Minutes of the 3rd GST Council Meeting held on 18-19 October 2016
3rd GST Council Meeting Dated:- 19-10-2016 GST Council – Minutes
GST
Minutes of the 3rd GST Council Meeting held on 18-19 October 2016
The third meeting of the GST Council (hereinafter referred to as 'the Council ') was held on 18-19 October 2016 at Vigyan Bhawan, New Delhi under the Chairpersonship of the Hon'ble Union Finance Minister, Shri Arun Jaitley. The list of the Hon'ble Members of the GST Council who attended the meeting is at Annexure 1. The list of officers of the Centre and the States who attended the meeting is at Annexure 2.
2. In his opening remarks, the Hon'ble Chairperson of the Council welcomed all the members and noted the good progress made in the earlier meetings where several important issues had been decided. He emphasized the need to arrive at a consensus on each issue even if it needed discussion and re-discussion on the same issue.
3. The following seven agenda p
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ms
Agenda Item 1: Confirmation of the Minutes of the 2nd GST Council Meeting held on 30th September, 2016
4. The members suggested the following amendments to the draft minutes of the 2nd meeting of the Council-
i. The Hon'ble Minister from Maharashtra stated that in paragraph 29 (iii), a reference also needed to be made to deferral schemes, which was agreed to by the Council.
ii. The Hon'ble Minister from Punjab observed that in the 2nd line of paragraph 5, after “ITC reversals”, 'ITC adjustments' also needed to be included. The Secretary to the Council clarified that the bracketed text in the first line indicated both ITC reversals and adjustments and therefore, reversals also covered adjustments. It was agreed that no change was required in the draft minutes.
iii. The Hon'ble Minister from Punjab pointed out that in paragraph 21 (i), while referring to adoption of the draft minutes of the 1 st meeting of the GST Council, the words 'monthly or bimonthl
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whether compensation would be given in advance. The Secretary to the Council clarified that compensation could not be given in advance as calculating the same would be difficult.
iv. The Hon'ble Deputy Chief Minister of Gujarat stated that the first sentence in paragraph 26 should be changed to read as follows – “The Hon'ble Deputy Chief Minister of Gujarat alluded to examine possible legal complications.” It was agreed to make this change.
v. The Hon'ble Minister from Bihar pointed out that in paragraph 21 (iv), there was a reference to examination of certain issues by a committee of officers but no such committee was formed. The Secretary to the Council clarified that in order to save time, instead of constituting a committee, he had called a meeting of state government officers from all States who were willing to participate on 8 October 2016 and had discussed the relevant issues threadbare.
vi. The Hon'ble Minister from Tamil Nadu suggested that the last sent
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h was not part of the devolution and the States would also need to correspondingly reimburse such units out of the share of revenue received through devolution.” The Secretary to the Council clarified that the sentence could not be deleted as it was only a record of what the Hon'ble Chairperson had stated. The Officer from Uttarakhand pointed out that his state would get only 2%-3% of the devolution amount and the rest of the amount would be distributed between other States. The Hon'ble Chairperson had stated that the Centre would be able to reimburse only 58% of the tax collected as the other 42% would be devolved to the States and the States would need to take a decision regarding reimbursement from the States' budget.
5. In view of the above discussions, for Agenda item 1, the Council decided to adopt the draft minutes of the 2nd meeting of the GST Council with the following changes-
i. To replace the existing sentence in paragraph 29 (iii) with the following – “In ca
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below Rs. 1.5 crores and in his understanding, the agreement was that Service Tax assessees with turnover above Rs. 1.5 crores would be administered jointly by the Centre and the States”
Agenda Item 2: Modalities for compensation to the states for possible revenue loss
6. On this agenda item, two issues were discussed namely –
i. Definition of the term “Revenue” (outstanding issue from 2nd GSTC Meeting).
ll. The formula for calculating the projected growth rate for compensation.
Shri Udai Singh Kumawat, Joint Secretary, Department of Revenue made a presentation on both the above issues. The first issue considered was whether Input Tax Credit (IT C) reversals should be included in the definition of the term 'Revenue'. The Council was informed that in the meeting of State Government Officers on 8 October 2016 under the Chairpersonship of the Revenue Secretary, a broad consensus was arrived at to include ITC reversals in the definition of “revenue subsumed” for the calcula
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ncentive, the same would have to be provided through the budgetary route. JS (Revenue) further mentioned that in the meeting held with the State Government officers on 8 October 2016, the Central Government had clarified that the revenue earned by the State Governments after the withdrawal of exemption should be taken into account for calculation of compensation to States as otherwise the States shall have an incentive to continue with the exemptions with the burden being borne by the Central Government for a scheme which is distortionary in nature.
8. The Hon'ble Minister from Jammu & Kashmir stated that the issue regarding inclusion of exemptions in calculation of revenue collected under GST had two aspects, one for the preGST period and the other for the post-GST period. He stated that for the pre-GST period, some States had incentivized their industry through the budgetary route and for such States, the tax collected under the incentive scheme would be added to the revenue of
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India. The action was in consonance with GST. As the State compensated the revenue to the Local bodies, the amount of compensation paid should be considered for the purpose of revenue collected by the State for year 2015-16. Similarly, his State stood to lose Rs. 700 crores due to abolition of Sugarcane Purchase Tax. He stated that his State should not suffer any loss on this count and taxes on account of octroi, Local Body Tax and Sugarcane Purchase Tax should be included in the definition of revenue.
