Minutes of the 4th GST Council Meeting held on 3-4 November 2016
4th GST Council Meeting Dated:- 4-11-2016 GST Council – Minutes
GST
Minutes of the 4th GST Council Meeting held on 3-4 November 2016
The fourth meeting of the GST Council (hereinafter referred to as 'the Council ') was held on 3-4 November 2016 in the Parliament House Annexe, 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 that the earlier meetings had been fruitful but some agenda items from the 3rd Council Meeting were left for consideration. He noted that these agenda items as also the other outstanding work of the Council could be moved forward in the next few
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Minister from Maharashtra stated that the existing paragraph 10 of the minutes should be replaced by the following-
'The Hon'ble Minister from Maharashtra stated that apart from Rs. 7,000 crores that his State stood to lose due to subsuming octroi in GST, they would also lose another Rs. 7,000 crores due to removal of Local Body Tax from 1st August 2015 at the instance of the Hon'ble Prime Minister of 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.' It was agreed to by the Council to replace the version of the
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last five years or average growth rate of last fi ve years may be considered. ' It was agreed to by the Council to replace the version of the Hon'ble Minister's statement recorded in paragraphs 44 and 31 of the draft Minutes with the formulation as proposed above. Furthermore, it was also suggested to add the following words before the last sentence of paragraph 60: “The option of having cess in principle was closed and.” This suggestion was not agreed to as this paragraph related to the Chairperson's remarks and he had made no such observation as suggested in the above formulation.
iii. The Hon'ble Minister from Karnataka suggested to add the following in either paragraph 31 or 32 of the minutes: “The Hon'ble Minister from Kamataka 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 Ame
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paragraph 34 recorded the decision of the Council and the suggestion made by the Hon'ble Minister from Odisha could not be added there. However, it could be added as the view of the Hon' ble Minister of Odisha if a suitable formulation was given in writing by the State. In pursuance of this, a written formulation was received from the Government of Odisha to record the following in Para 13 of the draft Minutes: 'The Hon'ble Minister from Odisha stated that many States were awaiting the verdict of the Hon'ble Supreme Court on the Constitutional validity of the Entry Tax Acts of the States. If the verdict went in favour of States, the Entry Tax for the base year 2015-16, which would be collected later, following the favourable judgement, should be considered in the definition of 'Revenue'.
v. The Officer from Uttarakhand stated that in paragraph 21, it should be recorded that the exemption of taxes given by the Central Government should also be counted towa
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for Agenda item 1, the Council decided to adopt the draft minutes of the 3rd meeting of the Council with the following changes-
I. To replace the version of the Hon'ble Minister of Maharashtra's statement recorded in paragraph 10 of the draft Minutes with the following: 'The Hon'ble Minister from Maharashtra stated that apart from Rs. 7,000 crores that his State stood to lose due to subsuming octroi in GST, they would also lose another Rs. 7,000 crores due to removal of Local Body Tax from 1 sl August 2015 at the instance of the Hon'ble Prime Minister of 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,
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39;
iv. To add the following in either paragraph 31 or 32 of the minutes: '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. '
v. To add the following in paragraph 13: 'The Hon'ble Minister from Odisha stated that many States were awaiting the verdict of the Hon'ble Supreme Court on the Constitutional
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omain.
Agenda Item 2: Presentation by the Goods and Service Tax Network (GSTN) on the status of development of GST Portal, Data migrationlEnrolment plan, Risk factors and mitigation plan
7. On this agenda item, a presentation was made by Shri Navin Kumar, Chairman, GSTN along with Shri Prakash Kumar, Chief Executive Officer (CEO), GSTN. The presentation broadly covered the status of development of the Information Technology (IT) systems for GST, provided an update on data migration/enrolment and on risk factors and mitigation plan. As regards the IT system, it was informed that MIS Infosys Technologies was selected as the Managed Service Provider (MSP) for GSTN in September 2015 and their scope of work included application, design and development; one-time taxpayer data porting; IT infrastructure procurement, supply, installation and information security; Data Centre (DC) and Disaster Recovery (DR); Hosting Services; Helpdesk and Training. The presentation gave an update of the GST s
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2 January 2017 to 15 February 2017. On migration of existing taxpayers, the Council was informed that all those whose PAN had been verified would be migrated in GST regime. It was further informed that GSTN would be providing to States material like provisional ids and passwords, instruction manual, draft of advertisements, jingles, Computer Based Training Material (CBT) on how to enroll etc. It was further informed that the States might be required to issue a notification under Value Added Tax (VAT) asking taxpayers to provide data for enrolment. The need for quick availability of GST rules relating to Input Tax Credit (lTC), Transitional Provisions, Advance Ruling, Appeal, e- Transit Pass and Composition was highlighted during presentation. While narrating the risk factors, it was pointed out that finalization of the Model GST Law by the end of November 2016 was necessary to allow time for incorporating all changes in the GST system being developed on Model GST Act. It was also point
