During its 50th meeting on July 11, 2023, the GST Council put forth several suggestions regarding GST compensation cess, the GST Appellate Tribunal, a specialized composition scheme for specific sectors, proposals for GST rates on goods and services, and additional trade facilitation measures. Moreover, clarifications were provided on various significant matters that previously caused disputes between taxpayers and authorities. The enclosed highlights the major recommendations made by the council.
Changes in GST Rates on Goods
A. Levying of compensation cess of 22% on all utility vehicles by whatever name called provided they meet the parameters of Length exceeding 4000 mm, Engine capacity exceeding 1500 cc and having Ground Clearance of 170 mm & above.
Intrico’s Comment:- Earlier, utility vehicles with an engine capacity exceeding 1500 CC were subject to a compensation cess of 22%. However, it is now decided to include all the utility vehicles which meet the all the following conditions:
Engine capacity exceeding 1500CC
length exceeding 4000 mm and
a ground clearance of 170 mm or higher
B. It has been decided that compensation cess on pan masala, tobacco products, etc. would be levied at ad valorem rates (as was applicable on 31 March 2023) where it is not legally required to declare retail sale price.
Intrico’s Comment:- In accordance with the recent amendment (Notification No. 2/2023 – Compensation Cess Rate), starting from April 1, 2023, the calculation of compensation cess on items such as pan masala and tobacco products is required to be based on their retail sale price (RSP). However, in cases where it is not mandatory to declare the RSP, the previous ad valorem rate that was in effect on March 31, 2023, will be notified for the levy of compensation cess.
C. RBL Bank and ICBC Bank are to be included in the list of specified banks eligible to claim IGST exemption on the import of gold, silver or platinum and Annexure 4B (HBP) of the Foreign Trade Policy, 2023 to be updated accordingly.
D. IGST exempted on import of:
a. Cancer related drug, Dinutuximab (Quarziba), when imported for personal use.
b. Medicines and Food for Special Medical Purposes (FSMP) when used in the treatment of rare diseases enlisted under the National Policy for Rare Diseases, 2021, imported for personal use, subject to existing conditions, and
c. FSMP by Centres of Excellence for Rare Diseases or any person or institution on the recommendation of any of the listed Centres of Excellence.
E. Other changes, wrt clarifications, reductions:
a. GST on Uncooked/unfried snack pellets, by whatever name called reduced from 18% to 5% and for the past period on ‘as is basis’.
b. Raw cotton, including kala cotton supplied by agriculturists to co-operatives, would be taxable under the reverse charge mechanism (RCM) and to regularise issues of the past on ‘as is basis’.
c. GST on Imitation zari thread or yarn known by any name in trade parlance form 12% to 5% and regularize payment of GST related to this matter with respect to past on ‘as is basis’.
d. GST rate on ‘LD slag’ to be reduced from 18% to 5% to encourage better utilisation of this product and for protection of environment.
e. Trauma, spine and arthroplasty implants (for the period prior to 18 July 2022) on ‘as is basis’.
f. GST on Fish soluble paste reduced from 18% to 5% and for the past period on ‘as is basis’.
g. Regularise issues related to desiccated coconut for the period 1 July 2017 to 27 July 2017 on ‘as is basis’.
h. Regularise issues relating to plates and cups made of areca leaves for the period prior to 1 October and regularise issues related to biomass briquettes for the period 1 July 2017 to 12 October 2017.
GST Rates on Services
A. GST exemption extended to satellite launch services supplied by organisations in the private sector.
B. The following amendments are made in the process of filing declaration by Goods Transport Agency (GTAs) for exercising the option to pay GST under forward charge or reverse charge mechanism:
a. Last date for filing the aforesaid declaration to be 31 March of the preceding FY (as against the earlier due date of 15th March). 1st January of the preceding FY would be the start date for the exercise of such an option.
b. GTAs will not be required to furnish such declaration every year. Once an option is exercised, it shall be deemed that the same would continue for future FYs unless reverted by the GTA.
C. It is clarified that services supplied by a director to the company, in his private or personal capacity (e.g. renting of immovable property to the company, etc.) are not taxable under the RCM. Only those services provided in the capacity of the director would be leviable to GST under RCM (in entry 6 of notification no. 13/2017).
D. It is clarified that the supply of Food & Beverages (F&B) in cinema halls is taxable as ‘restaurant services’ (@ 5% without input tax credit (ITC)) as long as they are (i) supplied by way of or as part of service, and (ii) supplied independently of the cinema exhibition service. However, where the sale of cinema tickets and supply of F&B is clubbed together, and such bunded supply satisfies the test of composite supply, the entire supply will attract GST at the rate applicable to cinema exhibition service @18%), being the principal supply.