11. The Hon'ble Deputy Chief Minister of Gujarat stated that in the Empowered Committee meeting of the Finance Ministers of the States at Bhubaneswar in 2013, it was decided that Government of India would give compensation to States for loss of CST for delayed implementation of GST. The loss of revenue on account of CST was to the tune of Rs. 10,000 to Rs. 12,000 crores. The Hon'ble Minister from Bihar stated that consuming States should not bear the burden of CST compensation.
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cess being collected under Entry 50 of List II of Schedule 7 of the Constitution.
12. The Hon'ble Minister from Tamil Nadu supported the suggestion of calculating revenue for compensation taking the CST rate at 4%. He further stated that the definition of 'revenue' should include grants-in-aid and the amounts devolved to States. He also suggested that the definition of 'revenue' should not include revenue from petroleum products till such time as it was kept out of GST. The Hon'ble Minister from Jammu & Kashmir also supported the calculation of CST at the rate of 4% in the definition of revenue.
13. The Hon'ble Minister from Chhattisgarh stated that the definition of revenue should include revenue collected and revenue receivable. He pointed out that there were several cases pending in Courts on which there was a stay and in case there was a favourable decision of Courts at a subsequent date and revenue came to the State on this account, it should be added
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. He also pointed out that Maharashtra accounted for 21% of the share of manufacturing in the country and once exemption/deferral schemes were gone, the revenue accruing to the States would become high and hence, the compensation figure would go down. He suggested the following definition of revenue for the purpose of Goods and Services Tax (Compensation for Loss of Revenue) Bill, 2016 – “Revenue collected for a State shall mean all gross revenues subsumed on account of amendments to entries or as the case may be deletion of entries, made in the State list by the Constitution (One hundred and first amendment) Act, 2016 and revenue collected by the State under any Act passed by the Centre shall be considered for the purpose of calculating compensation irrespective whether they get credited to Consolidated fund of the State or not.Explanation: For the purpose of calculating revenue under Central Sales Tax Act 1956 revenue shall be equal to twice the amount of tax added by Input Tax Credi
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that in the 2013 Bhubaneswar meeting, the States had unanimously recommended full compensation on CST and it was immaterial whether or not the Central Government had agreed to this recommendation. He also observed that there were pending cases in the Courts in relation to entry tax and if the State Government concerned won the case, it should be added to the definition of revenue and if it lost the case, then a provision be made in the budget of the State to pay the refund. The Hon'ble Minister from Haryana observed that they were likely to get revenue in the next year from some tax compliance schemes of works contract tax and it should be accounted for in the definition of revenue. The Hon'ble Minister from Jammu & Kashmir stated that gross tax collection meant tax collected plus the cost of collection. He observed that the Finance Commission also followed this principle and exemptions, etc. were not part of the concept of gross tax collection.
16. The Hon'ble Deputy Chie
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lation of revenue base for compensation. The Hon'ble Minister from Tamil Nadu added that all the exemptions taken together would not add to more than Rs. one lakh crores to the projected collection of GST. The Hon'ble Minister from U.P. observed that the .figure would be lesser than Rs. one lakh crores. The officer from Uttarakhand suggested that, for the Special Category States, the definition of revenue should include the exemptions of indirect taxes given by the State Government and the Central Government, in the revenue calculation of the base year 2015-16. The Secretary to the Council informed that gross revenue foregone for the Central Government was very high. He further informed that the difference in tariff rate and the effective rate in Central Excise was treated as revenue foregone. The Hon'ble Chairperson observed that if revenue foregone on account of incentives under VAT, Service Tax and the difference between the tariff rate and the effective rate of Central
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ould lead to differences in figures from State to State. As regards CST compensation raised by the Hon'ble Minister from Gujarat and others, he stated that though the States had recommended compensation for CST beyond 2012-13 or to raise CST to 4% in the 2013 Bhubaneswar meeting of the Empowered Committee of State Finance Ministers, the Government of India at no stage agreed to these recommendations. It would not be possible for the Central Government to pay CST compensation for an additional 4 years, as the financial burden would be unsustainable. He also pointed out that if in the compensation formula, CST was to be taken at the rate of 4%, this would mean provisioning for an additional amount of Rs. 56,000 crores towards compensation and this would lead to a higher tax rate in GST than the presently proposed 6%, 12%, 18% and 26%. He also pointed out that it would not be correct to infer that losses were continuing due to CST at 2% because the State Governments had used other mea
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safeguard that rather than inflating the base by calculating what the Centre ought to have done. He stated that a notional approach would increase the burden of taxation on citizens in 2017 -18. The Hon'ble Minister from West Bengal stated that the Central Government had earlier given compensation for CST on a notional basis. The Secretary to the Council pointed out that at the presently proposed rates, there was already a shortfall of Rs. 40,000 crores in meeting the target of revenue collection in GST for 2016-17 and there would hardly be any avenue to collect an additional amount of Rs. 56,000 crores, if CST compensation was calculated at the notional rate of 4% instead of the actual rate of2%.
20. The Hon'ble Minister from Jammu & Kashmir observed that development of the hill states was in the interest of the overall economic development of the country. The amount of revenue was small – in the range of Rs. 1,200-1,300 crores and for these States, the amount of exemption sh
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ld not be applied to the Special Category States. He added that Special Category States were regarded as a distinct identity for which both the Centre and the States had exempted taxes. The Hon'ble Chief Minister of Puducherry stated that his state should also be considered for this benefit along with the Special Category States. The Hon'ble Chairperson stated that this could be discussed separately.
21. In view of the above discussion, the Council unanimously agreed that for the eleven Special Category States referred to in Article 279A of the Constitution, the revenue foregone on account of exemption of taxes granted by States shall be counted towards the definition of revenue for the base year 2015-16.
