45th GST Council meeting: Latest News and Updates

The 45th GST Council meeting was held on Friday, 17th September 2021, at Lucknow, Uttar Pradesh, chaired by Union Finance Minister Nirmala Sitharaman. The Council meeting was held physically for the first time after one and a half years of virtual meetings.

Highlights of the 45th GST Council Meeting

Key matters discussed in the Council meeting, as announced in the FM’s press briefing:

• Expensive life-saving drugs such as Zolgensma and Viltepso used to treat muscular atrophy are exempted from GST. Further, drugs suggested by the Ministry of Health for treating the same, imported for personal use, are exempted from IGST.
• Concessions on drugs used for COVID-19 treatment which include Amphotericin B (nil rate), Remdesivir (5% rate), Tocilizumab (nil rate) and anti-coagulants like Heparin (5% rate), have been extended until 31st December 2021. The list of drugs has been expanded to include Itolizumab, Posaconazole, Infliximab, Favipiravir, Casirivimab & Imdevimab, 2-Deoxy-D-Glucose, Bamlanivimab and Etesevimab, all now taxed at 5% GST. This extended relief is not granted to equipment.
• Cancer-related drugs (Keytruda being one of them) are now at a reduced rate of 5% from 12%. 
• The GST rate on retro fitment kits used by disabled persons is now reduced to 5%.
• The GST rate on fortified rice kernels used for ICDS is reduced from 18% to 5%.
• GST rate on bio-diesel supplied to oil marketing companies reduced from 12% to 5%.
• Transport of goods exported by vessels and air exempted from GST until 30th September 2022.
• The National Permit Fee for granting permits to goods carriages to operate throughout Indian and contiguous states has been exempted from GST.
• Training programmes for skill development wholly/substantially funded by Central and state governments are exempted from GST. Programmes where the Central Government or state government bear 75% of the cost of such training or higher will get exemption from GST.
• The import of aircraft and other goods on lease are now exempted from IGST to avoid double taxation. Necessary amendments will be made to customs laws as well. Lessors located in SEZ paying GST under forward charge are also exempted.
• On the issue of the inverted duty structure, the correction in the footwear and textile sector anomalies will take place from 1st January 2022.
• With regard to ore concentrates and specified metals, the inverted tax structure due to the royalty used as input services that were being charged at 18% GST is now corrected but without a date decided on its implementation. 
• All kinds of pens and their parts will be taxed at 18% GST. This correction will remove the inverted tax issue.
• Specified renewable energy devices that are presently at 5% have inputs charged at 18%. Hence, corrections have been made. A GST rate of 12% has been prescribed on those energy devices, thereby helping domestic manufacturing and the Aatmanirbhar Bharat Mission of the government.
• GST on railway parts and locomotives falling under Chapter 86 increased from 12% to 18% to correct the inverted tax structure.
• The matter of bringing petrol and diesel under GST was discussed. However, it was decided that this was not the time to bring petrol and diesel under the scope of GST.
• The revenue-neutral rate at the time of the introduction of GST was 15.5%. The same has been brought down to 11.6%.
• The compensation cess collection will be extended beyond July 2022. To repay the total amounts borrowed last year and this year to pay the states, the compensation cess will be extended to March 2026.
• A Group of Ministers (GoM) has been formed to look into e-way bills, compliances, FASTags, use of technology, compensation cess, plugging of loopholes, and other issues.
• Another GoM has been formed to look into the rate rationalisation of certain goods and services.
• With regard to food delivery apps, the e-commerce operators will be liable to pay the tax on restaurant services provided through them, with some exceptions.

(All the above-mentioned rate changes are effective from the date of the CBIC notification.)

Clarifications with regard to the GST rate on goods

Item	GST Rate*
Pure henna powder and paste (that have no additives)	5%
Brewers’ Spent Grain (BSG), Dried Distillers’ Grains with Soluble [DDGS] and other such residues, falling under HS code 2303	5%
Laboratory reagents and other goods falling under heading 3822	12%
Scented sweet supari and flavoured and coated elaichi falling under heading 2106	18%
Carbonated fruit beverages of fruit drinks and carbonated beverages with fruit juice	28% and cess of 12%
Tamarind seeds fall under heading 1209	Nil for seeds used for sowing, otherwise 5%
External batteries sold along with UPS systems/inverter	28%, other than lithium-ion batteries
UPS/inverter	18%
Paper and paperboard containers, whether corrugated or non-corrugated	18%
Fresh/dried nuts	5%/12%
Pharmaceutical goods falling under heading 3006	12%

 

Clarification with regard to the GST rate on services

Service	GST Rate*
Coaching services to students provided by coaching institutions and NGOs under the central sector scheme of ‘Scholarships for students with Disabilities”	Exempt
Services by cloud kitchens/central kitchens are now covered under ‘restaurant service’	5%
Ice cream by parlours	18%
Overloading charges at toll plazas	Exempt
Renting of vehicles by state transport undertakings and local authorities is now covered by the expression ‘giving on hire’	Exempt
Grant of mineral exploration and mining rights	18%
Admission to amusement parks with rides, etc.	18%
Admission to facilities that have casinos	28%
Alcoholic liquor for human consumption is not food and food products’ for the entry prescribing the 5% GST rate on job work services in relation to food and food products.	NA

 