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as well. The Chairman, GSTN clarified that the helpdesk was being operated from a centralized location in Gurugram in English and Hindi and the States were to run their own helpdesk centres in regional languages. He also added that GSTN would assist the States by providing training materials and content for knowledge management (KM) tool, which the States could get translated into local languages. The Hon'ble Minister from Jammu & Kashmir expressed that GST Helpdesk and the State run helpdesks could use common content while being located at two different places. The Secretary to the Council clarified that a centralized call centre would not be able to cope with the workload for the whole country and that local call centres would need to be developed in regional languages. The Hon'ble Minister from West Bengal observed that it was important to have software handshake between the call centre of the States and that of the GSTN so that there was adequate linkage to GSTN's data
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as attended by the officers of the North Eastern States, BSNL and the Department of Telecommunications (DoT). The Dot and BSNL officials promised to look into the problem of connectivity in NE-States. The Hon'ble Minister from Delhi suggested that there should be an offline application for enrolment and it was informed by CEO, GSTN that the same would be ready by the end of November 2016. The Hon'ble Minister from Jammu & Kashmir observed that the DR site should be in two different cities. It was clarified that the DC was located in Delhi while the DR site was in Bengaluru. The Hon'ble Minister from Tamil Nadu expressed that Beta testing should be done before GST rollout. The CEO, GSTN clarified that Beta testing was not being done with the public on account of paucity of time. However, test as mandated in the contract would be carried out. The Hon'ble Minister from Tamil Nadu also enquired regarding the alignment of back end system of 25 States/Union Territories and it
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h at present cumulatively attracted a duty of 27% (VAT 14.5% and Central Excise duty 12.5%) in addition to the cascading effect and the effect of the Central Sales Tax (CST). He also recalled the suggestion to have a cess to meet the compensation requirement of the States. He clarified that if the estimated compensation requirement of Rs. 50,000 crores was to be raised through the tax route in GST, an additional Rs. 1.72 lakh crores of tax would be required to be levied, as only 29% of the tax collected under GST accrued to the Central Government. He stated that it was desirable that no extra tax burden be put on the common people under GST. He further mentioned that today only few items were being taxed at a rate between 35% to 65% or more and all these items could not be put in a slab of 40%. He informed that internationally, the practice was to keep alcohol, cigarette and petroleum products out of GST tax structure. He suggested to collect a cess and put it in a different kitty for
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expenditure of the Central and the State Governments was increasing and for this, funds are to be generated from taxes. He suggested to tax luxury goods at a rate higher than 26%. He also cautioned that tax on poor should not be so low that revenue generation was adversely affected. He suggested that the proposed 26% rate could be made 28% and 6% rate could be increased to 8%. He also noted that the tax structure should not be very rigid and a holistic view was needed. The Hon'ble Chairperson observed that GST would have some natural advantages such as a single national market, seamless movement of trucks at State borders and elimination of cascading of tax through a seamless flow of input tax credit. He also pointed out that for compensation, a growth rate of 14% had been assumed and overall tax collection might grow at a lower rate. He also pointed to the danger of higher rate of tax leading to greater evasion as seen from the example of high duties of Customs on gold and cigaret
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visor. He questioned the logic of taxing the poor at a higher rate by increasing the existing VAT rate of 5% to a GST rate of 6% while reducing the existing combined tax rate of 28% to 26%. He suggested that the lower band of tax rate should be 5% and the upper band rate should be 40%. He observed that the 40% band rate could cover demerit goods, sin goods, luxury goods and fat goods. He also suggested that in the 28% or 40% rate, the States should have a band of rates to choose from. He also suggested that the Council needed to discuss the split up of rates between the Centre and the States and suggested that it should be in proportion of the revenues of the Centre and the States being collected today. The Hon'ble Chairperson observed that the goods covered in the tax bracket of 26%-28% also included items like refrigerators and televisions which were today also consumed by the lower middle classes and taxes on them could not be raised to 40%.
13. The Hon'ble Minister from Ja
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proposal of raising the 6% rate band to 8%. He observed that a large number of commodities attracted V AT at the rate of 5%. He also suggested that the items which presently attracted Nil rate of Central Excise or Service tax but State VAT should not be taken to the 12% band. He noted that there was a lot of concern at the proposal to tax gold at 4% and he suggested that it should be reduced to 2%. The Hon'ble Minister from Bihar suggested that the higher rate of tax should be kept at 30% and luxury items should be taxed at 40%. The Hon'ble Chairperson stated that if evasion could be checked by having moderate rates of GST, this would also positively impact Direct Tax collection as more transactions would get accounted in the books of account.
15. The Hon'ble Deputy Chief Minister of Gujarat suggested to keep tax on diamonds at the rate of 0%, keeping in view the fact that it accounted for export turnover of Rs. 2 lakh crore, provided employment to a large number of people
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pensation for five years was not desirable. He suggested that instead of deciding the special rate after five years, a special rate of tax for demerit goods may be decided at present only. The Hon'ble Chairperson stated that the GST Council should not only have the ownership of fixing compensation but also the ownership of raising compensation.