22. On the issue of including other elements in the definition of 'revenue' namely, CST at the rate of 4%, gross collection of taxes and revenue receivable on account of disputes pending in Courts, the Hon'ble Chairperson pointed out that Clause 18 of the Constit
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ntral Government to one particular formula and that it had earlier calculated notional loss in one year. The Hon'ble Chairperson stated that citizens could not be compelled to pay more tax than what was provided for in the Constitution. The Hon'ble Minister from Bihar supported this interpretation.
24. The Hon'ble Minister from Karnataka stated that lowering of CST was linked to non-implementation of GST and therefore, loss was on account of GST. The Hon'ble Chairperson stated that loss in anticipation of GST was different from loss on account of implementation of GST.
Formula for calculating the projected growth rate for compensation
25. The next issue discussed was the possible formula for projection of revenue growth. In the presentation by Shri Udai Singh Kumawat, Joint Secretary, Department of Revenue, it was highlighted that some States had proposed the formula to be average of revenue growth rate of the best three years out of the preceding five years from the
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rate of the States for five years preceding the base year or the nominal GDP growth rate, whichever was higher. The Hon'ble Minister from Tamil Nadu observed that the options regarding outliers and best 3 out of 5 years were quite close and therefore, the latter should not be rejected. He also suggested to keep the minimum growth rate at 12%. The Hon'ble Minister from Kerala observed that the proposed formula of nominal GDP growth rate of the country was not acceptable as revenue outcome of GDP growth rate was based on efficiency of collection. He supported the proposal of the Hon'ble Minister from Tamil Nadu. The Hon'ble Minister from Jammu & Kashmir observed that in calculation of GDP, the basket of goods deflated had several errors and therefore, GDP growth should not be considered for projected growth rate.
27. The Hon'ble Chairperson stated that the period subsequent to the implementation of VAT, i.e. 2007-09, was a boom period marked by high growth and high i
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that national GDP growth rate was a poor reflector of States' growth rates. He further stated that no cross-sectional regression analysis was done before suggesting projected growth rate to be equivalent to the nominal GDP growth rate of the country. He suggested taking the best 3 growth rates out of the previous 5 years growth rate. The Hon'ble Minister from Uttar Pradesh stated that the option suggested by West Bengal could be considered or, in the alternative, to take the average of the growth rate of 5 years to calculate the projected revenue growth. The Hon'ble Minister from Karnataka supported this proposal. The Hon'ble Deputy Chief Minister of Gujarat and the Hon'ble Minister from Odisha supported the proposal to take the average of the best 3 of the preceding 5 years' growth rates. The Hon'ble Minister from Meghalaya stated that if the average growth rate of the last 3 years was taken, his state stood to lose considerably as there was only 2% rate o
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th rate was not a realistic figure. The average all-India growth rate during the last 3 years was 10.6% which was closer to reality. He further pointed out that the average growth rate of the past 5 years was 14.2% and the projected nominal GDP growth rate in the next 5 years was 12%-13%. If the growth rate was considered on the basis of removing 2 outliers and taking the remaining 3 years, it worked out to 13% which would be burdensome for the Central Government but would still be bearable.
31. The Hon 'ble Minister from Uttar Pradesh suggested to adopt a secular rate of 14%-15%. The Hon'ble Minister from lharkhand suggested a secular rate of 14.5%. The Hon'ble Ministers from Punjab and Haryana suggested a secular rate of 12%-13%. The Hon'ble Minister from Kerala opposed this suggestion. The Hon'ble Minister from Karnataka stated that the approach of 'one size fits all' was not correct as there were huge variations in the growth rates of different States.
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of reasons other than implementation of GST like drought, flood, social disturbances, etc. and a mechanism could be worked out to limit the compensation to loss of revenue suffered only on account of implementation of GST. The Hon'ble Minister from Karnataka stated that, on the lines of the Hon'ble Union Finance Minister's argument that compensating for the loss arising out of reduction of CST would not be as per the Constitutional mandate as enshrined in the Constitutional Amendment, even compensating on the basis of a flat projected revenue growth rate of 14% went against the Constitutional mandate. It did not really compensate the States that have witnessed average revenue growth of more than 14% in past five years, from the loss of revenue due to introduction of GST. He argued that the States should be compensated in accordance with their past revenue performance to honour the spirit of the Constitutional provision.
33. The Hon'ble Chairperson brought to the notice
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be 14%. The Hon'ble Minister from Assam also supported this suggestion. The Hon'ble Minister from Gujarat presented 2 options – first to calculate CST revenue at the rate of 4% and a 13% fixed annual growth rate or to calculate CST revenue at the rate of 2% and a 14% fixed annual growth rate. In a spirit of compromise, the Hon'ble Chairperson accepted the suggestion of calculating CST revenue at the rate of 2% and to a fixed annual growth rate of 14%. The Council reached a unanimous agreement on this proposal.
34. In respect of Agenda item 2, the Council decided as follows –
i. ITC reversals shall be included in the definition of 'revenue subsumed' for the base year 2015-16 for the calculation of compensation to the States for any loss of revenue owing to the implementation of GST for five years.
ii. Such revenues of States that did not go to the Consolidated Fund of the States but were directly devolved to 'mandi' or municipalities would also be inclu
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the suggestion. Shri Udai Singh Kumawat, Joint Secretary, Department of Revenue made a presentation on this item. In the presentation, it was clarified that the present discussion was limited to consider the possible GST rate structure and the rate of tax for individual items would be worked out subsequently by a group of officers of the Centre and the States. The presentation highlighted that the rate structure under the GST regime was worked out after taking into account the Central and State taxes subsumed under GST which are as follows –
* Central taxes subsumed under GST
a. Central Excise Duty;
b. Service Tax;
c. Countervailing Duty (CVD);
d. Special Additional Duty of Customs(SAD);
e. Cesses and surcharges in so far as they relate to supply of goods and services subsumed under GST.
