The 50th GST Council Meeting was held in New Delhi on July 11, 2023. Hon’ble Union Finance Minister Nirmala Sitharaman presided over the meeting, which was attended by the Group of Ministers (GoM). The GST Council has made some critical judgments on long-pending problems in order to improve tax transparency and simplicity of conducting business. This articles provides a detailed study as well as a simplified version of major recommendations and decisions made on the council meeting.
Recommendations made by the GST Council are as follows
Table of Contents
GST Council Made ISD mechanism Mandatory
The Input Service Distributor (‘ISD’) mechanism for distributing common credit on third-party invoices was not mandatory in under current GST law. It has also been suggested that the ISD mechanism be made mandatory with immediate effect.
According to the GST Law, entities with several places of business registered under a same Permanent Account Number (‘PAN’) are recognized as distinct entities for the purposes of the GST law. When such entities make a supply, it is regarded a’supply’ under GST law even if it is made without consideration.
Furthermore, the law allows for an ISD mechanism for the allocation of common input tax credit where a third party raises an invoice at one location of a registered taxpayer but the services are consumed at another location/locations of the firm with the same PAN.
There was some debate in the industry as to whether the ISD mechanism was required for the transfer of such common credit or whether the same might be accomplished by issuing a tax invoice to other locations where the services are consumed (often known as the cross charge method). In the past, the department has sent notices to taxpayers who did not comply with the ISD procedure and transferred the credit via the cross charge system.
In the 50th GST council meeting. The Council has clarified that, ISD mechanism is mandatory prospectively.
This clarification is a major relief for the industry. Since it puts the rest a point that, ISD mechanism was not mandatory till date. However, it will be mandatory prospectively. Industry will have to make some system changes to comply with the ISD mechanism.
Classification of supply of food and beverages in Cinema Hall.
Council has recommended that supply of Food and Beverages in the Cinema Halls will be taxed as restaurant services, where it is provided independently of Movie exhibition services.
Where the sale of cinema tickets and the supply of food and beverages are combined the entire supply will attract GST at the rate applicable to the service of cinema exhibition. Such Supply will be considered as a composite supply The primary supplier would be movie exhibition services.
The GST law says that if a supply includes two or more taxable supplies of goods and/or services that naturally bundled and are suppled together and one of them is the main supply, then the supply is a composite supply and all goods/services will be taxed at the same rate as the main supply.
Food and drinks served in movie theatres have been a point of debate about whether or not they should be taxed as restaurant service or not.
In this case, the GST Council has suggested that food and drinks should be taxed as restaurant services at 5% without ITC when they are provided independent from the service of movie exhibition service.
But if the service of movies is combined with the service of selling food and drinks, and if the combined service meets the test for composite supply. It will be taxable as a same rate as Movie exhibition service.
GST Council Addresses Some issues on Warranty
In the case of replacement during the warranty term, no GST is due, and the manufacturer does not have to reverse any input tax credits.
This is a much-appreciated clarification that brings the position in accordance with the formerly applicable indirect tax legislation and the judgements of a number of different courts.
Concerns have been raised by the department over the taxability of free of cost replacements and the reversal of ITC in the hands of manufacturers. This has put to an end the controversy surrounding the issue.
Director Services
The RCM is not applicable to the Companies on services rendered by a director in his/her own capacity
Services performed by a director of a company or body corporate to that company or body corporate are liable to GST through the reverse charge method under current GST law.
A director of a company or a body corporate may offer services in his personal capacity like renting of immovable property. There was an ambiguity on such transaction whether RCM is applicable on such services when they are delivered in personal or private capacity.
Now, the GST Council has advised and made clear that services provided by a director of a company or body corporate in his personal or private capacity are not subject to GST under RCM. This recommendation was made in response to a question that was brought to the GST Council.
Holding subsidiary’s securities is not a service.
GST council has made it clear that, the simple act of holding securities of a subsidiary company by a holding company cannot be considered a delivery of service and, as a result, cannot be taxed under the Goods and Services Tax (GST).