16. The Hon'ble Minister from Punjab expressed his agreement to the suggested slab of tax rates. However, he added that the principle of fixing tax rate based on the existing bands of taxation should be operated as a principle and not as a rigid rule. The Hon'ble Chairperson agreed that while fixing rates of tax on individual goods, the evolution of the economy and the existing distortions needed to be kept in mind. On the suggestion of having a higher slab rate of 40%, he reiterated that if GST rate was higher, the compensation kitty would be lower. He observed that at this stage, a rate of 26% could be adopted but after five years
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ng compensation from the slab rates. He also observed that all goods presently in the slab of 26% could not be moved to the slab of 40% and creation of one more slab would cause loss of public support. He also agreed with the observation of the Hon'ble Minister from Jammu & Kashmir that if Centre's finances were squeezed, it could adversely affect funding of the Centrally Sponsored Schemes. He also suggested that cess could be continued beyond five years and its proceeds could be shared between the Centre and the States and that this could solve multiple challenges. The Hon'ble Chairperson observed that while some developed countries had two rates in GST other than the exempt category, several other developed countries had multiple rate structure. He observed that in the Indian context, a two band rate would lead to either a steep increase or a sharp reduction in the tax incidence, and both were not desirable.
17. The Hon'ble Minister from Kerala stated that he strongl
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was 2% (1 % VAT and 1 % Central Excise) and increasing the rate to 4% would generate negative feelings in the country. He also observed that a lower rate of tax on gold would encourage compliance and would cater to the concerns of the common man. The Hon'ble Chairperson observed that in the gold sector, the problem was not so much regarding levy of tax but regarding problems of inspection and maintenance of books and accounts. He observed that if tax on gold was to be reduced, some other goods would need to bear this tax burden. The Hon'ble Minister from West Bengal further observed that increasing the existing tax rate of 5% to 6% would adversely affect items like cotton, edible oil, newsprint, spices of all varieties, vegetable oil, micro nutrients, bio fertilizers, etc. He therefore supported the view of the Hon'ble Minister of Kerala that the existing rate of 5% under VAT should be retained instead of raising it to 6%. In respect of goods falling under 26% bracket, he s
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ed to have a rate of 40% tax on luxury cars and aerated drinks. Summing up his proposal, he said that there should be five rates of 0% for food grains, 5%, 12%, 18%, 28% and 40% and the officers should fit the goods into the slabs of 12% and 18% taking into account the inflationary impact. He observed that some logical adjustments could also be done for goods falling in the slab of 28%. He stated that after the officers had carried out this exercise, it should be brought back to the Council for consideration. On gold and diamond, he stated that a view could be taken later on. He further observed that the average combined rate of tax on tobacco was in the range of 60%-65% and the House needed to take a call whether taxation on it should be kept separate from compensation and further whether a tax in addition to 40% should be imposed on it, and if so, at what rate. He added that tobacco was truly a sin good which adversely affected the lungs of the human beings. The Secretary to the Coun
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ed slab of 26% could be increased to 28%; the proposed slab on gold could be reduced from 4% to 2% and whether a new slab of 40% could be introduced. Post lunch, the Secretary to the Council briefed the Hon'ble Ministers on certain factual aspects the emerged from the officers' discussion. He stated that tax base for proposed 6% slab was estimated to be Rs. 3.661akh crores and reducing it to 5% is expected to lead to a revenue loss of around Rs. 3,700 crores. Tax base for 26% slab was estimated to be Rs. 12.83 lakh crores and increasing it to 28% is expected to lead to an additional revenue of around Rs. 25,600 crores. Reducing tax on gold from 4% to 2% would lead to an estimated revenue loss of around Rs. 9,000 crores and if it was reduced to 3%, the estimated revenue loss is expected to be around Rs. 4,500 crores. For aerated drinks, luxury cars and pan masala the total taxable base was estimated to be about Rs. 95,000 crores and the proposed additional 12% over the 28% would
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t cess was to be raised only for a few States who needed compensation and any residual amount after five years would be shared with the States. He added that the Council could take a decision based on the facts as presented.
20. The Hon'ble Deputy Chief Minister of Gujarat suggested that a slab rate of 40% should be made part of GST tax rate instead of a cess. The Hon'ble Minister from Maharashtra supported this suggestion. The Hon'ble Minister from Tamil Nadu suggested that tax on gold should be reduced from 4% but the Hon'ble Minister from Bihar and Assam opposed this proposal. The Hon'ble Chairperson stated that cess could have a sunset clause and the Council could thereafter decide the GST rate on goods attracting cess. The Hon'ble Minister from Kerala supported the proposal to exempt food grains from tax and to reduce the proposed 6% slab to 5% but suggested that gold should be kept at 4%. He observed that gold was used for consumption as well as for inves
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e was needed for welfare measures and he noted that many other commodities were taxed at a rate closer to 40%.