* State taxes subsumed under GST
a. VAT/SalesTax;
b. Central Sales Tax (levied by the Centre and collected by the States);
c. Entry tax (all forms);
d. Taxes on luxury, entertain
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. In the presentation, it was pointed out that for 2015-16, the Central revenue to be protected was Rs. 4.42 lakh crores and for States, was Rs. 4.40 lakh crores. The individual break-up of Central and State taxes was also shared in the presentation. It was stated that the revenue collection for States might change because revenue from petroleum products had also been included by some States. The principles on the basis of which the proposed GST rate structure was worked out was elucidated and these included: (i) proposed rate slabs should be closest to the present combined tax incidence of Excise and VAT (including cascading); (ii) protecting existing revenues of Centre and States; (iii) impact on inflation i.e., on items in the Consumer Price Index (CPI) basket is minimal; (iv) proposed GST rate structure should not be regressive in nature; (v) items of mass consumption should not be taxed at higher rate; (vi) revenue for compensation should be raised through cess. On this basis, the
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re on the CPI basket of 300 items would be (-)0.06%. Based on the above, the estimated revenue collection under GST was indicated to be Rs. 8.39 lakh crores as against the projected revenue requirement ofRs. 8.82 lakh crores which did not include compensation requirements. In this regard, it was clarified that Table 11 of the agenda note was revised through a corrigendum as the original figure of expected tax collection under GST indicated as Rs. 8.72 lakh crores was due to a mistaken calculation for Standard Rate 2 at the rate of 20% instead of 18%. The revised Table 11 of the note for agenda item 4 reads as below-
Table 11(R1): Estimated revenue collection with proposed GST rate structure
(in Lakh crore Rs.)
Rate
Rate of tax
Tax base
Tax collected
% of Tax Base
(a) Lower rate
6%
3.66
0.22
7.08%
(b) Standard rate 1
12%
14.66
1.76
28.30%
(c) Standard rate 2
18%
5.50 (Goods)
10.60 (Services
0.99
1.91
2.90
31.30%
(d) Higher rate
26%
12.83
3.34
24.80%
Total
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r the break-up given in the table below-
Raising Revenue for Compensation
Category of item
Taxable Base
(Rs. in Crores)
Estimated Revenue
fRs. in Crores)
Cess on items presently taxed at rates higher than 26%
* Pan Masala
* Aerated waters
* Luxury Motor vehicles
93,500
13,090
Cess on tobacco
12,314
Clean environment cess (estimated in 2016-17)
26,148
Total
51,552
39. After the presentation, the Hon'ble Members gave their views on the proposed GST Rate Structure. The Hon'ble Deputy Chief Minister of Delhi stated that the weight of items under Cl'I was very important as in GST, there should be no increase in the price of basic necessities of food, shelter and clothing. The Hon'ble Minister from Tamil Nadu expressed that it might not be necessary that the taxpayer would pass the reduced incidence of tax under GST to the consumers by reducing the price. He also pointed out that rates of tax were different for branded and unbran
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omic Advisor to the Government of India. The Joint Secretary, Department of Revenue further clarified that the tax base for 2015-16 was taken as Rs. 51.76 lakh crores. He further stated that the calculation ofNIPFP's tax base was for the year 2013- 14 and that the tax base calculation in the CEA's report was Rs. 44.24 lakh crores after excluding the efficiency gains calculation and that they have revised this base to Rs. 51.76 lakh crores on the basis of certain detailed calculations. He also pointed out that Service Tax base was common in the report of NIPFP and CEA. The Hon'ble Minister from Tamil Nadu enquired whether the tax base had also taken into account the collection efficiency. The Chief Economic Advisor clarified that the tax collection figure was based on actual collection efficiency of States. The Secretary to the Council stated that if one considered an efficiency gain of 2% in GST, this would lead to an additional gain of taxable base of Rs. one lakh crores.
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that cess was a better mechanism for compensation instead of additional tax. He explained that for raising additional Rs. 50,000 crores for compensation through tax route, the amount of CGST required to be raised would be around Rs. 86,000 crores as 42% of CGST collection would be devolved to the States. As corresponding SGST rate would also go up, the total additional tax burden on the citizens would come to Rs. 1.72 lakh crores. This would also lead to additional gain to all States, whereas only few States would need compensation. He further stated that whatever balance of the collected cess was left in the Compensation Fund at the end of the five years would be devolved to the States.
42. The Hon'ble Minister from Odisha stated that GST was meant to reduce multiple taxes and therefore, he did not support the proposal to introduce cess and to continue with Clean Environment Cess, NCCD, etc. He also raised a doubt whether the Constitution permitted imposition of cess under GST.
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merit goods after five years. The Hon'ble Minister from Karnataka stated that in such a case, there should be a super slab rate of tax for such goods.
44. The Hon'ble Minister from Tamil Nadu observed that if there was an increase by 1% of tax in the 26% slab, then extra revenue collection would be roughly about Rs. 12.84 thousand crores and thus if a higher tax rate of 40% was kept, an extra revenue of Rs. 1.79 lakh crores could be collected. The Hon'ble Chairperson stated that all items presently taxed at 26% could not be taxed at the rate of 40% as many of them were consumed by the middle class. The Hon'ble Minister from Puducherry suggested to examine whether cess was legally allowed to be imposed and if so, States should also be allowed to levy cess. The Hon'ble Minister from Rajasthan mentioned that levy of cess for purposes of compensation was not desirable; instead he felt that a separate higher rate of tax of more than 50% should be imposed on demerit good
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the Fund.
