Minutes of the 5th GST Council Meeting held on 2-3 December 2016
5th GST Council Meeting Dated:- 3-12-2016 GST Council – Minutes
GST
Minutes of the 5th GST Council Meeting held on 2-3 December 2016
The fifth meeting of the GST Council (hereinafter referred to as 'the Council') was held on 2-3 December 2016 in Pravasi Bharatiya Kendra, 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, the States, the GST Council and the GSTN 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 then took up the agenda items for discussion.
3. The following five agenda items were taken up for consideration:
i. Confirmation of the Minutes of the 4th GST Council Meeting held on 3-4 November, 2016.
ii. Approval of the
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rate on gold should be kept open and it could be considered after the completion of the rate fitment exercise. The Council agreed that no amendment was required in the Minutes on this issue.
ii. The officer from Odisha stated that in paragraph 33 of the Minutes, the version of the Hon'ble Minister from Odisha recorded therein should be replaced with the following – 'The Hon'ble Minister from Odisha supported Option II.'
iii. The Commissioner of Commercial Tax (CCT), Rajasthan stated that in paragraph 15 of the Minutes, the fourth sentence relating to the version of the Hon'ble Minister from Rajasthan recorded in the aforesaid paragraph should be replaced with the following version – 'He further stated that a special rate may be kept for demerit goods and that levying cess for generating revenue for compensation 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 ma
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ST Compensation Law
6. The Hon'ble Chairperson invited the members to commence discussion on this agenda item. However, a discussion ensued regarding the order of discussion between agenda items 2 and 3. The Hon'ble Ministers from Uttar Pradesh and Kerala suggested that agenda item 3 (Provision for Cross-Empowerment to ensure Single Interface under GST) be taken up first. The Hon'ble Chairperson stated that the Members needed to converge on a consensus on all issues. He observed that if a provision of law was linked to agenda item 3, then it could be decided along with the agenda item 3. The Hon'ble Chief Minister of Puducherry stated that it was important to get a clear picture in respect of agenda item 3 and then, it would be easier to decide on the law. The Hon'ble Minister from West Bengal strongly suggested to discuss agenda item 3 first as this had already been discussed in three meetings of the Council and in one informal meeting of the Members of the Counci
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le Chairperson emphasized that the officers had worked on the draft model laws and this needed to be discussed and provisions of law linked to agenda item 3 could be looked at separately. The Hon'ble Minister from Kerala observed that if States wanted agenda item 3 to be discussed before agenda item 2, it could be agreed upon, particularly when it was also discussed earlier in an informal meeting of the Council. The Hon'ble Deputy Chief Minister of Delhi observed that as 8 or 9 Members had requested to change the sequence of the agenda, this could be accepted. The Hon'ble Chairperson observed that the art of reaching consensus was to first take up issues that bind the Council rather than those that divide it. He also pointed out that there was no scope to defer implementation of GST beyond 16 September 2017 and that the Council needed to be mindful that the laws needed to be passed in the Parliament and the State Legislatures. He further observed that the laws needed to be
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as of agreement if the intention was to resolve issues. He observed that it was important to look at the larger picture and not to indulge in a political debate. He also observed that Jammu & Kashmir was the most empowered legislature in the country which also levied Service Tax but he was making an effort to implement GST in his State too. He further observed that approval of law was not contingent upon an agreement on the administrative arrangement.
9. The Hon'ble Minister from Kerala observed that after the Constitutional amendment, the States had lost the bargaining power and had been reduced to the level of a municipality but on the administrative issue, power at State level was very important and this could not be compromised. He observed that there was a history of discussion on cross-empowerment and the agenda should have followed that sequence. The Hon'ble Chairperson observed that rights of the Centre were contingent upon States' agreement and vice versa and in t
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agenda item 3. The Hon'ble Minister from Jammu & Kashmir wondered how the issue of cross-empowerment could help improve the status of State Governments, as the power of bureaucracy to administer a tax did not lead to improving the status of States. He added that it was collectively decided to share the power to tax. The Hon'ble Minister from Uttar Pradesh observed that agenda item 3 had implications on several provisions of law. He suggested to give a fixed time for discussion on cross-empowerment and if there was no agreement, then, the discussion could move to agenda item 2. The Hon'ble Chairperson proposed that the draft IGST Law and the agenda item 3 could be taken up together and before that, the draft Central GST/State GST Laws and the Compensation Law could be taken up for discussion. The Council agreed to this suggestion and thereafter, discussion on agenda item 2 was taken up.