21. The Hon'ble Minister from Tamil Nadu stated that as Service tax was proposed to be raised from 15% to 18%, on goods side, duties could be reduced on a significant number of commodities. Gold could be one of them as mangalsutra had important cultural and emotional aspect in his State. He observed that gold was not a pure luxury good and 60% of the bottom part of the population also bought gold. He also added that if luxury goods were brought into the demerit rate, the manufacturing States would stand to gain .. The Hon'ble Chairperson stated that many goods presently in the tax bracket of 26%-28% like soap, oil, television, cheaper mobile sets etc. were used by common people and a choice would have be to be made whether duty on such goods or on gold should be reduced. He observed that another option regarding gold was to reduce duty of customs on gold on which the
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bserved that over five years, the 40% tax structure could disappear. He stated that exempted category of goods should be avoided. He further suggested to work out average weighted GST rate after fixing the incidence of tax on each item. He also suggested that over a period of time, there should be a move towards a three rate structure. The Hon'ble Minister from Telangana suggested that the tax rate for gold could be decided later after working out the loss due to 0% tax for goods used by the poorer sections and 18% tax for goods used by the common people. He suggested to retain the proposed 26% slab and to apply cess on top of that. The Hon'ble Minister from Tamil Nadu suggested that gold and diamond should be treated on the same footing as like the diamond craftsmen in Gujarat, there was a Viswakarma community for gold spread over a wider area of the country.
23. Summing up the discussion, the Hon'ble Chairperson suggested the following bands of rates under GST: One categ
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ld also examine as to what items presently attracting combined tax rate of28% could be put into 18% slab. He also added that for luxury goods, the present incidence of taxation would be maintained. He further added that the rate of tax on gold could be kept open till the completion of the fitment exercise of goods into bands of 12% and 18% by the officers and reporting back to the Council.
24. In reference to the summing up by the Hon'ble Chairperson, the Hon'ble Minister from West Bengal suggested that the GST rate of 40% could be kept for luxury cars, pan masala and aerated drinks and for tobacco, there could be a GST rate of 40% plus cess. He observed that by this rate structure, all States would get revenue and Centre would also get revenue for compensation. He advised not to be too sensitive about the world opinion as they were democratically elected representatives by the people of India, and in any case, India was a very attractive market. The Hon'ble Chairperson st
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t the present collection from the Clean Environment Cess at the rate of Rs. 400 per metric ton on coal, lignite and peat might not be sustainable for five years if the international prices of coal increased in future. The Hon 'ble Minister from Assam stated that smaller States often depended upon devolution of fund from the Centre to meet their financial deficit and therefore Centre's tax collection needed to be robust. He added that the Hon'ble Chairperson had made a fair proposal of sunset clause for cess and the GST Council would decide the sharing of the surplus amount in the compensation fund. He also reminded that taking the tax and cess together, the consumer was not paying anything less than the existing tax rate. He also reminded that States had got a 14% assured revenue growth for five years. Keeping these facts in mind, he urged to accept the proposal of the Hon'ble Chairperson.
25. The Hon'ble Minister from Kerala observed that the financial struc
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five years with an assured 14% revenue growth, this issue need not be discussed much. The Hon'ble Minister from Tamil Nadu stated that they did not want dependency on compensation as they had to survive on their own after five years. The Hon'ble Minister from Odisha and Tamil Nadu also supported the proposal of keeping a GST rate slab of 40%. The Hon'ble Chairperson stated that if compensation was funded from GST, it would not lead to additional tax burden on people. The Hon'ble Minister from Jammu & Kashmir disagreed and stated that it would constitute an additional burden as the incidence of taxation would have been lower without an additional cess. The Hon'ble Minister from West Bengal added that there was higher burden as no input tax credit was available on cess. The Hon'ble Minister from Punjab stated that the Central Government needed to have a cushion if compensation burden on the Centre went beyond Rs. 55,000 crores during the next year, which could oc
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food grains being tax exempt was not the same as being zero rated. He added that as per the present policy, there was no zero rating for any commodity except when they were exported or supplied to a Special Economic Zone (SEZ). The Hon'ble Minister from Bihar stated that the thrust ofthe suggestion was that there should be no additional burden on the farmers. The Hon'ble Ministers from Andhra Pradesh and West Bengal also stated that basically there should be no tax on agriculture produce. The Hon'ble Minister from Meghalaya supported the suggestion of the Hon'ble Minister from Punjab and stated that while fixing tax on different commodities, farmers should be given special attention.
28. The Hon'ble Minister from Punjab suggested that the surplus amount left in the Compensation Fund at the end of the five year compensation period should be shared in the proportion of the contribution of cess by the States in the Compensation Fund, as this would be linked to the co
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tax rate of Central Excise and V AT (including cascading on account of these two taxes) between 3% and less than 9%. Such goods are normally consumed by the vulnerable sections of the society or have high impact on inflation.