During the inception of GST. The department had issued notices considering holding of securities as a service. This was done basis Notification No. 11/2017 – Central Tax dt. 28.06.2017. The service code 997171 expressly mentions “service of holding equity shares of a subsidiary” as a service.
Based on above notification department had issued notices to following companies.
- When an Indian holding company owns a stake in an Indian subsidiary firm – GST demand under the forward charge method.
- When a foreign holding company owns a stake in an Indian subsidiary company – GST demand under RCM for import of service.
The GST council in recent meeting has removed the ambiguity. It was emphasised that just owning securities of a subsidiary firm by a holding company does not constitute a delivery of service and as such not taxed under GST. This is a positive step that will put an end to the lawsuits.
Tax and interest recovery when Form GSTR-1 tax due exceeds Form GSTR-3B tax liability
New rule 142B along with Form GST DRC -01D introduced to provide a manner of recovery in case GST liability in GSTR 1 return filed is more than, the liability in GSTR3B
GSTR 1 is the sales or output return that, an assessee has to file by the 11th of the subsequent month.
GSTR3B is the payment return which summarises the payment liability of an assessee which is a net off output liability minus the input tax credit.
48th GST council meeting a new Rule 88C was introduced.
This provides that if Tax Payable under GSTR 1 is exceeds the tax payable under GSTR 3B then, such tax shall be recovered by initiating a recovery proceeding u/s 79. without following procedure led in section 73 or 74. Such recovery should get initiated within 7 days of intimation.
Recovery proceeding u/s 79 is considered to be more stricter than u/s 73 or 74 wherein a Tax Payer is given an opportunity to explain his position and timelines provided for response is more than, provided u/s 79.
GST council has now introduced a new Rule 142B in CGST Rules which provides for manner of recovery of tax and interest as per Rule 88C.
Computation of Interest on wrong Availment of ITC credit
The interest on wrongly availed and used IGST credit should be calculated after considering the ITC balance in the electronic credit ledger under all heads (IGST, CGST, and SGST)
The GST law specifies the order and manner of credit utilization, with the IGST credit balance being used and exhausted before the CGST and SGST credit balances are used. As a result, if an IGST credit is wrongfully obtained and used, the department may proceed to demand interest even if the taxpayer has a sufficient credit balance under the CGST and SGST heads.
To address such an eventuality the GST Council has proposed issuing a circular clarifying that interest in the case of incorrect Availment and utilization of IGST credit is to be computed after taking into account the ITC balances under all sections, namely IGST, CGST, and SGST. As a result, no interest is required until a taxpayer has a sufficient credit balance under one of the credit heads where the IGST credit was incorrectly applied.
System based intimation if ITC availed exceeds the amount reported by vendor in GSTR2B
System based intimation if ITC claimed in GSTR3B is higher than, amount uploaded by all vendors reflecting in GSTR2B
GSTR3B is the payment return which summarises the payment liability of an assessee which is a net off output liability minus the input tax credit.
GSTR2B is the form that consolidates on the ITC available with the tax payer. This amount is reflected in this form by GSTR1 filed by various vendors.
CGST Act mandates that, Input tax credit can be claimed when supplier furnishes invoice and debit note details in GSTR-1 and this details are communicated to a tax payer in Form GSTR-2B. In Other words Registered Person cannot avail ITC beyond the amount reflecting in Form GSTR 3B.
In 50th GST Council meeting the council has introduced system based intimation mechanism. Under this mechanism, Tax Payers would receive intimation under in Form GST DRC -01C. Such intimation will be issued only in cases where ITC claimed in GSTR 3B is more than available in GSTR 2A. The intimation is sent in GST DRC – 01C. The Tax Payer is supposed to reply to the intimation with an appropriate reasons for excess utilisation.
Adjudication for such intimation will be under section 73 and 74 of the CGST Act.
Refund Related issues
Refund if accumulated ITC on inward supplies is restricted to amount reflected in GSTR 2B
100% reconciliation between ITC availed by Tax Payer and amount uploaded by vendor has made mandatory from 01.01.2022. The reconciliation done with Form GSTR 2B.
To align the refund provision with reconciliation and to address all other practical issues. Council has recommended refund amount accumulated ITC will be restricted to GSTR 2B instead of GSTR 2A.