45. The Hon'ble Minister from U.P. stated that if cess was collected by the Central Government, citizens of his State would have to pay cess whereas his State might not require compensation. He stated that in principle, cess be allowed to be collected by all States especially in case of natural disasters. He also suggested to impose higher tax on luxury goods. The Hon 'ble Chairperson clarified that the Constitution permitted States to impose additional tax in case of natural disasters on the recommendation of the GST Council. The Hon'ble Minister from Punjab observed that the States losing revenue after GST implementation would need to be compensated from a common kitty and all States should also bear this burden. He observed that mechanism for compensation should not be dependent upon the CFl as the manner of devolution could change. He stated that the broad principle to be followed was that no State should stand to lose in GST regime.
46. The Hon'ble Mini
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ue.
47. The Hon'ble Minister from Andhra Pradesh also stated that the VAT compensation should come from the CFl and that in GST, earlier there was no proposal for levying cess. He did not support the suggestion of levying cess and creation of Compensation Fund. He suggested that compensation for GST should come from the CFI.
48. The Hon'ble Minister from Haryana stated that the idea of levying additional cess by States was a good idea as it provided for assured compensation. He stated that imposition of cess could be reviewed in the light of yearly revenue collection and if compensation was not needed, cess could be subsumed in tax. He supported the idea of a higher slab of tax rate for super luxury items and observed that goods for the consumption for lower middle classes should be kept in the lower rate. The Hon 'ble Minister from Uttarakhand also supported the demand that States should have the power to levy cess and the demerit/luxury goods should be charged to a high
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not be made to pay very high taxes. He suggested to keep taxes on luxury goods at the current levels. He also supported the idea of raising resources for compensation by imposing a surcharge on Income tax and Corporate tax.
50. The Hon'ble Minister from Chhattisgarh observed that there was no Constitutional provision to levy cess after the amendment of Article 271 of the Constitution and imposition of cess could become unconstitutional leading to uncertainty in regard to compensation. He also observed that the general expectation of the public was that GST rate would not be more than 18% and a tax rate of 26% could dampen the general enthusiasm for GST. He also observed that goods like ceiling fan, soap, bulb were not luxury items and therefore should not be kept in the 26% rate bracket. He suggested to remove the 26% rate, keep the highest rate at 18% and to introduce a rate of 40% only for some items as proposed by the Chief Economic Advisor. For raising compensation amount, he
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es in GST. The Hon'ble Minister from Tamil Nadu supported the suggestion of the Hon'ble Minister of Kerala to impose cess on direct taxes to raise resources for compensation as the Corporates stood to gain from introduction of GST. The Hon'ble Chairperson observed that reduction in rate of direct tax was a major part of 1991 reform process. He observed that Corporate tax in India should be competitive within the Asian region (such as China, Thailand, Malaysia and Indonesia) so that investment and jobs in India were protected.
52. The Hon'ble Minister from West Bengal stated that the sense of the House was that cess must not have a place in GST. He observed that to collect cess from some States and to give it to some other States was a form of cross-subsidy which had several distortions. He suggested certain alternatives to raise money for GST compensation like increasing the tax base of income tax by redeploying officers from indirect tax to Income tax or to levy addit
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herefore, it would not be fair for the beneficiaries to state that their taxpayers should not be touched at all. He also reminded that not only 42% of the Centre's collection went to the States but from the balance 58% also, a large part of money went to States through Central Government sponsored schemes. He also reminded the House of the Centre's larger responsibilities like maintaining the army, funding the functioning of the Central Government, etc. He mentioned that CFI was already getting reduced by Rs. 5 lakh crores every year and borrowing from outside at high rate of interest was not a viable option. He also pointed out that compensation was only for a few years and therefore, it was a smaller issue and the bigger issue was the rate structure in GST. He observed that the main stakeholder of the tax reform was the tax payers and one had to be cautious as to how much of tax burden should be put on them. The Hon 'ble Minister from Kerala observed that States wer
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arbitrage. The cost for the reform should come from the Central Government's share, whether from Direct taxes or from some other source. The Commissioner of Commercial Tax, Gujarat pointed out that if States were not allowed to levy higher tax on tobacco, pan masala, etc. they would annually lose revenue to the tune of Rs. 2500 crores. The Hon'ble Chairperson observed that if tax rate was kept very high, it led to increased smuggling and in India the two most smuggled items were gold and cigarettes due to high tax rates on them. The Chairman CBEC affirmed the large incidence of smuggling of cigarettes and informed that about 100 containers of cigarettes were seized last year. The Hon'ble Minister from D.P. reminded that rate of tax on gold was also being doubled to 4%. The Chairperson observed that the rate of VAT on gold in most States and that of Central Excise was 1 % and Kerala was the only exception with a rate of 5%. He expressed the hope that in GST regime there wou
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lar. Further, the States which were gainers in the GST would stand to gain even more and the Centre would additionally lose 42% through devolution. At the same time, Centre would have to compensate the losing States while the States gaining additional revenue will keep it with them.