(iii) There shall be a standard tax rate of 12% and would generally cover goods which presently attract combined tax rate of Central Excise and VAT (including cascading on account of these two taxes) between 9% and less than 15%.
(iv) There shall be another standard tax rate of 18% and would generally cover goods which presently attract combined tax rate of Central Excise and VAT between 15% and less than 21 % (including cascading on account of these two taxes)
(v) There shall be a higher band of tax rate of28% and would generally cover goods which presently attract combined tax rate of Central Excise and V AT equal to or more than 21 % (including cascading on account of these two taxes).
(vi) Supply of services shall generally be taxed at the rate of 18%
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(xii) Any residual amount left in the Compensation Fund after the five year compensation period shall be shared in the ratio of 50% each for the Central Government and the State Governments. In the 50% share of the States, the amount shall be distributed to the individual States based on their share of all-India collection of SGST.
(xiii) There shall be a review every year by the Council to examine if, based on the need for compensation, cesses levied for compensation purpose could be subsumed into the GST tax net. Similarly, additional cesses can be imposed by the Council to meet the requirement of compensation.
(xiv) A Committee of officers of the Central Government and the State Governments shall carry out an exercise of fitment of goods in the various slab rates, namely exempted category, lower rate, the two standard rates and the higher rate on the basis of the principles enumerated at serial number (i) to (v) above, which are indicative in nature and are not fixed rules. Whi
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ice of the Members that the GSTN had earlier shared data of the existing taxpayers under VAT, Central Excise and Service tax as on 01.01.2016 and in the 3rd GST Council meeting held on 18-19 October 2016, the States were requested to send updated data upto 31 August 2016. He informed that while 19 States had sent updated data, the data from other States was only upto 1 st January 2016. He further informed that turnover wise segmented data of the taxpayers and the tax paid was available from 14 States and that there was a mismatch in the number of total taxpayers as given in this data when compared to the earlier data given by the States to the GSTN. Therefore, there was a need to match these two data sets. He recalled that in the last meeting of the Council, five options were placed before the Council to achieve single interface under GST and out of these, the first three options stood eliminated on account of various considerations like unacceptability to either the Central Government
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might not be relevant to provide for a system where the taxpayer has to be looked after by a particular tax jurisdiction.
31. Initiating the discussion, the Hon'ble Minister from Tamil Nadu stated that earlier the Option II (all taxpayers below a turnover of Rs. 1.5 crores to be administered by State administration and to follow cross empowerment model of Option N for taxpayers above the turnover of Rs. 1.5 crores) was eliminated due to the logic of a large number of taxpayers going into the jurisdiction of the State tax administration. He stated that the veracity regarding the number of taxpayers needed to be tested due to fundamental difference in the numbers presented by the Hon'bJe Minister from West Bengal and the Central administration. He therefore suggested that Option II should also remain on the table. The Hon'ble Minister from Andhra Pradesh supported Option II. He added that the cap of 5% audit suggested in Option N was acceptable and that the selection of 5% f
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ve Rs. 1.5 crore turnover could be administered on the basis of crossempowerment with a 5% cap on audit. He stated that by following this approach, taxpayers accounting for only 7.3% of revenue shall be below Rs. 1.5 crores and taxpayers accounting for 92.7% of revenue would be administered under cross-empowerment model. The Hon'ble Chief Minister from Puducherry supported Option II for taxpayers below Rs. 1.5 crore turnover and for taxpayers above Rs. 1.5 crore turnover, he proposed an equal division between the Central and the State tax administrations. He stated that there should be a via media under which neither the Centre nor the State should suffer. The Hon'ble Minister from Bihar suggested that for three years, retailers of goods should be with the State administration and service providers and manufacturers should be with the Central administration. This arrangement could be reviewed after three years.
33. The Hon'ble Minister from Telangana supported Option II fo
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III was decided upon. However, keeping in view the difficulties expressed in distinguishing between supplies of goods and services and the apprehensions of the small taxpayers, he suggested that for 3 years, Option III could be adopted with the modification that the three categories of taxpayers dealing both in goods and services, namely works contractors, restaurants and hotels could be administered by the State Governments. The Chairman CBEC stated that the Central Government's suggestion to adopt Option IV needed to be viewed in a broader context. He pointed out that registrations were to be done by G'S'TN and all registrations were deemed to be done within three working days and were sent to the respective States. Similarly payments were done on the G'S'I'N and it went to the . respective States. The GSrn also handled the front-end process for return including throwing up mismatches for the input tax credit claims. He emphasized that as the basic processes w
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e been filed in Tuticorin or Haldia and then, if needed, an alert was sent to Tuticorin or Haldia. The Hon'ble Chairperson observed that in the GST system, all returns would land in GSTN where analysis would be by computers and suspicious returns would be thrown up for scrutiny. He observed that out of total 1 crore taxpayers, only about 5 lakh taxpayers would require scrutiny and the issue to be examined was how work would be divided for these 5 lakh taxpayers. He observed that due to use of Information Technology, work would get reduced for both the Central and the State administrations and that he had received a suggestion that in the long run, there should be convergence of Services by creating a GST cadre of officers. However, till such a thing happened, one needed to look at ways to carry out a division of work in such a way that services of both the Central and the State officers could be utilised optimally.
