The 52nd GST Council meeting yielded a plethora of recommendations and amendments aimed at streamlining the GST regime, enhancing trade facilitation and minimizing compliance hassles.
– By Praveen William with inputs from Rahul Angadi
The GST Council held its 52nd meeting on 7th October 2023 under the Chairmanship of the Finance Minister Nirmala Sitharaman in New Delhi. This pivotal meeting yielded a plethora of recommendations and amendments aimed at streamlining the GST regime, enhancing trade facilitation and minimizing compliance hassles.
One of the noteworthy recommendations pertains to the GST Appellate Tribunal, with specific alterations to the age criteria, where the minimum eligibility age has been set at 50 years. While the maximum age for the President has been extended from 67 to 70 years, Members (including Advocates with 10 years of experience) can be up to 67 years of age. This should help in setting up the long-awaited GST Tribunals.
However, the focal point of this meeting undoubtedly centered around the long-standing conundrum surrounding the taxation of Extra Neutral Alcohol (ENA). ENA, a highly purified spirit with over 95% alcohol by volume, is not fit for human consumption, but serves as a vital and primary raw material for the production of alcoholic beverages. The Indian Constitution has kept alcoholic liquor for human consumption beyond the purview of GST, granting States the exclusive authority over its taxation. The divergence of opinion arises when it comes to ENA’s taxation, with some citing a Supreme Court judgment to argue that GST cannot be levied on ENA, as the States have the exclusive power to levy local taxes such as Excise and VAT, treating it similar to alcoholic beverages. Conversely, others contend that GST can indeed be imposed on ENA, as it is not meant for human consumption and thus falls within the GST framework.
While this issue had been previously discussed by the GST Council on several occasions, no formal decision had been made. In a welcome move, the GST Council has now provided a solution, whereby it has clarified that, despite possessing the legislative authority to impose GST on ENA, it has decided to concede the right to tax ENA used for manufacture of alcoholic liquor for human consumption to the States, effectively ending the ambiguity.
Another significant amendment pertains to tax rate on millets. In the “International Year of Millets”, the GST Council has decided to participate and contribute to promotion of millet cultivation and consumption, by slashing the GST rate. Food preparations made from millet flour in powder form (with at least 70% millets composition) will now be taxed at nil when sold in loose form and at 5% in pre-packaged and labelled form.
One more industry facilitation measure taken by the GST Council is an amnesty scheme for filing appeals against demand orders. This scheme allows taxpayers time until 31st January 2024, to file appeals that would otherwise be time-barred, subject to taxpayers making an additional pre-deposit of 2.5% of disputed tax liability, payable in cash.
Furthermore, the GST Council has provided much-needed clarification regarding the taxability of personal guarantees offered by directors of companies to banks and corporate guarantees provided by holding companies to subsidiaries. These transactions, typically structured without consideration, have been a bone of contention between the tax department and taxpayers, because the GST law deems transactions between related parties as taxable supplies, even if there is no consideration. It is now clarified that guarantees given by directors without consideration will not be subject to GST. However, corporate guarantees given by group companies or associated enterprises to related companies without consideration will be subject to GST on the notional value calculated at 1% of the guarantee amount.
The GST Council recommends clarifying the admissibility of export remittances received in Special INR Vostro accounts, as permitted by the RBI. This clarification would resolve issues where tax authorities denied Input Tax Credit refunds to exporters, citing non-realization of export proceeds in convertible foreign exchange, a qualifying condition for ‘export of service’ under GST. Additionally, the proposal to treat supplies to SEZ on par with exports, allowing for the rebate option—firstly paying tax and claiming a refund later – is a positive step.
The decisions of the GST Council’s 52nd meeting are forward-looking and taxpayer-friendly, aimed at reducing disputes and clarifying GST regulations for a better business environment. However, the sore thumb that sticks out is the lack of clarification on the taxation of online gaming services involving stakes. The tax department has recently sent notices to gaming companies, demanding 28% GST on the full bet value, and not on their income or revenue – which is collected as platform fee. These notices cover past periods extending as far back as July 2017, which could cause significant financial strains to gaming companies. The online gaming industry had requested the GST Council to issue a clarification to at least address past issues, which would give some breather to the industry, but regrettably, they have remained silent on this issue.
(Praveen William is the Partner – Indirect Tax, KPMG in India and Rahul Angadi is a chartered accountant.)
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Source:financialexpress.com