by the Council, the rate reduction on molasses will also promote the production of Bioethanol and the use thereof, molasses being a prime ingredient in the production.
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- Services of water supply, public health, sanitation conservancy, solid waste management, and slum improvement and upgradation supplied to Governmental Authorities have been exempted from GST.
- Effective 1 January 2022, the liability to pay GST on bus transportation services supplied through Electronic Commerce Operators (ECOs) was cast on the ECO under Section 9(5) of the CGST Act. The Council has recommended excluding bus operators organized as companies from the purview of said provisions, and thus, ECOs will not be liable to pay GST on services supplied through e-commerce by such organized bus operators. Such bus operators can now pay GST on their supplies using their accumulated Input Tax Credit (ITC).
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Our Comments
When the GST liability was shifted from such bus operators to ECOs w.e.f 01/01/2022, the organized bus operators, especially EV bus operators, were trapped with huge ITC accumulation since the buses and batteries in itself are very costly. Post such change, the said bus operators were not in a position to utilize the accumulated ITC as most of the tickets were sold through ECOs. Hence, representations were made by industry associations, which was emphatically taken up by the Council and the anomaly is proposed to be corrected by transferring the liability back on the bus operators. This is a huge relief to these organized bus operators, particularly EV bus operators.
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- It has been clarified that District Mineral Foundations Trusts (DMFTs) set up by State Governments are Governmental Authorities, and thus, all exemptions that are otherwise available to a Governmental Authority shall also be available to such DMFTs.
- It has been recommended that the supply of all goods and services by Indian Railways shall be taxed under the Forward Charge Mechanism to reduce the cost for Indian Railways (which is currently estimated to be INR 13 billion annually).
| Measures for facilitation of trade |
- The Council has recommended providing an amnesty scheme for filing appeals against demand orders in cases where an appeal could not be filed against any order dated on or before 31 March 2023, within the period specified in Sub-section (1) of Section 107. In all such cases, filing of an appeal will be allowed up to 31 January 2024, subject to the condition of payment of pre-deposit of 12.5% of the tax under dispute (as against 10% otherwise prescribed), out of which at least 2.5% of the tax dispute amount should be paid mandatorily by debiting the electronic cash ledger.
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Our Comments
The taxpayers largely welcome this recommendation. It would facilitate many taxpayers who missed the deadline for filing an appeal because of system glitches, oversight of orders uploaded only on the GSTN portal, etc. Besides, by the condition of an additional pre-deposit of 2.5% being mandatorily paid through cash balance, can one interpret that, in general, pre-deposits can be made using credit balance as well? Furthermore, while the intent of the recommendation appears to include all matters prior to March 2023, it would be highly appreciated if the amnesty scheme clarifies that cases involving only interest or penalty amount under dispute would also be eligible for amnesty.
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- The Council has recommended making a suitable amendment in Sub-rule (2) of Rule 159 of CGST Rules, 2017 to provide that the order for provisional attachment in Form GST DRC-22 shall not be valid after the expiry of one year from the date of the said order.
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Our Comments
This is a very welcome step for the industry, since with each passing day, taxpayers have been witnessing the High Court’s judgments giving directions to the proper officers to release the provisionally attached properties after the expiry of one year. This measure will facilitate the release of provisionally attached properties without the need for a separate specific written order from the Commissioner.
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- The Council has recommended amending Notification No. 1/2023 - Integrated Tax to allow the taxpayers to supply goods and/or services (except the commodities like pan masala, tobacco, gutkha, etc., as mentioned in the aforementioned notification) to SEZ developers/units for authorized operations on payment of IGST and claim refund of tax so paid with effect from 1 October 2023.
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Our Comments
The above amendment seems to rectify an anomaly arising out of an inadvertent omission of such a category of supplies from the option of a refund with payment of tax post amendment to Section 16 of the IGST Act. However, it appears that more than one amendment will have to be incorporated here, which is not categorically discussed in the press release. One key amendment pertains to Section 54(8) of the CGST Act, 2017, wherein the refund of tax paid supplies needs to be extended even to SEZ supplies. If the aforesaid modification is not made, even if vide notification, suppliers are allowed to make zero-rate supplies of goods on payment of tax, the refund of such tax paid cannot be claimed by taxpayers in the case of SEZ supplies.