35. The Hon'ble Minister from Tamil Nadu observed that the own
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Rs. 1.5 crore, whereas the State tax administration was dealing with small retailers. In Service tax, the Central administration was dealing with all taxpayers above the turnover threshold of Rs. 10 lakhs, He stated that the formulation for single interface in the 1 st GST Council meeting was made keeping these realities into account. However, given the objections raised by the Hon'ble Minister from West Bengal and the problems of lack of distinction between goods and services for certain sectors like works contracts and restaurants, one option could be to consider the proposal made by the Hon'ble Minister from Chhattisgarh. He also shared the apprehensions expressed to him by large service tax taxpayers regarding the inadequate capacity of the State tax administrations in the area of service tax and their unease in getting their returns assessed by them. He suggested that keeping these aspects in mind, an optimally acceptable solution needed to be worked out while the entire a
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d their own system of giving identity to goods and migrating this to the Harmonised System of Nomenclature (HSN) would be a huge challenge. He added that identity alignment of goods could not be done centrally and manufacturers in small sector would require a sense of ownership from the State tax department. The Hon'ble Minister from West Bengal observed that all major Banks as also eighteen telecom companies were registered with the State tax administration in his State for various activities like building telecom towers, obtaining way bills, disposing scrap etc. The Hon'ble Chairperson observed that these activities related to goods and He suggested that keeping these aspects in mind, an optimally acceptable solution needed to be worked out while the entire assessment process could converge eventually. service tax assessment was altogether a different matter.
37. The Hon'ble Finance Minister from West Bengal reminded that the States had ceded control over retailers above
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stration of a taxpayer was automatic, co-location was important to ensure raising of demand where tax was not paid. The Hon'ble Minister from Telangana also supported the proposal to allow taxpayers below the turnover ofRs. 1.5 crore to be administered by States.
38. There was a discussion on the number of taxpayer base. Shri Upender Gupta, Commissioner, GST, CBEC stated that the total PAN matched taxpayer base which would be migrated to GST was .around 117 lakhs. He further mentioned that GSTN had informed that out of 117 lakh taxpayer presently registered Central Excise, Service Tax and V AT, PAN had been verified in case of 93 lakh taxpayers and all these 93 lakh taxpayers would be migrated in GST and GSTIN would be provided on a provisional basis. He requested that decision about taxpayers might be taken on this basis. The Hon'ble Deputy Chief Minister from Gujarat observed that the numbers would go down if one took into account the revised taxable threshold of turno
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Minister from Maharashtra supported this proposal and suggested to make a committee of officers to examine this issue further and to also hear the stakeholders in the matter. The Hon'ble Chairperson observed that every argument had a basis but the issue would need to be now decided politically. He observed that while there might be corresponding pressure from the tax administrations of the Central and the State Governments to retain the maximum number of taxpayers, the basic point to be kept in mind was that resources of the Centre and the States must be used optimally to ensure that everyone had optimum work.
39. The Hon'ble Minister from Tamil Nadu raised a different issue. He observed that if increasing the exemption threshold to Rs. 20 lakhs implied removing 70% of the taxpayer base, then the issue of threshold needed to be looked at afresh. The Secretary to the Council stated that there was not much revenue loss by raising the threshold from Rs. 10 lakhs to Rs. 20 lakhs.
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r from Telangana observed that the decision regarding exemption threshold of Rs. 20 lakhs was taken to take small taxpayers out of the tax base.
40. The Hon'ble Minister from Karnataka agreed with the earlier observation of the Hon'ble Minister from Jammu & Kashmir that this subject involved a fair bit of turf issue. He observed that as fairly large number of potential assessees were outside the tax net, the most important priority was to bring them into the tax net through enforcement action and for this, both administrations needed to work together to expand the taxpayer base. He observed that another priority for the administrations should be to reduce harassment and public interface which could be achieved by preventing a division of the taxpayers between the Central and the State tax administrations. He suggested taking a leap of faith and to cross-empower the Central and the State tax administrations across the supply chain. He stated that this would not lead to any loss
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than the Central officials. The Hon'ble Deputy Chief Minister of Delhi stated that eventually the tax administration of the Centre and the States needed to be converged. He also suggested to have a policy of deputation of officers between the Centre and the States and cautioned against the decision becoming a victim of the number of people employed in the tax administrations of the Centre and the States. The Hon'ble Minister from Kerala stated that he was taken aback at the debate and wondered why a compromise could not be reached on this issue when the same could be reached on a more important issue of tax rates. He urged the Hon'ble Chairperson not to be influenced by the Central bureaucracy and to go by his earlier decision of accepting a horizontal division of taxpayers. The Hon'ble Chairperson observed that the horizontal division did not have adequacy of numbers in respect of both the administrations. He further observed that the States' bureaucracy was also
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ions.