GST Rate on Casinos, Race Courses and Online Gaming (2nd Report by GoM)
A. Amendments are to be made to Schedule III to the Central Goods and Services Tax Act, 2017 (CGST Act) to include ‘Online Gaming’ and ‘Horse Racing’ within the purview of ‘taxable actionable claims’.
B. Three activities viz., Casino, Horse Racing and Online Gaming to be taxed at a uniform rate of 28% and the value of supply would be as under:
a. Casino: Face value of chips purchased.
b. Horse Racing: Full value of the bets placed with bookmaker/ totalisator.
c. Online Gaming: Full value of bets placed.
Intrico’s Comment:- There were some issues with the classification of services provided by directors to a body corporate, particularly whether they would fall under the Reverse Charge Mechanism (RCM).
However, the Government has clarified that only those services rendered by directors in their capacity as directors of a body corporate will be taxed. This clarification will bring significant relief to taxpayers who have been facing GST liability demands from the tax department for services provided by directors in their personal capacity.
Intrico’s Comment:- The payment of GST at a rate of 5% for restaurant services may result in the reversal of credits associated with direct procurements and common services, as these services are considered exempt supplies. In the past, restaurants have made representations to introduce an option to pay GST at 12% with the availability of credits. However, currently, such an option is.
Intrico’s Comment:- In the recent case of Gameskraft Technologies Private Limited [2023 (5) TMI 926], the Karnataka High Court established certain principles to differentiate between games of skill and games of chance. Ultimately, the court ruled that skill-based online games like Rummy would not be categorized as betting or gambling under Schedule III of the CGST Act, 2017, and thus, they would not be subject to GST. However, it appears that the GST Council intends to bring online gaming and horse racing within the purview of GST, regardless of whether they are classified as games of skill or chance, contrary to the High Court’s viewpoint.
One could argue that the applicability of 28% tax on the full value would only arise prospectively under the amended provisions.
INTRICO ADVISORS PVT LTD
Measures for facilitation of Trade.
A. The Goods and Services Tax Appellate Tribunal (GSTAT) (Appointment and Conditions of Service of President and Members) Rules, 2023 containing rules governing appointment and conditions of President and Members of the proposed GSTAT to be notified. Further, Sections 149 to 154 of the Finance Act, 2023 proposing to amend the provisions relating to GSTAT would come into effect from 1 August 2023. The State Benches of GSTAT would be constituted in a phased manner.
B. CGST Act would be amended to make the ISD mechanism mandatory with a prospective effect for the distribution of ITC on common input services procured from third parties.
C. For FY 21-22, various relaxations were provided in respect of furnishing certain particulars in Form GSTR-9 / 9C. Further, the taxpayers having aggregate turnover of up to INR 2 Crore were exempted from filing Form GSTR-9 / 9A. These relaxations would also apply for FY 22-23 as well.
D. Rule 46(f) of the CGST Rules is to be amended to provide the requirement of mentioning only the name of the State of the recipient (as against the earlier requirement of name and full address of the recipient) on the tax invoice in case of supply of taxable services by or through an ECO or by supplier of OIDAR services to an unregistered recipient.
E. Circular no:183/15/2022-GST dated 27 December 2022 provided a special procedure for verification and permitting availing of ITC in cases involving differences in ITC in Form GSTR-3B vis-à-vis that as per Form GSTR-2A during FY 17-18 and FY 18-19. A similar procedure for verification of ITC would be prescribed for the period 1 April 2019 to 31 December 2021.
F. Special procedure to be provided under Section 148 of the CGST Act to enable the taxpayers to manually file appeals against the orders passed by proper officers in respect of TRAN-1 / TRAN-2 claims of registered persons, in pursuance of the directions of the Hon’ble Supreme Court of India in Union of India Vs. Filco Trade Centre Pvt. Ltd. [TS-369-SC-2022-GST].
G. Rules 108(1) and 109(1) of the CGST Rules are to be amended to provide for manual filing of appeals before Appellate Authority under certain circumstances.
H. The validity of the amnesty schemes notified vide various notifications dated 31 March 2023 has been extended till 31 August 2023 (as against the earlier last date of 30 June 2023).
I. In respect of taxpayers registered in the State of Manipur, the due date for filing Form GSTR-1, Form GSTR-3B and Form GSTR-7 for the months from April 2023 to June 2023 has been extended till 31 July 2023.
Intrico’s Comment:- Taxpayers have been eagerly awaiting the establishment of the GSTAT State Benches for a long time. The backlog of GST appeals is overwhelming, and these benches will help to reduce it. The recommendation to initiate the constitution and functioning of these benches is met with great enthusiasm by taxpayers.