57. The Hon'ble Minister from Punjab stated that due to lower GST rates, States would suffer double loss: one foregoing revenue' and second a lower devolution from the Finance Commission. The Hon'ble Minister from Kerala emphasized that he had not accepted the suggested GST rate of 26% as it was too low. The Chairperson stated that the 26% slab would cover those goods that were presently attracting a combined Central and State tax rate of 27% which would come to about 30% after adding certain other additional State taxes like octroi, entry tax, etc. He stated that tax on luxury and sin product could possibly be higher as suggested by Gujarat. He reminded the House that during the Parliamentary
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rs as to whether cess could be Constitutionally levied. The Hon'ble Chairperson stated that one interpretation could be that the Central Government shall have power to levy cess under Article 246 read with Entry 97 of List I of Schedule 7 of the Constitution, as this was being levied before Constitution (One hundred and first Amendment) Act. He added that under Article 271 of the Constitution, power to levy surcharge on GST was restricted after the aforesaid Constitutional amendment but not the power to levy cess. He stated that this view would need to be confirmed from the Law Ministry. The Hon'ble Minister from West Bengal cautioned that this could be challenged in a Court of Law. He further added that under Article 270 of the Constitution, cess could be levied for a specific purpose and he wondered how the purpose of cess would be justified. The Hon'ble Chairperson clarified that the Clean Environment Cess was a carbon tax to discourage use of coal and the money so colle
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ed that Clean Environment Cess was Centre's fund which it was surrendering in favour of States and it would not be proper to ask for 50% of its share for the States. The Hon'ble Minister from Kerala stated that other than environment and tobacco cess which was collected by the Centre, levy of no other Central cess was acceptable. He also suggested first agreeing upon the GST tax rate and then examining the rate structure for cess. He stated that additional Rs. 7000 crores should be mobilized by Centre from its own resources. The Hon'ble Minister from Punjab suggested that this amount could be split between Centre and States, and Centre could raise additional amount of Rs. 3500 crore for GST compensation.
60. The Hon'ble Chairperson stated that the amount collected by way of Clean Environment Cess (approximately Rs. 26000 crores) and cess on tobacco (approximately Rs. 12000 crores) were presently being collected by Union of India and therefore, this could be used for fu
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o towards cess. He stated that this issue would need to be examined at the officers' level before a final decision was taken on the subject.
61. In view of the above, it was agreed to defer a decision regarding the method of compensating States for GST losses for the next meeting to permit the officers to examine this issue further. It was also agreed to defer further discussion on the proposed bands of GST rates for the next Council meeting.
62. In respect of Agenda item 4, the Council decided as follows –
(i) to defer a decision regarding the method of compensating States for losses due to implementation of GST for the next meeting and to allow further examination of the same at officers' level;
(ii) to defer further discussion on the proposed bands of GST rates for the next Council meeting.
Agenda item: 3 Provision for Cross-Empowerment to ensure Single Interface under GST (outstanding issue from 1st and 2nd GSTC Meeting)
63. Under this agenda item, the following iss
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23 September 2016, this issue was discussed and a broad framework was arrived at but in the 2nd Council meeting on 30 September 2016, differences emerged on the interpretation of the details of this framework. As these differences were persistent, the Council directed that a team of officers should discuss this issue to suggest possible solutions. These issues were discussed in a meeting of officers on 8 October 2016 in New Delhi chaired by the Revenue Secretary. In this meeting five options were discussed to achieve single interface and these were presented before the Council. These five options were as follows:
Option I- Pure turnover based division where taxpayers below Rs. 1.5 crore turnover should be administered only by States and taxpayers above Rs. 1.5 crore turnover should be administered only by the Centre. However, this was not acceptable to States as bulk of revenue comes from taxpayers with turnover above Rs. 1.5 crore
Option II- Turnover-based decision with overlap wher
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s and services and also created jurisdictional problems for those suppliers who had a substantial mix of supply of both goods and services.
Option IV – Cross-empowerment with division for specific functions in which it was envisaged to divide taxpayers only where human interface was required like audit, return scrutiny etc. as most of the other functions would be automated. It envisaged to cap audit to 5% of the total number of taxpayers. Under this option, every year, both the Central and the State officials in each State shall prepare a list of taxpayers for audit on the basis of risk parameters and then distribute such taxpayers between the two administrations either through a Protocol or on random basis. It also proposed stability in division for the purposes of audit for three years. It also envisaged that if required for other administrative purposes, the taxpayers could be allocated between Central and State administrations through State level Committees.
Option V – Complete v
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nted out that this arrangement lent greater clarity in respect to jurisdiction.
66. The first presentation also dwelt on the issue of administration of Integrated Goods and Services Tax (IGST) and information based enforcement action. In respect of IGST, it was pointed out that it was a Central levy and that Article 269A of the Constitution provided that IGST shall be levied and collected by the Government of India. However, in order to achieve single interface, it was proposed that States should conduct audit or enforcement action for interstate supplies but subsequent legal action like issue of show cause notice/adjudication/appeal, etc. shall remain with the officers of the Centre. It was stated that this arrangement would avoid any potential conflict of interest between two States. On the subject of information based enforcement action, it was proposed that officers of the Centre and States shall act independently on the basis of intelligence. Initiation of action by one authority
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igh lighted that in a year, not more than 10% taxpayers interacted with the tax departments and that interaction was restricted by the administrative capacity of the tax department. It was also suggested that for seeking any administrative assistance, choice could be left to the taxpayer to visit the jurisdictional office of the State or Centre as per his convenience. It was explained that as GST systems stabilized, the requirement for visiting a tax officer would steadily decline. Some of the difficulties related to operation of Option V were also discussed. It was pointed out that it was difficult to arrive at an ideal and mutually acceptable ratio. In addition, the division itself could lead to inefficiencies and inconvenience, for example, taxpayers in areas where offices of a tax administration did not exist might get assigned to that tax administration. Further, certain nature of businesses that could be better administered by a tax administration might get assigned to the other
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out issuance of invoices, wrong availment of input tax credit, etc. where the issues would be exactly same as that in SGST ICGST and these could be brought under the cross-empowerment framework to prevent dual control in such cases and also to avoid the situation of divergent orders getting passed if handled by two separate officers. It was suggested that a small group of officers could look into the issues relating to administration of IGST. On the subject of information based enforcement action, it was suggested that both Centre and States be allowed to act independently irrespective of the model adopted. However, initiation of action by one authority should be intimated to the other authority through GSTN and the other authority should not initiate any enforcement action for a given period of time except for cases where concrete information was available and the action was authorised at a higher level.