43. The House felt that to take a decision in this matter, more data was required and that it could be shared after the lunch break. Post lunch break, the Secretary to the Council shared some relevant data with the House. He informed that the total number of existing taxpayers was around 93 lakhs, out of which VAT dealers were around 63 lakhs, Service Tax taxpayers were around 26 lakhs and Central Excise taxpayers were around 4 lakhs. He further informed that the total number of taxpayers with a turnover below Rs. 20 lakhs was around 54 lakhs and out of this, VAT dealers were around 36 lakhs, Service Tax taxpayers were around 17 lakhs and Central Excise assessees were around 1 lakh. He further stated that the total number of taxpayers below the turnover threshold ofRs. 1.5 crore was 79 lakhs and out of this, V AT dealers were around 54 lakhs (out of this, around 36 lakhs had a turnover below Rs. 20 lakhs), Service Tax taxpayers were around 23 lakhs (out of this, around 17 lakhs
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that based on the data shared by the Secretary to the Council, the proposed division of taxpayers was equitable on the basis of proportionality of the strength of the officers. The Hon'ble Deputy Chief Minister of Gujarat made an alternate suggestion that there should be no threshold ceiling of Rs. 1.5 crore and the taxpayers paying all three taxes could be divided in the ratio of two-third to the States and one-third to the Centre. The Hon'ble Minister from Kerala opposed this suggestion of vertical division. He observed that the Central tax administration did not have officers to reach tax payers at the taluka and the block level and the revenue paid by the taxpayers below Rs. 1.5 crore turnover was very small. The Hon'ble Minister from Telangana also supported this view and observed that the State officers were present in every nook and corner of the State and experienced officers could deal with large taxpayers. The Hon'ble Minister from Tamil Nadu also opposed the
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s on how to check tax evasion.
45. The Hon'ble Minister from Tamil Nadu suggested to revisit the taxable threshold for goods and services and take it back to Rs. 10 lakhs and then adopt Option II. The Hon'ble Minister from U.P, observed that the intention behind keeping taxpayers below Rs. 1.5 crore turnover with the States was hat such taxpayers were located in small cities and they could interact in the same language with the officers. The Hon'ble Chairperson stated that in a situation where 85% of taxpayers were below Rs, 1.5 crore turnover and 15% were above it, Option II would not lead to optimum sharing of work. The Hon'ble Minister from Punjab observed that in terms of revenue, both the Centre and the States collected 50% whereas the present taxpayer base with States was 65% and that with the Centre was 35%. Keeping this in view, he suggested to do a vertical division of taxpayers in the ratio of two-third for the States and one-third for the Centre. He su
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a need to look at the existing workforce and the possibility of redeploying one-third of the workforce of both the Central and the State tax administrations. However, subsequently he also observed that the entire taxpayer base might not shrink because dealers making inter-State supply would need to be registered irrespecti ve of the turnover threshold.
46. The Hon 'ble Minister from Chhattisgarh reiterated his proposal to go by the decision of the 1st meeting of the Council with the modification that the taxpayers in the sectors of hotel, restaurant and works contract should be with the States. The Hon 'ble Minister from Karnataka suggested to add Information Technology to this list as they also paid a big component of VAT. The Hon'ble Minister from Jammu & Kashmir suggested to go with the suggestion of the Hon'ble Minister from Tamil Nadu or have one-third/two-third division. He also suggested to start work on a federal tax bureaucracy. The Hon'ble Minister from
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sion for Cross-Empowerment to ensure Single Interface under GST and to meet informally on 20 November, 2016 to find a solution for this issue.
Agenda item 5: Date of the next meeting of the GST Council
49. The Chairperson informed that as the Model GST Law was not yet ready, the proposed meeting of the Council on 9-10 November, 2016 would not be held. Instead he proposed that the Council could meet on 24-25 November, 2016 from 3 PM to 8 PM on both days as this would give sufficient time to complete the work on Model GST Law and to present it for Council's consideration. The Council agreed to this suggestion.
50. The meeting ended with a vote of thanks to the Chair.
(Arun Jaitley)
Chairperson, GST Council
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Document 1
MINUTE BOOK
Annexure 1
(List of the Hon'ble Members of the GST Council who attended the 4th GST Council Meeting)
Centre/State/UT
Designation
S No.
