1st GST Council Meeting Dated:- 23-9-2016 GST Council – Minutes – Circulars – GST – Minutes of the 1st GST Council Me e ting (22nd and 23rd September 2016) The first meeting of the GST Council (hereinafter referred to as 'the Council ') was held on 22 nd and 23rd September 2016 under the Chairpersonship of the Hon'ble Union Finance Minister, Shri Arun Jaitley in Vigyan Bhawan, New Delhi. The meeting was attended by the Hon'ble Union Minister of State for Revenue, Shri Santosh Kumar Gangwar, the Hon'ble Chief Minister of Puducherry, Shri V. Narayanasamy, the Hon'ble Deputy Chief Minister of Arunachal Pradesh, Shri Chowna Mein, the Hon'ble Deputy Chief Minister of Delhi, Shri Manish Sisodia and the Hon'ble Ministers from the other States. The meeting was also attended by the officials of the Centre and the States. The list of the Hon'ble Ministers who attended the meeting is at Annexure 1 – The list of officers of the Cen
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4. Before taking up the agenda points, the Chairperson invited the Members of the Council to make general comments, if any. The following issues were highlighted- (i) The Hon'ble Minister from Kerala expressed that given the good experience with the Empowered Committee of State Finance Ministers during the last sixteen years, the institution of Empowered Committee should continue. After some discussion, it was decided that the decision regarding the continuance or otherwise of the Empowered Committee rested with the Empowered Committee. However, the forum for discussing and deciding all issues relating to GST shall be the Council. (ii) The Hon'ble Minister from Kerala observed that the Rules of Procedures and Conduct of Business in the Council should have a clause that decisions would be arrived at by consensus. The Chairperson observed that consensus was key to a forum where sovereignty is shared. However, we must provide for a possible scenario where voting can be re
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ir). The Chairperson suggested a broad formulation, subject to legal vetting, namely that in a state where there is a proclamation under Article 356 of the Constitution of India, for the purposes of the Council, the person nominated by the Governor of the State shall exercise the power of a Minister. (iii) Rule 3(2) – The Hon'ble Minister from West Bengal observed that the detailed agenda notes were circulated only two days before the Council meeting, which left little time for their examination in the States. He suggested that the agenda be circulated at least 10-15 days in advance. The Chairperson observed that as there was a tight time-frame for implementation of GST, a 15-day notice along with agenda notes before every meeting could derail the deadline. It was agreed that a meeting notice along with agenda points shall be sent at least 7 days prior to the date of the meeting of the Council and the agenda notes would be sent at least 3 working days prior to the date of the m
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erson agreed that Rule 4 should be deleted. (vi) Rule 5(2) – Some members observed that Rule 5(2) was too restrictive as a Minister nominated to the Council might not be able to attend a meeting due to some other pre-occupation. The Chairperson observed that the rule could be re-formulated to provide that where the originally nominated Member was unable to attend a Council meeting on account of some reason, another Minister could be nominated to attend a particular meeting of the Council. It was further agreed to amend Rule 5(2) to provide that in the absence of the Member Minister or another nominated Minister from a State, a nominated officer could also attend and speak in the meeting of the Council. However, he would not be allowed to vote. An officer accompanying a Minister could also speak on technical matters, ifrequired. (vii) Rule 6 including its Heading – On the suggestion of the Hon'ble Minister from Mizoram, it was decided that the expression Vice-Chairman be rep
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ted in the Bhubaneswar Empowered Committee meeting in 2013 and it was now part of the Constitution. This provision compelled the Union and the States to come to a consensus. He also observed that there cannot be a situation where the Union Government gets excluded in decision making relating to the taxation policy of the Union oflndia, which is not desirable. The Hon'ble Minister from Bihar observed that under the leadership of the Chairperson, a healthy convention should be developed of taking decision by consensus. (xi) In respect of Rule 16, the Hon'ble Ministers from Tamil Nadu and Uttar Pradesh suggested that there should be different weightage of votes for States within the two-third weightage of votes given to the States. The Hon'ble Minister from Tamil Nadu stated that States with a population of 20 crores and 1 crore should not be treated equally in terms of votes. It was pointed out that such an approach was followed for Rajya Sabha membership. Some criteria li