69. The Hon'ble Minister from UP expressed that there was no merit in keepin
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ers below the turnover threshold of Rs. 1.5 crore was 56 lakh. After the decision of Rs. 20 lakh taxable threshold, 33 lakh taxpayers would go out of the tax net and that left 23 lakh taxpayers below the turnover of Rs. 1.5 crore. Out of this 23 lakh dealers, about 50% dealers carried out inter-State trade and would be registered both with the State and the Central tax authorities, which would be a figure of about 11 lakh taxpayers. He further added that above Rs. 1.5 crores threshold, there were 1 lakh taxpayers who were only retailers and thus Centre would have a net gain of 12 lakh new assessees in goods segment. He added that in the Service Tax, out of total tax base of 11 lakh, 92% were below 1.5 crores turnover which meant about 10.1 lakh assessees. After the agreement on taxable threshold limit of Rs. 20 lakhs, 9.2 lakh assessees would be out of the tax net and that left only 90 thousand asses sees below the turnover threshold ofRs. 1.5 crores. He added that this effectively lef
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uld need to be relooked as now revised figures have been received from Goods and Services Tax Network (GSTN). The Chairperson, CBEC informed that according to the latest data available with the GSTN received by them in course of PAN validation, the total number of registered VAT dealers, as on 31 December, 2015, was 81.38 lakhs. Shri Prakash Kumar, CEO GSTN explained that in many States, there was a difference in the number of registered dealers and active dealers. The total registered VAT dealers were 81.38 lakhs but total active dealers were 66.53 lakhs and the number of PAN verified dealers was even less (59 lakhs). Shri .Upender Gupta, Commissioner GST, CBEC, further clarified that in Service Tax, total taxpayer base was 38 lakhs, and out of this 26 lakhs were active taxpayers and PAN verified taxpayers were 21 lakhs. He stated that likely taxpayer base in GST would be 107 lakhs, and out of this States accounted for 67% of the taxpayer base and the Centre 33%. He stated that the sa
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vice tax return. He requested that the latest data be circulated to all Members for a proper analysis. The Hon'ble Chairperson directed that the available data should be shared with the States immediately and that the latest data regarding the taxpayer base should be sent to all States, at least two days before the next meeting of the Council so that no decisions were taken on erroneous premises. He further advised that the States which had not furnished the latest data to the GSTN, should furnish the same to the GSTN at the earliest.
72. In respect of agenda item 3, the Council decided the following:
(i) The issue of cross-empowerment for single interface be taken up for further discussion in the Council's next meeting.
(ii) The latest available data of the taxpayer base under VAT, Central Excise and Service Tax above and below the turnover of Rs. 1.5 crore and other relevant latest data may be shared with all the States.
Agenda Item 5: Delegation of powers to the Chairm
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committee of officers that was looking into GST Laws and Rules. He proposed that the same committee could be redesignated as the Technical Committee to look into GST Laws and Rules and to carry out other technical discussions. The Hon'ble Minister from U.P. stated that membership of the committee should be opened again so that if more States wanted to join, they could do so. The Hon'ble Chairperson observed that the existing committee should continue and if more States wanted a representation in this committee, they could register their request with the GST Council Secretariat. The Council approved this proposal. The Hon'ble Ministers of UP and Telangana requested to join the membership of this Committee.
74. In respect of Agenda Item 5, the Council decided the following:
The existing committee of officers constituted by the Empowered Committee to look into GST Laws and Rules shall be redesignated as the Technical Committee of officers of the Council to look into GST Laws
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nment
Shri Arun Jaitley
of India
Union Minister of Finance and
Corporate Affairs
2
Government
Shri Santosh Kumar Gangwar Union Minister of State for Finance
of India
3
Puducherry
Shri V Narayanasamy
Chief Minister
4
Arunachal
Shri Chowna Mein
Deputy Chief Minister
Pradesh
5
Goa
Shri Francis D'Souza
Deputy Chief Minister
6
Gujarat
Shri Nitinbhai Patel
7
Delhi
Shri Manish Sisodia
Deputy Chief Minister
Deputy Chief Minister
80
Andhra
Shri Yanamala
Pradesh
Ramakrishnudu
Minister of Finance and Planning,
Commercial taxes and Legislative
Affairs
Minister of Finance
9
Assam
10
Bihar
11
Chhattisgarh
12
Haryana
Shri Himanta Biswa Sarma
Shri Bijendra Prasad Yadav
Shri Amar Agrawal
Captain Abhimanyu Singh
13
Himachal
Shri Prakash Chaudhary
Minister for Commercial Taxes
Minister of Commercial Taxes
Minister for Excise and Taxation
Minister for Excise and Taxation
Pradesh
14
Jammu and Dr Haseeb A Drabu
Minister of Finance
Kashmir
15
Jh
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or HRD, Law &
Parliamentary Affairs
Minister for School Education &
Sports and Youth Welfare
Minister for Finance
Minister for Vocational Education
and Skill Development
Minister of Finance
Minister for Finance and Excise
O
JAYNA BOOK DEPOT
Estd. 1949
JAYNA
MINUTE BOOK
Annexure 2 (List of officers from the Centre and States)
Sl. No.