Recommendations relating to GST law and procedure

• A measure for trade facilitation includes relaxation in the requirement of filing Form GST ITC-04. Taxpayers whose annual aggregate turnover in the preceding financial year exceeds Rs.5 crore can furnish Form ITC-04 once in six months. Taxpayers whose annual aggregate turnover in the preceding financial year is up to Rs.5 crore can furnish ITC-04 annually.
• A previous Council decision stated that interest is to be charged only in respect of the net cash liability under GST. Section 50 (3) of the CGST Act to be amended retrospectively, from 1st July 2017, to provide that interest is to be paid by a taxpayer on “ineligible ITC availed and utilised” and not on “ineligible ITC availed”. It has also been decided that interest in such cases should be charged on the ineligible ITC availed and utilised at 18% from 1st July 2017.
• The unutilised balance in the CGST and IGST cash ledgers may be transferred between distinct persons (i.e., entities with the same PAN but registered in different states) without a refund procedure. This is subject to certain safeguards.
• The following circulars will be issued to remove ambiguity and legal disputes on various issues: Clarification on the scope of “intermediary services”; Clarification relating to the interpretation of the term “merely establishment of distinct person” in condition (v) of Section 2 (6) of the IGST Act 2017 for the export of services; C.Clarification in respect of certain GST related issues.
• A provision will be incorporated in the CGST Rules for removing ambiguity regarding the procedure and time limit for filing a refund for tax wrongfully paid as specified in Section 77(1) of the CGST and SGST Acts and Section 19(1) of the IGST Act.

Measures for streamlining compliance

• The Aadhaar authentication of registration is mandatory for a taxpayer to be eligible to file a refund claim and an application for the revocation of cancellation of registration.
• Late fees for the delayed filing of Form GSTR-1 will be auto-populated and collected in the next open return in Form GSTR-3B.
• GST refunds will be made to the bank account linked with the same PAN through which GST registration has been obtained.
• Rule 59(6) of the CGST Rules will be amended with effect from 1st January 2022 to provide that registered persons will not be allowed to furnish Form GSTR-1 if they have not furnished their return in Form GSTR-3B for the preceding month.
• Rule 36(4) of the CGST Rules will be amended once the proposed clause (aa) of Section 16 (2) of the CGST Act is notified. It will restrict the availability of ITC with respect to invoices/debit notes to the extent the respective suppliers furnish the details of such invoices/debit notes in Form GSTR-1/IFF. Further, they should be communicated to the taxpayer in Form GSTR-2B.

*The above rate changes and exemptions are effective from the date of the CBIC notification.

Popular expectations from the 45th GST Council meeting

Tax concessions on COVID-19 essentials may be extended

The health authorities expect another possible COVID-19 outbreak by the end of this year. Hence, the government may extend the tax concessions on the essentials used in the treatment by a few more months. Earlier, the GST Council reduced the GST rates on COVID treating drugs such as Tocilizumab and Remdesivir, medical oxygen, oxygen concentrators, and several other essentials. The reduced rates on these items are in force until 30th September 2021.

Matter on GST compensation to states

The next issue on the cards is to decide the quantum and time limit for GST compensation to states. With the present economic turmoil, the council might recommend extending the compensation to states beyond June 2022 after considering the opinions of all state representations. 

States that the opposition parties are ruling have already favoured a five-year extension for being compensated. However, the government believes that further borrowing or cess collections with an urge to recover revenue shortfall will not produce the desired results. 

The Union Revenue Secretary Tarun Bajaj has strongly expressed that any such continuation of GST compensation to states may force the Central Government to borrow more. Also, it will cause the GST Council to extend the compensation cess levy on sin goods, impacting the consumers as well.

Revenue augmentation measures 

The GST Council is expected to discuss revenue augmentation measures in the upcoming meeting. The Council thinks that the present GST rates are much lower than the average pre-GST taxes charged. The revenue-neutral rate is 15.6%, whereas the current average GST rate works out to 11.4-11.5% as per the Reserve Bank of India (RBI) study. It has led to the GST revenue collections being below par. Therefore, there could be deliberations to streamline and rationalise the GST rate structure. 

GST collection trends and trajectories of the past few months will also be studied. Unlike the increasing speculations, a government official has signalled that the GST Council will not take a call to reduce GST rates for the auto sector anytime soon.

Many state finance ministers have suggested ways of charging GST for better collections. The Punjab Finance Minister Manpreet Badal stated that the council could set the cap and floor rates for the states to charge and collect GST. It provides a range within which the states can levy the State Goods and Services Tax (SGST) after June 2022. 

Possibilities of addressing the inverted tax structure

The GST Council may take a final call on the inverted tax structure for several key sectors facing this issue. The possible sectors may include textile, fabrics, and footwear. It was pointed out that the footwear industry is bearing a huge brunt of the inverted tax structure, affecting its profitability. Therefore, a correction of the inverted tax rates is the need-of-the-hour for this sector.

Fresh measures to curb tax evasion in GST

The government has witnessed increasing cases of tax evasion. There is a sudden spike in fake ITC claims across India. Therefore, the GST Council might announce fresh measures to tighten its anti-evasion policies in place.

The Odisha Finance Minister Niranjan Pujari advised a new manner of imposing GST on pan masala and gutkha to curb tax evasion. He expressed that the tax can be levied on production capacity instead of the actual sales. Likewise, the government agrees that the GST Council needs to develop out-of-the-box ideas to augment revenue while checking tax evasion.

It will be for the first time that Lucknow is hosting the GST Council meeting. On 16th September 2021, the Union FM will meet the GST officials. A government official also claimed that there would also be a meeting with the sub-committee of the GST Council.