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e decided that all States shall have equal vote within the two-third share. Agenda Item 2: Proposed timetable for the implementation of CST 6. The Secretary to the Council briefed the Members of the Council regarding the proposed timetable for completing various steps in order to implement GST by 1st April 2017. He stated that the Draft IGST, CGST and SGST Laws and Rules, GST Rate Structure and Exemption Lists would have to be recommended by the Council by 22nd November 2016. By December 2016, the CGST and lGST Acts would need to be passed by the Parliament and the SGST Acts by the respective State Legislatures in the Winter Session of 2016. For this purpose, if need be, the Winter Sessions would have to be advanced to December 2016. On the setting up of the Information Technology (IT) Framework, he informed that the target dates for development of backend IT systems of banks, RBI and Central and State accounting authorities was November 2016 and that of CBEC and 9 States who
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h the IT systems but they would be in a position to pass the legislation only by February 2017. The Hon'ble Minister from Jammu and Kashmir stated that they would be able to pass the law only by January 2017. The Chairperson observed that the States that were going for elections would need to make a special provision for passing their SGST Legislation. He also advised the States to meet the deadline and for this, where needed, a one-day special session of the legislature could be convened. The Hon'ble Minister from Tamil Nadu suggested that implementation of GST should be by 1st September 2017 as it was a challenging task and the officers needed to be deployed properly. He also mentioned that inadequate preparations could harm the taxation system. 8. After discussion, it was agreed that the implementation date for GST would be 1st April 2017. The Chairperson observed that between 22nd September 2016 and 22nd November 2016, a lot of work was required to be done and that offi
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ders should be kept out of the Composition scheme. EXEMPTION THRESHOLD 10. The Secretary to the Council explained that by raising the exemption limit to ₹ 25 lakhs, 60% of tax-payers would be out of the tax net but the loss of revenue would only be 2%. The Hon'ble Chief Minister of Puducherry stated that an exemption limit of ₹ 25 lakhs for his Union Territory would mean that 12% of traders would go out of the tax net and would result in substantial revenue loss. He suggested that for the small states, the threshold for exemption should be ₹ 10 lakhs. The Hon'ble Deputy Chief Minister of Delhi stated that the exemption limit of ₹ 10 lakhs was too low and that they had a good experience after increasing the threshold limit to ₹ 20 lakhs. The Hon'ble Minister from Kerala observed that the potential revenue loss by increasing the threshold was low but it would keep a large number of traders out of the tax net, which would help administrati
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ter from Mizoram also supported a threshold limit of ₹ 5 lakhs. The Hon'ble Minister from Assam supported a threshold of ₹ 10 lakhs. 13. Given the difference in opinions, the issue was deferred for reconsideration to the next day. In the meeting of 23rd September 2016, after further discussion, it was agreed that the threshold exemption shall be ₹ 20 lakhs. The Chairperson also observed that taking note of the concerns expressed by the Hon 'ble Chief Minister of Puducherry, this decision would be reviewed after 5 years (during which compensation for any loss of revenue is guaranteed) and a decision regarding any modification to the exemption threshold would be taken thereafter. 14. As regards the Special Category States enumerated in Article 279A of the Constitution, it was decided that the threshold exemption shall be ₹ 10 lakhs. COMPOSITION (OR COMPOUNDING) THRESHOLD 15. The Secretary in his introductory remarks stated that at present, th
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arrived at, to calculate the compensation, viz- (i) a base year and (ii) the projected growth rate. 18. In the presentation, it was further explained that it would be desirable to take 2015-16 as the base year for making growth projection of Revenue and projected growth rate might be taken as average growth rate of revenue collection in the preceding 3 financial years ending 31st March, 2016, 31st March, 2015 and 31st March, 2014 over the previous year. It was also explained that the projected growth rate shall be calculated on the basis of the figures of revenue collected as audited by the Comptroller and Auditor General of India. 19. The Hon'ble Deputy Chief Minister of Delhi desired to know as to why the year of 2016-17 could not be taken as the base year. It was explained by J.S. (Rev), that the audited figures of the year would become available much later and hence, it might be difficult for States to calculate their budgetary estimates for 2017-18. The Hon'bl
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la would take into account the impact on revenue of the tax holidays provided by the States. The Hon'ble Minister from Telangana explained that his was a new State and therefore only figures for the year 2016-17 would be available. The Hon'ble Minister from Gujarat expressed the view that the base year should be the best 3 years' average of the last 10 years. The Hon'ble Minister from Kerala was not in agreement with the method of ascertaining the projected growth rate of revenue. He also expressed the view that it should be taken as the best 3 years of the last 10 years. He further pointed out that during VAT compensation, the best 3 of the last 5 years were taken into account to ascertain the growth rate. He also supported the view that the compensation needed to be paid regularly by making a provision for ways and means accommodation in the law. 21. The Hon'ble Minister from Madhya Pradesh reminded that during the implementation of VAT, goi ng backwards by 5 y