Name of Minister
1
Government
of Shri Arun Jaitley
India
Union Minister of Finance and Corpor
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Agriculture
Minister of Finance
Minister of Finance
Minister of Taxation
18
Mizoram
Shri Lalsawta
19
Odisha
20
Puducherry
21
Punjab
22
Rajasthan
Shri Pradip Kumar Amat
Shri M.O.F.H. Shahjahan
Shri Parminder Singh Dhindsa
Shri Rajpal Singh Shekhawat
23
Sikkim
Shri R.B. Subba
24
Tamil Nadu
Shri K.Pandiarajan
Shri Etela Rajender
Shri Bhanu Lal Saha
Minister of Finance
Minister of Finance
Minister for Revenue
Minister of Finance
Minister for Local Self Government & Urban
Development
Minister for HRD, Law & Parliamentary
Affairs
Minister for School Education & Sports &
Youth Welfare
Minister of Finance
Minister of Finance
25
Telangana
26
Tripura
27
Uttar Pradesh
Shri Abhishek Mishra
Minister for Vocational Education and Skill
Development
28
West Bengal
Dr. Amit Mitra
Minister for Finance and Excise
CHAIRMAN'S
INITIALS
Page 26 of 29
JAYNA BOOK DEPOT
Estd. 1949
B
JAYNA
MINUTE BOOK
Annexure 2
(List of officers from the Centre and Sta
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T Council
Chairman, CBEC
Member (GST), CBEC
Additional Secretary, Department of
Revenue
Advisor (GST), CBEC
Principal Commissioner, Customs, Delhi,
CBEC
Commissioner (GST), CBEC
Joint Secretary (TRU), CBEC
Joint Secretary (TRU), CBEC
Joint Secretary, Department of Revenue
Additional Director General, Ministry of
Finance
Deputy Secretary, Department of Revenue
PS to MoS (Finance)
OSD to Finance Minister
Assistant Commissioner (GST), CBEC
Additional Secretary
Commissioner
Commissioner
Joint Commissioner
Joint Commissioner
Deputy Commissioner
Deputy Commissioner
23
GST Council
Ms. Thari Sitkil
24
GST Council
Shri Kaushik TG
25
Andhra Pradesh
26
Andhra Pradesh
Shri J. Syamala Rao
Shri T. Ramesh Babu
27
Andhra Pradesh
28
Arunachal Pradesh
Shri D. Venkateswara Rao
Dr. Brij Mohan Mishra
Deputy Commissioner
Assistant Commissioner
Commissioner, Commercial Tax
Additional Commissioner, Commercial Tax
OSD, Revenue
Secretary-cum-Commissioner, Tax & Ex
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njan Kumar Sinha
Shri Sanjay Kumar Prasad
Commissioner, Industry
Commissioner, Tax
Principal Secretary-cum-Commissioner,
Commercial Taxes
Additional Secretary, Commercial Taxes
Assistant Commissioner
Secretary, Finance & Commercial Tax
Commissioner, Commercial Taxes
Additional Commissioner, Commercial Taxes
Commissioner, VAT
Special Commissioner, Policy
Joint Commissioner, VAT
Commissioner, Commercial Tax
Commissioner, Commercial Tax
Secretary (Economic Affairs)
Additional Chief Secretary
Commissioner, Excise & Taxation
Joint Commissioner, Excise & Taxation
Additional Commissioner, Excise & Taxation
OSD to Excise & Taxation Minister
Finance Secretary
Commissioner, Commercial Taxes
Additional Commissioner, Commercial Taxes
(Tax Planning)
Joint Commissioner, Commercial Taxes
Deputy Commissioner, Commercial Taxes
Commissioner, Commercial Taxes
Additional Chief Secretary, Taxes
Commissioner, Commercial Taxes
Commissioner, Commercial Taxes
57
Madhya Pradesh
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nt Commissioner, Commercial Taxes
Commissioner, Commercial Taxes
Additional Chief Secretary (Taxation)
Excise & Taxation Commissioner
Assistant Commissioner
74
Rajasthan
Shri Prem Singh Mehra
Principal Secretary (Finance)
75
Rajasthan
Shri Praveen Gupta
76
Rajasthan
Shri Alok Gupta
77
Rajasthan
Shri Vinod Sharma
78
Rajasthan
Shri Dinesh Rakhecha
79
Sikkim
Ms. Dipa Basnet
80
Sikkim
Shri Manoj Rai
81
Tamil Nadu
82
Tamil Nadu
83
Telangana
84
Telangana
Shri Anil Kumar
Shri C. Chandramouli
Shri D. Soundararajapandian
Shri Ajay Mishra
Secretary (Finance)
Commissioner, Commercial Taxes
Additional Commissioner (GST), Commercial
Taxes
Assistant Commissioner (GST), Commercial
Taxes
Commissioner, Commercial Taxes
Joint Commissioner, Commercial Tax
Additional Chief Secretary, Commercial Taxes
Joint Commissioner, Taxation
Special Chief Secretary
Commissioner, Commercial Taxes
85
Telangana
Shri Laxminarayan Jannu
Joint Commissioner, Policy
86
T
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