Intrico’s Comment:- In the case of WIPRO Limited India [2023 (1) TMI 499 – HC], The Karnataka High Court has ruled that the Circular granting relief for credit mismatches is applicable to subsequent periods as well. This is a positive development for the industry, as it provides much-needed clarity on the issue. However, there are still some underlying concerns, such as the absence of enabling provisions. As a result, there may be potential litigation arising from notices issued concerning credit mismatches.
INTRICO ADVISORS PVT LTD
Clarity on Diverse Matters
A. Input Service Distributor (ISD) mechanism is not mandatory to distribute the ITC on common input services procured from third parties.
B. Taxability of internally generated services exchanged between distinct persons (cross charge).
C. With respect to warranty replacement without any consideration, it is proposed to clarify that no GST is leviable by the manufacturer on the replacement of parts/repair service and no reversal of ITC is required to be made.
D. Pursuant to the amendment of Rule 36(4) of the CGST Rules w.e.f. 1 January 2022, refund of ITC under Section 54(3) of the CGST Act for a tax period to be restricted to the ITC as reflected in Form GSTR-2B of that or any previous tax period.
E. Consequent to the insertion of explanation to Rule 89(4) of the CGST Rules, the value of exported goods is to be included in calculating the ‘adjusted total turnover’ as per the said explanation.
F. Admissibility of refund where export of goods or realisation of payment for export of services, as the case may be, is made after the time limit prescribed under Rule 96A of CGST Rules.
G. TCS liability under Section 52 of the CGST Act where multiple E-Commerce Operators (ECOs) are involved in a single transaction of supply of goods or services or both.
H. A taxpayer whose aggregate turnover exceeds the prescribed threshold for e-invoicing shall issue e-invoices for supplies made to Government Departments / Establishments / Agencies / Local Authorities / PSUs, etc., registered solely for the purpose of TDS.
Intrico’s Comment:- The GST authorities have consistently reinforced their stance that GST is not applicable to warranty replacements. This stance has been reiterated in a number of FAQs and Advance Rulings. However, it remains to be seen whether the upcoming Circular will provide clarity on the GST liability in situations where manufacturers carry out warranty replacements through dealers.
In such cases, the dealer would be acting as an agent of the manufacturer. The dealer would be responsible for replacing the parts and then recovering the costs from the manufacturer. It is possible that the GST authorities could argue that the dealer is actually making a supply of goods to the manufacturer, in which case GST would be payable.
Intrico’s Comment:- Given that a taxpayer can claim credits solely for the invoices documented in GSTR-2B, this serves as a consequential clarification. The available input tax credit balance will solely pertain to the invoices listed in GSTR-2B.
Intrico’s Comment:- Previous clarifications have indicated that in situations involving multiple E-commerce operators, such as Eco-1 (where the customer books the goods /services) and Eco-2 (who engages in a contract with the supplier), the responsibility for Tax Collected at Source (TCS) rests with Eco-2, as they are the ones making payments to the supplier. The additional clarification seems to address the confusion surrounding the deductibility of TCS on e-commerce transactions facilitated through the ONDC (Open Network for Digital Commerce), which serves as an interface connecting buyers and sellers via their respective e-commerce platforms. respective e-commerce platforms.
I. Computation of interest is liable to be paid under Section 50(3) of the CGST Act in respect of wrongly availed and utilised IGST credit. The Circular to, inter-alia, clarify that ITC in electronic credit ledger under the heads of IGST, CGST and SGST taken together has to be considered while calculating such interest liability under Rule 88B of the CGST Rules.
J. Mere holding of securities of a subsidiary company by a holding company cannot be treated as a supply of service, and hence not leviable to GST.
Measures to Streamline GST Compliances:
A. Section 123 of the Finance Act, 2021 which had proposed to amend Section 16 of the Integrated Goods and Services Tax Act, 2017 (IGST Act) is to be notified with effect from 1 October 2023. The amendments in Section 16 of the IGST Act relate to the claim of refund of tax paid on zero-rated supplies or refund of ITC claimed on zero-rated supplies. The amendment also restricts the eligibility of zero rating to supplies made to SEZ only to the supplies ‘for authorised operations’. Further, notification is to be issued to provide a restriction on payment of IGST on export and subsequent claim of refund in respect of exports of tobacco, pan masala & other similar items as well as mentha oil.
B. Section 10(1)(ca) is proposed to be inserted in the IGST Act to provide the ‘place of supply’ in respect of goods supplied to unregistered persons.