Discussion on the Draft Model GST Law
11. Introducing the Draft Model GST Law, the Sec
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dia and the Constitution of Jammu & Kashmir. The Council agreed to this suggestion.
ii. Section 2 (7), 2 (8) and 2 (106) (Definitions): The Hon'ble Minister from Telangana suggested that the definition of agriculturist should not be limited to those who cultivate the land personally as small landholders might give their land to other ryots for cultivation. The Hon'ble Deputy Chief Minister of Delhi observed that tenancy was quite common in India and to make them taxable under GST would be a very big decision which needed to be discussed. The Hon'ble Minister from Uttar Pradesh suggested that the definition of 'agriculturist' should be a broad one. The Hon'ble Minister from Kamataka observed that while tenant farming was widespread, most States had laws against tenancy. He therefore posed a question whether tenancy could be legalized under the Model GST Law. The Hon'ble Chief Minister of Puducherry observed that share-cropping was prevalent in various State
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ide and informed that his State had sent a definition for 'agriculturist' which read as follows – 'means a person not being a company, a firm, a limited liability partnership, any body corporate incorporated by or under the laws of a country outside India, involved in the operations of agriculture, either
1. by one's own labour, or
2. by the labour of one's family, or
3. by servants on wages payable in cash or kind or by hired labour, or
4. through any usufructuary, mortgage or lease or otherwise.
He also suggested to delete the definition of the term 'to cultivate personally' contained in Section 2 (106). The Hon'ble Minister from Uttar Pradesh suggested to add pisciculture and animal husbandry in the definition of 'agriculture'. The Hon'ble Minister from Telangana suggested to keep poultry and dairy as part of the definition of agriculture. The Commissioner of Commercial Tax (hereinafter referred to as 'CCT'), Gujarat stat
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d, then the processed dairy products produced by an agriculturist would also be exempt. The Hon'ble Chief Minister of Puducherry observed that a very small percent of dairying, poultry farming, etc. was carried out by corporates and due to this, the entire sector should not be subject to tax. The CCT, Maharashtra stated that in his State there was no Value Added Tax 01 AT) on primary products, but processed goods like cheese, butter and ghee attracted VAT. The Hon'ble Deputy Chief Minister of Gujarat observed that milk cooperative was a big activity in Gujarat and the practice was to exempt the farmers bringing milk to the cooperative but to tax the subsequent value added products. The Hon'ble Minister from Kerala stated that raw agriculture products were not taxed and as there was an exemption threshold of Rs. 20 lakh, the existing provision was acceptable. The Hon'ble Minister from Haryana stated that 50% of agricultural activity was through share cropping and tenancy
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that the collection of minor forest produce should not be taxed. The Hon'ble Minister from Tamil Nadu suggested to exclude branded, processed and packaged items from the definition of agriculture. The Secretary explained that these categories would not come within the ambit of agriculture. The Hon'ble Minister from Tamil Nadu also suggested to add pisciculture in the definition of agriculture. The Hon'ble Minister from Telangana suggested that in section 2(7), nothing should be excluded from the definition of agriculture. The Hon'ble Deputy Chief Minister of Gujarat cautioned against changing the existing definition of agriculture as this would invite demand for agricultural subsidy from the hitherto excluded sectors. The Hon'ble Minister from Tripura suggested to include rubber plantations and tea in the definition of agriculture. The Hon'ble Minister from Meghalaya suggested to include apiculture (beekeeping) and piggery in the definition of 'agriculture&
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unt-
a) by one's own labour, or
b) by the labour of one's family, or
c) by servants on wages payable in cash or kind [(but not in crop share)] or by hired labour under one's personal supervision or the personal supervision of any member of one's family and to retain the Explanation 1 and 2 under Section 2 (106). However, the Council did not agree to the suggestion from the Hon'ble Minister from Punjab to add a sub-clause (d), namely, 'through any usufructuary, mortgage or lease or otherwise' and to include cooperative societies within the meaning of agriculturist.
iii. The Hon'ble Minister from Punjab suggested that the lease of agricultural land should be exempt from service tax. After discussion; the Council agreed that this would be considered at the time of discussing exemptions from GST.
iv. Section 2 (11) (Definitions): The Hon'ble Minister from Tamil Nadu suggested defining 'State' in the draft IGST Act. The officer from Andh
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est Bengal suggested that the definitions of 'intra-state supply of good;' and of 'intra-state supply of services' should be incorporated in the Model GST Law also instead of only cross-referencing it to the IGST Act. The Hon'ble Deputy Chief Minister of Delhi also supported this proposal. The Council agreed to this suggestion.