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| Clarification/Circular to be issued for |
- With regard to taxability in the case of:
- personal guarantee offered by directors to the bank against the credit limits/loans being sanctioned to the company, and
- corporate guarantee provided for related persons, including corporate guarantee provided by the holding company to its subsidiary company.
- The Council has inter alia recommended clarifying as follows:
- in the case of personal guarantees, if no consideration is paid by the company to the director in any form, directly or indirectly, then the open market value of said supply may be treated as zero, and no tax will be payable.
- in the case of corporate guarantees between related parties, a new valuation rule is to be inserted, providing the taxable value to be higher than the actual consideration or 1% if the amount is guaranteed. Furthermore, the valuation of such supplies would be governed by the proposed rule only, irrespective of whether full ITC is available to the recipient of services or not.
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Our Comments
The GST Council has put to rest an emerging dispute over the taxability of personal and corporate guarantees. For personal guarantees, the clarification is in line with the Apex Court’s decision in the case of Edelweiss Financial Services Limited (though it pertained to the Service Tax regime).
While the above clarifications would largely settle the question of taxability, it would be beneficial if the Council also addresses whether the same is applicable prospectively or retrospectively. Additionally, it is important to consider whether this update will prompt the reopening of previously closed audits and assessments or the freezing of demands for ongoing litigations. A comprehensive clarification from the GST Council/CBIC that encompasses these aspects would be highly valuable.
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- Place of supply in respect of supply of advertising services, co-location services and services of transportation of goods, where location of supplier or recipient of services is outside India.
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Our Comments
The specific place of supply provision of transportation of goods, i.e., Section 13(9) of IGST Act, has been deleted/omitted w.e.f. 1 October 2023. The intention behind said deletion was to provide a level playing field between Indian Shipping Lines and Foreign Shipping Lines, which was evident from the Agenda of the 49th GST Council Meeting. However, post deletion, the ambiguity has now arisen as to whether such services will get covered under the default rule [i.e., 13(2), which will be in line with the intention behind deletion] or performance-based rule [i.e., 13(3)(a)].
Also, for advertising services, confusion prevails in the industry as to whether the place of supply for such services will get covered under the default rule or the immovable property basket in cases where huge hoardings are put up at different locations. Circulars clarifying the place of supply for the above services would help to resolve the above ambiguity.
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- As permitted by RBI, export remittances received in a Special INR Vostro account would qualify as export of services in terms of the provisions of 2(6)(iv) of the IGST Act.
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Our Comments
Admissibility of said export remittances as export of services was already covered by way of amendment to Section 2(6)(iv) w.e.f. 1 February 2019. The said issue is also covered by the number of decisions rendered by Tribunals under the erstwhile regime and adopted by the Court in the GST regime as well. However, the field officers still used to deny the refund benefit by treating such receipts as non-compliance with Section 2(6)(iv). Detailed clarification on this aspect should mitigate unnecessary disputes arising in refund applications and would bring a respite to the taxpayers whose refunds were stuck on this ground.
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| Measures pertaining to law and procedures |
- In line with the Hon’ble Supreme Court’s judgment in the case of the Madras Bar Association, the Council has recommended amending Section 110 of the CGST Act to provide that an advocate for ten years with substantial experience in litigation be eligible for appointment as a Judicial Member, minimum age for appointment as President and Member to be 50 years, President and Members shall have tenure up to a maximum age of 70 years and 67 years respectively.
- Conforming with the GST Council’s recommendation of making ISD provisions mandatory prospectively, the Council has now recommended suitable amendments in ISD-related provisions under the Act, viz; Section 2(61), Section 20 and Rule 39 of CGST Rules, 2017.
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Our Comments
The intention of making ISD a mandate had already been expressed in the 50th Council meeting. The current discussion was more about giving the necessary impact in the GST law. Typically, the change in law will require the recommendation to be approved by both Houses of Parliament and also will require Presidential assent. Arguably, the change will take substantial time to be introduced and become part of the Act.
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