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dated fund of the States. His view was that all taxes which were subsumed should be compensated and there should be no condition of all revenue being audited by the CAG. He also suggested that the payment should be made on a monthly basis. The Hon 'ble Minister from Odisha suggested that the best 3 out of of 5 years be taken to ascertain growth rate and compensation payment be made monthly and adjusted at the end of the year on the basis of CAG-audited figures and also that the base year could be 2015-16. 23. The Hon'ble Minister from Tamil Nadu expressed that compensation be given for all revenue which was getting subsumed in GST. As for ascertaining rate of growth, the best of 3 years out of the preceding 6 years be taken into consideration to account for the floods in Tamil Nadu. He was also of the view that the States should assess their revenue loss by December and convey to the Centre and compensation should be paid on that basis. The projected growth rate should take
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e Minister from Assam brought to the notice of the Council that last year was an election year in Assam and the then Government did not make much effort to garner revenue and therefore, in the case of Assam, the current year should be taken as the base year and that the VAT formula could be adopted for compensation. 27. The Hon'ble Deputy Chief Minister of Arunachal Pradesh stated that their revenue was growing every year and therefore current year should be taken as the base year and for projecting growth, the preceding 3 years should be taken into consideration. 28. The Hon'ble Chief Minister of Puducherry suggested that year 2015-16 should be taken as the base year and formula as used during VAT transition should be used to calculate compensation. He also brought to the notice of the Council that the definition in Article 366(26B) of State to include a Union Territory with Legislature is not mentioned in Clause 18 of the Constitution (One Hundred and First Amendment) A
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compensation be paid forthwith. He also suggested some independent mechanisms for the flow of the compensation amount. 30. The Hon'ble Minister from Andhra Pradesh supported the use of VAT methodology and suggested that payments be made periodically preferably along with the devolution amount. He . also desired that the CST compensation be released forthwith. The Hon'ble Minister of Chattisgarh while supporting the idea of using VAT methodology for payment of compensation, desired to know the impact of petroleum items which were outside GST on the calculation of the growth rate. He also suggested that 2016-17 be taken as the base year. 31. The Hon'ble Minister from Haryana brought to the notice of the Council that they had problems similar to that of Punjab as they also had a lot of agricultural produce in the State. The Hon'ble Minister from Telangana brought to the notice of the Council that Telangana would stand to lose ₹ 700 crores of R.D.Cess (Rural Dev
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ribed in the 14th Finance Commission may be used as the guiding principle for payment of compensation. He expressed that devolution amount to States prior to implementation of GST should be protected. 33. The Chairperson invited the Chief Economic Advisor to share his views on the methodology of compensation. He expressed that any calculation based on the best 3 of the previous 5 years would lead to a situation where going forward, the nominal GDP growth would be substantially lower as compared to revenue growth during the last 3 or 5 years and this would create challenges. He further added that inflation was likely to be below 4% compared to past rates of inflation of 9-10%. He also shared results of his calculation of rate of growth of revenue for the whole country and this came to 12.3%. The Hon'ble Ministers from Jammu and Kashmir and Assam noted that if the revenue of the Central Government fell, the amount devolved to the States would also fall. The Hon'ble Minister fr
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0% compensation for 5 years. While it was agreed then for best 3 out of 5 years' growth rate, it was linked to diminishing amount of compensation for 3 years, namely 100% for year one, 75% for year two and 50% for year three. Therefore, it might be inappropriate to adopt only part of the formula. 36. The IS. (Rev) clarified that compensation would include all taxes such as CST, Octroi, Purchase Tax, etc which are levied by the State Governments and now proposed to be subsumed in GST including cesses, if any, imposed by the States. The frequency of release could be decided by the Council and could be an interim figure. There was considerable discussion in the Council on various other methods of calculating the compensation figure such as trends of Nominal GDP growth rate, application of buoyancy factor, variation in the GDP estimates, taking taxlGDP ratio as a factor, removing outliers from growth data of 5 years and the need to keep calculations reliable but simple. 37. The C