vii. Section 2 (63) (Definitions): The Hon'ble Minister from Tamil Nadu suggested that instead of cross-referencing the definition of 'manufacturer' from the Central Excise Act, 1944, the definition should be incorporated in the Model GST Law itself so that the definition in the Model GST Law did not change merely due to change in the definition in the Central Excise Act, 1944. The Hon'ble Deputy Chief Minister of Delhi also supported this proposal. The Council agreed to this suggestion.
viii. Section 3 (2) (Meaning and scope of supply): The Hon'ble Minister from West Bengal suggested that under Article 366 (29A) of th
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the revised version, it had been shifted to the draft IGST Act. He suggested that the definition of 'location of recipient of service' should also be incorporated in the Model GST Law. The Council agreed to this suggestion.
x. Section 7 (Powers of SGSTICGST officers under the Act): The Council agreed that this Section would be discussed later as it related to cross-empowerment.
xi. Section 8 (1) (Levy and Collection of CentraliSt ate Goods and Services Tax): The Hon'ble Minister from Kerala observed that as tax rates were not decided, a 14% cap on rate should not be kept. He further observed that after 5 years, once cess had ceased to exist, the tax rate would exceed 28% if cess was merged with tax. The Hon'ble Minister from Tamil Nadu suggested to keep the tax rate at 20%. The Secretary clarified that under Article 265 of the Constitution, no tax could be levied without the authority of law and therefore, a rate cap was required in the legislation. He further obse
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could be handled through audit or enforcement provisions. The CCT, Karnataka explained that as there were certain conditions that had to be fulfilled by a person opting for the Composition scheme, the provision for permission had been kept. After discussion, the Council agreed that this provision be amended and that the benefit of the Composition scheme shall be availed on the basis of declaration rather than permission, subject to the conditions precedent being fulfilled.
xiii. Section 9 (1) (b) (Composition Levy): The Hon'ble Deputy Chief Minister from Delhi expressed concern in regard to this provision and stated that any grocery store which was selling goods not leviable to tax under OST would get excluded from the benefit of the Composition scheme. The CCT, Gujarat clarified that this provision would only apply to stores selling the 5 petroleum products and potable alcohol which were excluded from GST and they would not be entitled to avail the benefit of the Composition sc
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r a change in its earlier decision. The Hon'ble Minister from Rajasthan observed that the threshold for Composition levy was too low which could be increased or CGST on supplies from small manufacturers could be reimbursed by the Central Government. The Secretary stated that the Central Government could decide separately regarding the issue of reimbursement of CGST to small manufacturers. The Hon'ble Minister from Tamil Nadu strongly argued for a Composition Scheme on the basis of the capacity of a unit instead of its turnover such as that for brick kilns. He observed that this would avoid the need for verification of turnover. The Secretary stated that it would be administratively difficult to fix capacities for different industries. The CCT, Karnataka explained that presently, the capacity based Composition scheme was available to different industries in different States (such as ply board in Haryana, marble in Rajasthan and brick kiln in Tamil Nadu) but in GST, there would b
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dated 22-23 September 2016 as per which manufacturers were not to be extended the benefit of the Composition scheme and agreed to extend the benefit to manufacturers also, subject to clause (e) of Section 9 (1) of the Model GST Law. The Council also agreed that such a scheme should be limited to turnover-based composition rather than capacity based composition.
xv. The Council also discussed the rate oftax under Section 9 (Composition Levy). The Hon'ble Minister from West Bengal observed that a combined tax rate of 5% on manufacturers under the Composition scheme would lead to loss of competitive advantage. The Secretary explained that the Composition scheme would normally be relevant to manufacturers making Business-to-Consumer (B2C) supplies where no input tax credit CITC) was involved. The Hon'ble Minister from Punjab suggested to levy a higher rate of GST for manufacturers as value addition for them would be higher. The Hon'ble Minister from Uttar Pradesh did not fav
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composition levy, manufacturers should be kept out of composition and the Centre should give them reimbursement of the CGST component. The Hon'ble Deputy Chief Minister of Gujarat stated that the benefit of lump sum tax should be limited to traders who were involved in resale and should not be extended to manufacturers. He suggested to consider one of the following two options: (i) Manufacturers should not be entitled to the benefit of lump sum tax; (ii) If it has to be given at all, it should be at the rate of 5% (2.5% CGST and 2.5% SGST) and that if the Government of India decided to extend relief, it should be given from its budgetary provision. The Hon'ble Minister from Tamil Nadu suggested that manufacturers should be levied a combined tax rate of 2% whereas traders should be levied a combined tax rate of 1 %. The Hon'ble Minister from Odisha suggested a combined tax rate of 2% for traders and 3% for manufacturers. The Hon'ble Minister from Assam suggested a combin
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GST) for manufacturers.