Certificate for Mismatch between GSTR 3B and 2A
Recommendations of the 48th GST Council meeting, a circular was issued out to explain verification process when there is a mismatch of ITC in Form GSTR-3B and Form GSTR-2A for (FY) 2017–18 and FY 2018–19. This verification has been extended for the period from 01.04.2019 to 31.12.2021
In 48th GST Council meeting, the council has proposed a mechanism for verification of GST in following scenarios for the FYs 2017-18 and FY 2018-19.
| SN | Scenarios | Verification Process |
| 1 | Difference in ITC taken of a particular supplier is more than Rs. 5 lakhs | A certificate from Chartered Accountant or a Cost Accountant certifying that supplies were made in respect of invoices have actually been supplied by the supplier and tax pertaining to such supplies has been paid by the supplier in return Form GSTR 3B. |
| 2 | Difference in ITC taken of a particular supplier is more than Rs. 5 lakhs | In this case self certifying certificate will be issued by the supplier. Mentioning that the supplies were made agains the invoices issued and tax pertaining to such supplies has been duly discharged with GSTR 3B return |
In the 50th GST Council Meeting the GST Council a similar procedure for verification will be extended for the period 1st April, 2019 till 31st Dec, 2021.
Dispute Resolution Mechanism
Rule 108 and 109 will be revised so that manual filing of appeals will be allowed in specific scenarios.
Under Current GST Law appeals has to be filed online on the common portal in Form GST APL -01. However, law doesn’t contain any provision for manual filings of appeal.
In case of Ali Cotton Mills, appeal was not received by the department due to technical issues. Therefore Tax Payer filed the appeal manually. The department rejected the appeal on the ground that provisions of GST law doesn’t allow manual filing of appeal.
The Hon. High Court of Andhra Pradesh held that rejection of appeal merely on the ground that, a manual appeal was filed is not justified.
The GST council in it’s 50th meeting recommended to make necessary amendments in Rule 108(1) and Rule 109(1) of the CGST Rules to allow manual filing of appeal in certain specific cases.
Manual appeal against orders in respect of Tran-1 and Tran-2
GST Council Recommended to provide special procedure under Section 148 of the CGST Act to enable manual filing of appeal against the order of proper officer on TRAN-1/TRAN-2 claims of registered persons, in accordance with the Hon’ble Supreme Court’s directions in Union of India vs Filco Trade Centre Pvt. Ltd.
The Hon’ble Supreme Court in Filco Trade Centre Pvt. Ltd. held that,
- GSTN to open the common portal for filing and revising Transitional credit forms for two months 01-09-2022 to 31-10-2022.
- The order also granted a proper officer 90 days time to verify the claim made by the tax payer and pass an appropriate order on the claim made by the tax payer.
Current Law of GST didn’t contain an appeal provision for order passed by Proper officer in this matter. The GST council has recommended to prescribe a procedure for manual filing of appeal against the such order.
GST Appellate Tribunal
The GST Council recommends rules governing the appointment of the President and Members of the proposed GSTAT.
The GST law provides for a mechanism for filing an appeal to the Appellate Authority against the orders issued by the department. However, after 6 years of GST, the appellate authority has not yet been constituted. The GST Council recommends implementing proposed provisions contained in Finance Act, 2023 regarding GSTAT from 01-08-2023.
The GST Council also recommends the rules laying down conditions for appointment of President and Members.
On the state benches it has recommended that, it would be implemented in a phase – wise manner. The council stated in the first phase the focus will be on establishing benches at state capitals and the place of High Court Benches.
Compounding of Offences
New Rule will be inserted in 162 CGST rules to prescribe compounding amount for various offences under Section 132 of CGST Act.
The Finance Act had reduced the compounding amount to minimum 25% and a maximum of 100%. However, specific compounding amount are yet to be determined. To facilitate this GST Council has recommended to insert new rule under Rule 162 of CGST.
No Annual Declaration by GTAs opting Forward Charge mechanism
The GST Council has recommended that GTAs will not be required to file declaration for paying GST under forward charge every year. The option once exercised shall be deemed to be exercised for subsequent Financial Years as well. Unless a declaration to the contrary is filed by GTA.