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d that the advantage of the last methodology would be that special factors affecting revenue collection of a state like Jammu and Kashmir would be addressed. The Hon'ble Minister from Kerala opposed the last methodology but was agreeable to the suggestion of considering the best 3 growth rates out of the 5 years preceding the base year and excluding the two outliers. The Hon'ble Minister from Tamil Nadu did not favour this proposal. The Hon'ble Minister from West Bengal observed that the general consensus was to go for 6 years and take the best growth rate of 3 years out of them. The Hon'ble Ministers of Assam, Uttar Pradesh and Haryana supported the idea of a secular growth rate and Uttar Pradesh suggested that the secular growth rate be pegged at 14%. The Hon'ble Minister from Tamil Nadu stated that projection of a secular growth rate could punish states whose tax administration collected taxes more efficiently. The Chairperson observed that this issue may continu
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entation outlining the broad features of the proposed cross-empowerment model. This model essentially provided for a protocol on the basis of which scrutiny of returns of taxpayers and their audit would take place. It was proposed that an overall cap might be agreed upon on the number of interventions (of scrutiny of returns and audit) to be done by the Central and State authorities taken together. Within this cap, on an annual basis, the list of taxpayers to be subjected to detailed scrutiny of returns and audit would be drawn by the Union and State Government officers in each State on the basis of certain risk parameters. Based on these lists, allocation of taxpayers to the Central and State tax administrations would be done on the basis of certain predefined criteria. The consequential actions like raising demand, adjudication, appeal, etc. shall be done by the administration that conducted scrutiny of returns/audit and it would cover both the CGST and the SGST. For enforcement acti
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ow the turnover threshold of ₹ 1.5 crore were to be administered by State tax authorities, then States would end up administering a disproportionately large number of taxpayers whereas the effort should be to work on a model which would help to optimally utilize the well-trained officers of both the Centre and the States to get the best results. 43. The Hon'ble Deputy Chief Minister of Delhi stated that no policy should be made to accommodate excess officers of a particular administration. He suggested that the Central Government officers could be deputed to the States. He also pointed out that often, the jurisdiction of the Central tax authorities was not co-terminus with the boundaries of a State. He emphasized that in the GST regime, the jurisdiction of the Central tax authorities in a State should be co-terminus with that of the States. The Hon'ble Minister from Tamil Nadu also emphasized the need for structural alignment of the two tax administrations. The Hon'
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on the big taxpayers and the small taxpayers should be left to the administration of the State tax authorities. 45. The Hon'ble Minister from Kerala observed that the proposal being discussed in this meeting had never come up for discussion earlier. He stated that the protocol appeared unworkable and very complicated. It was not clear how the CGST administration would draw the priority list. He also observed that changing the tax jurisdiction of dealers every two years was inefficient. He also suggested that Central Government staff should be deputed to work in States. 46. The Hon'ble Minister from West Bengal stated that the Empowered Committee had earlier unanimously agreed that taxpayers below the threshold of ₹ 1.5 crores would not face dual administration and that this needed to be respected. The State administration dealt with traders and this position should continue in GST. He observed that the Centre's proposal of cross-empowerment was too complex but a
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nistration, it would be better that for now, the Central tax administration should continue to administer all existing Service Tax registrants. The Centre shall give training to the officers of the State Governments on Service Tax and till such time, the present arrangement shall continue. Thereafter, the following modalities for single interface were discussed but discussion remained inconclusive. I. Traders/manufacturers of goods with a turnover of less than ₹ 1.5 crores shall be under the jurisdiction of the State administration. ii. The traders/manufacturers of goods with a turnover above ₹ 1.5 crores shall be administered by both the Central and State tax administrations on the basis of the cross-empowerment model presented in the meeting which can be suitably modified by a Committee of Central and State Government officials. iii. All existing registered service providers irrespective of the value of turnover, for the present, shall continue to be administered
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