Organization
Name of Officer
Designation
1
Govt. of India
Shri Hasmukh Adhia
Revenue Secretary and ex-officio
Secretary to GST Council
2
Govt. of India Shri Arvind Subramanian
3
Govt. of India
Shri Najib Shah
4
Govt. of India
Shri Ram Tirath
5
Govt. of India Shri PK Mohanty
6
Govt. of India Shri B.N. Sharma
7
Govt. of India Shri Vivek Johri
Chief Economic Advisor
Chairman, CBEC
Member (GST), CBEC
Advisor (GST), CBEC
Additional Secretary, Department of
Revenue
Principal Commissioner, Customs, Delhi,
CBEC
8
Govt. of India
Shri Upender Gupta
Commissioner (GST), CBEC
9
Govt. of India
Shri Alok Shukla
Joint Se
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Arunachal
Ms. Ruchika Katyal
Special Secretary, Tax & Excise
Pradesh
25
Assam
26
Bihar
Shri Anurag Goel
Ms. Sujata Chaturvedi
27
Bihar
Shri Arun Kumar Mishra
28
Chattisgarh
Shri Amit Agrawal
29
Chattisgarh
Ms. Sangeetha P
30
Chattisgarh
Shri Khemraj Jhariya
Shri H. Rajesh Prasad
31
Delhi
32
Delhi
Shri C. Arvind
33
Goa
Shri Dipak Bandekar
34
Gujarat
Shri P.D. Vaghela
35
Gujarat
Ms. Mona Khandhar
36
Haryana
37
Haryana
Shri Shyamal Misra
Shri Hanuman Singh
38
Haryana
Shri Vidya Sagar
39
Himachal
Shri Pushpendra Rajput
Pradesh
40
Himachal
Shri Sanjay Bhardwaj
Pradesh
41
Jammu &
Kashmir
Shri Navin K. Choudhary
42
Jammu &
Shri P.I. Khateeb
Kashmir
43
Jammu &
Shri P.K. Bhat
Kashmir
44
Jharkhand
C
45
Jharkhand
46
Karnataka
Shri Ranjan Kumar Sinha
Shri Sanjay Kumar Prasad
Shri Ritvik Pandey
47
Kerala
Shri P. Marapandiyan
CHAIRMAN'S
INITIALS
Commissioner, Tax
Principal Secretary-cum-Commissioner,
Commercial Taxe
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sioner, Commercial Taxes
Pradesh
Singh
51
Madhya
Shri Sudip Gupta
Pradesh
52
Maharashtra
Shri D.K. Jain
53
Maharashtra
54
Maharashtra
55
Manipur
56
Meghalaya
Shri Rajendra Bhagat
Shri Praveen Kulkarni
Shri R.K. Khurkishor
Shri Abhishek Bhagotia
57
Meghalaya
Shri L. Khongsit
58
Mizoram
Shri K Sanglawma
59
Mizoram
Shri L.H. Rosanga
60
Nagaland
Shri Y. Mhathung Murry
Deputy Commissioner, Commercial Taxes
Additional Chief Secretary (Finance)
Deputy Secretary (Finance)
Deputy Commissioner, Commercial Taxes
Assistant Commissioner, Taxes
Commissioner, Taxes
Assistant Commissioner, Taxes
Commissioner, Taxes
Joint Commissioner, Taxes
Additional Commissioner, Taxes
61
Nagaland
Shri Wochamo Odyuo
Joint Commissioner, Taxes
62
Odisha
Shri Ashok K.K. Meena
63
Odisha
Shri Saswat Mishra
64
Odisha
Shri Sahadev Sahoo
65
Puducherry
Dr. V. Candavelou
66
Puducherry
Shri G. Srinivas
67
Punjab
Shri D.P. Reddy
68
Punjab
Shri Rajat Agarwal
69
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80
Tripura
Shri D. Bardhan
81
Uttar Pradesh
Shri Biresh Kumar
Uttar Pradesh
Shri Mukesh Kumar
Meshram
Special Chief Secretary
Commissioner, Commercial Taxes
Joint Commissioner, Policy
Commissioner, Taxes
Principal Secretary (Commercial Tax)
Commissioner, Commercial Taxes
Special Secretary
Additional Commissioner, Law
Secretary (Finance)
Commissioner, Taxes
Uttar Pradesh
Uttar Pradesh
82
Uttarakhand
Shri S.C. Dwivedi
Shri Vivek Kumar
Shri Amit Singh Negi
83
Uttarakhand
Shri Ranveer Singh
Chauhan
84
Uttarakhand
Shri Piyush Kumar
Tax
Additional Commissioner, Commercial
88
Uttarakhand
Shri Kamal Kishore
Kafaltiya
PA to Finance Minister
89
West Bengal
Shri HK Dwivedi
90
West Bengal
Ms. Smaraki Mahapatra
91
West Bengal
Shri Khalid A Anwar
Principal Secretary, Finance
Commissioner, Commercial Tax
Senior Joint Commissioner, Commercial
Tax
92
92
GSTN
Shri Prakash Kumar
Chief Executive Officer
Page 44 of 44
Circular, Trade Notice, P
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