Further, last date for exercising option by GTAs to pay tax under Forward charge will be 31st March of the preceding financial year instead of 15th March.
This option can be exercised at any time between 1st January till 31st March.
GTAs or Goods Transport Agency has the option to pay GST under Forward Charge or can opt for Reverse charge mechanism. Option for Forward charge can be opted by filing declaration in Annexure V before 15th March of the previous year. This date has been extended to 31st March. This extension was done to ease the compliance burden.
System based reforms and strengthening the registration process
GST Council recommended system based measures to curb frauds. This measures will include strengthening the registration process in GST.
In its 45th meeting, the GST Council appointed a Group of Ministers to assess, study, and propose measures to improve IT system efficiency, reduce tax evasion, and coordinate tax administration. The GoM in their report suggested various measures which implemented through instructions and advisories on various issues.
According to the report of GoM, verification measures of tax payers shall include online verification of address, validation of bank accounts of taxpayers etc.
The GST Council has suggested the following CGST Rule modifications to strengthen the registration process and combat fake and fraudulent registrations:
Rule 10A Amendment
Tax Payer has to furnish the details of their bank accounts within 30 days of grant of registration or before filing statement of output supply which ever is earlier.
New Proviso inserted in rule 21A(4)
System-based suspensions will be automatically lifted upon compliance with Rule 10A of the CGST Rules.
Amendment in Rule 59(6)
A registered person who fails to give proper bank details under Rule 10A may not be authorised to furnish outward supply details in Form GSTR-1 or use Invoice Furnishing Facility.
Amendment in Rule 9 and Rule 25
The rule has been amended to remove the requirement for physical verification of business premises in the presence of applicant to complete the registration process.
Intra – State Movement of Gold
GST Council Recommended to introduce Rule 138F in CGST and SGST Rules which shall require e-way bills for intra-state gold and precious stone movement under Chapter 71.
As per the current law of GST e-way bill in case of intra state movement of goods is required only if value of goods exceeds Rs 50000/- However, certain strategic sectors were exempt from GST and this included Gold and Silver Jewellery.
Many complaints about tax evasion and illegal movement of goods leading to revenue leakages. The Group of Ministers suggested that states should be allowed to decide on the requirement of e-way bill.for intra state movement of gold and precious stones. Such e-way bill will enable field officers to identify whether gold being transported in Inter state or Intra state.
In this regard 50th GST Council meeting has recommended to insert Rule 138F in the CGST rules which shall mandate the requirement of generation of e-way bill for intra statement movement Gold and previous stones.
Other Amendments
Pilot of Biometric based Aadhar authentication will be conducted in Puducherry
GST Council recommended A a pilot for Aadhar based authentication in Gujarat and Puducherry. This was done to tackle the menace of fake and fraudulent registrations. This pilot indicates rigorous use of IT system reforms under the GST Law.
Notices will be issued in Form GSTR 3A for non filing of Annual return
GST Council recommended to amend GSTR3A, which shall provide for issuance of notice to the registered taxpayers for their failure to furnish Annual Return in Form GSTR 9 and GSTR 9C by the due date.
Relaxation from filing Annual Returns
GST Council recommended relaxation from filing return for those tax payers whose aggregate turnover in FY 2021-22 is upto 2 crore rupees from filing of annual return for the said financial year. This exemption will be continued for FY 2022-23.
Clarification will be issued regarding TCS liability in case of multiple E-Commerce Operator
As per the GST law, every ECO is required to collect TCS on taxable supply of good / services sold through its platform. However, in case where multiple ECOs are involved in a single online transactions, there was no clarity as to who would be liable for TCS compliances under GST.
In such situation the GST Council in consultation with Law committee has recommended that, TCS should be collected by the ultimate E-Commerce Operator who releases the payment to supplier for Goods and Services
Final Comments
Various recommendation were given by 50th GST council meeting. It is important to read the final print of the notification and circular before analysing the impact on the business
To read article on 7 ways to maximise refund under Income Tax click here