C. Special procedure to be followed by manufacturers of tobacco, pan masala and other similar items.’
D. A notification to be issued under Section 148 of the CGST Act inter alia prescribing the special procedure to be followed for the registration of machines and for filing of special monthly returns by such manufacturers.
E. Section 122A is to be inserted in the CGST Act to provide a special penalty for non-registration of machines by such manufacturers.
F. Following amendments to be made in the Central Goods and Services Tax Rules, 2017:
a. Amendments pertaining to furnishing valid bank account details.
b. Rule 10A of the CGST Rules to be amended to mandate the Taxpayer to furnish valid bank account details in the name and PAN of the registered person within 30 days from. The grant of GST registration or before filing Form GSTR-1 / Invoice Furnishing Facility (IFF), whichever is earlier.
c. Rule 21A(2A) of the CGST Rules to be amended to provide for system-based suspension of registration of registered persons who have failed to furnish bank account details as per the aforementioned time limit (prescribed under Rule 10A of the CGST Rules).
d. 3rd proviso to Rule 21A(4) of the CGST Rules to be inserted to provide for automatic revocation of system-based suspension (under Rule 21A(2A) of the CGST Rules) upon compliance with the provisions of Rule 10A of the CGST Rules.
e. Rule 59(6) of the CGST Rules to be amended to restrict a registered person from filing Form GSTR-1 / IFF in case of failure to furnish valid bank account details.
Intrico’s Comment:- According to the provided clarification, in order to calculate interest under section 50(3), it is deemed that the utilization of IGST-ITC would be considered incorrect if the total balance of all input tax credit (ITC) categories has been utilized from the electronic credit ledger. This amendment is positively received and appreciated.
Intrico’s Comment:– The provided clarification will effectively address the disputes and demands faced by taxpayers due to the HSN entry 997171, which categorizes holding equity of subsidiary companies as a service.
G. Physical verification of business premises: Rule 9 and Rule 25 of the CGST Rules to be amended to do away with the requirement that physical verification of business premises is to be conducted in the presence of the applicant and also to provide for physical verification in high-risk cases even where Aadhaar has been authenticated.
H. E-way bill for specified goods: Rule 138F to be inserted to mandate the requirement of generation of e-way bills for intra-State movement of gold and precious stones under Chapter 71. Similar amendments may also be made in the respective State Goods and Services Tax Rules by States who want to mandate such requirements.
I. Intimation of difference inter se between returns and recovery thereof:
a. Rule 88C of the CGST Rules which was inserted effective 26 December 2022 provides issuance of system-based intimation in cases where the output liability as per Form GSTR-1 / IFF exceeds the output tax liability as per Form GSTR-3B by a specified threshold. In light of the above, Rule 142B of the CGST Rules and Form GST DRC-01D are proposed to be inserted to provide for the manner of recovery of tax and interest in respect of the amount intimated under Rule 88C which has not been paid and for which no satisfactory explanation has been provided by the registered person.
b. Rule 88D is proposed to be inserted in the CGST Rules to provide system-based intimation to the taxpayers in respect of excess availment of ITC in Form GSTR-3B vis-à-vis that made available in Form GSTR-2B above a certain threshold, along with the procedure of auto-compliance on the part of the taxpayers to explain reasons for such difference or take remedial action in respect of the same. Amendments are also proposed to be made in Rule 59(6) of the CGST Rules.
J. Form GSTR-3A to be amended to provide for issuance of notice to registered taxpayers who have failed to furnish Annual Return in Form GSTR-9 / GSTR-9A by the due date.
K. Rule 64 of the CGST Rules and Form GSTR-5A to be amended to require Online Information Database Access and Retrieval (OIDAR) service providers to provide details of supplies made to registered persons in India in Form GSTR-5A.
L. Explanation 3 to be inserted after Rule 43 of the CGST Rules to prescribe that the value of supply of goods from Duty-Free Shops at arrival terminals in international airports to the incoming passengers would be included in the value of exempt supplies for the purpose of reversal of ITC.
M. Rule 162(3A) of CGST Rules to be inserted to prescribe the compounding amount for various offences under Section 132 of the CGST Act.
N. Rule 163 of the CGST Rules to be inserted to provide for the manner and conditions of consent-based sharing of information of registered persons available on the common portal with other systems. Further, a notification would be issued under Section 158A of the CGST Act for notifying ‘Account Aggregators’ as the systems with which information is to be shared by the common portal.
O. GST Council to form a state level coordination Committee comprising GST officers from both State and Central GST administrations for knowledge sharing on GST matters and coordinated efforts towards various measures.
P. Risk-based biometric-based Aadhaar authentication of registration applicants to be conducted in the Union Territory of Puducherry on a pilot basis.