xvi. Section 9 (Composition Levy) and Section 8 (Levy and Collection of Central/State Goods and Services Tax): The Hon'ble Minister from West Bengal raised the issue whether tax on reverse charge basis should be levied on Composition dealers only. He added that as the provision was not envisaged for other classes of dealers, there would be no level playing field. The CCT, Gujarat suggested that levy of tax on reverse charge basis should be applied on all supplies from unregistered persons (which is otherwise chargeable to tax) as otherwise, it would create a non-level-playing field between unregistered persons and the registered taxpayers. He further added that without such a provision, it would be beneficial to buy goods from an unregistered person as no tax was paid at the time of receipt of goods even when incidence of tax had arisen. The Council accepted this suggestion and decided that there shall be a reverse charge on all commodities when supplied b
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ensured. However, after discussion, the Council agreed to make suitable modification in the wording of Section 11 to reflect the understanding that applicability of exemptions under CGST, SGST and IGST shall be uniform.
xviii. Section 12(2)(b) (Time of supply of goods): The Hon'ble Minster from West Bengal observed that there was presently no tax on advances received for sale of goods and that the terms of payment should not be made a point of taxation. The CCT, Gujarat explained that even today tax was collected on advances received for provision of services and to have parity, it was also applied to goods. The CCT, Karnataka added that for some goods, there was considerable gap of about 3-4 months between receipt of advance and delivery of goods and that the government should not be deprived of taxes for this period. The Hon'ble Minister from Telangana observed that tax on advances should not be charged as it would create complications in situations where the order of the b
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hall be fixed through this provision. The Secretary suggested to define the term 'voucher' in the Definitions section. The Council agreed to define the term 'voucher' in the Definitions section.
xx. Section 15 (Value of taxable supply): The Hon'ble Minister from West Bengal raised a question as to why the value of reimbursable supply was omitted in the new draft. The Commissioner (GST Policy Wing), CBEC clarified that this provision was covered under Section 15(2)( c) and that this would be supplemented by the Valuation Rules which would have elaborate provisions for situations not covered under the Section. The Hon'ble Minister from West Bengal observed that the principle applied in respect of reimbursable expenditure in Service Tax should be used in GST to which the Commissioner (GST Policy Wing), CBEC clarified that this would be addressed in the Valuation Rules. The Council agreed not to make any change in the provision.
xxi. Section 16(2) (Eligibility a
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ll be increased from three months to six months from the date of issuance of invoice.
xxii. Section 16(1) (Eligibility and conditions for taking input tax credit): The Hon'ble Minister from Tamil Nadu questioned the rationale for allowing deferred input tax credit for pipelines and telecommunication towers but not for other capital goods. The Secretary clarified that credit was being staggered for these two categories of capital goods in view of the large amounts of ITC involved. The Hon'ble Minister from Kamataka observed that no ITC was given on power transmission lines though GST could be levied on wheeling charges. The Chief Economic Advisor, Government of India suggested to levy a low rate of GST on electricity to allow the blocked ITC in the power sector to pass through and that this would address the problem of high cost of power generation. The Secretary clarified that electricity duty was in Schedule 7 of the Constitution (State List) and that the present value
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credit was spread over three years, it should not adversely impact the compensation to the States. The Chairman, CBEC informed that ITC on capital goods was high and it amounted to about Rs. 25,000 crore and out of this, pipelines and telecommunication towers accounted for about Rs. 10,000 crore. The Hon'ble Deputy Chief Minister of Gujarat observed that for the first five years of GST implementation, it would be beneficial for States if ITC on pipelines and telecommunication towers was given in the first year itself, but it would create problems for them after the expiry of the five-year compensation period. The Hon'ble Minister from Karnataka stated that telecommunication towers and pipelines were being extended the facility of ITC for the first time and if they were also allowed to take this credit in a single year, this would lead to a double bonanza for these two sectors, which should be avoided. The Hon'ble Minister from Uttar Pradesh reiterated that this provision s
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to one or more recipients of credit. The Commissioner (GST Policy Wing), CBEC explained the mechanism of an Input Service Distributor (ISD). The Hon'ble Minister from West Bengal observed that the wordings of Section 22 regarding recovery of excess distribution of credit to one or more recipients of credit could be made clearer. The Council agreed to this suggestion.
xxiv. Section 23 (Registration): The Hon'ble Minister from West Bengal observed that the progress of migration of taxpayers to GST was slow due to server errors and slow login process. He enquired as to what steps were being taken to rectify the situation. The Hon'ble Ministers from Chhattisgarh, Bihar and Jharkhand also expressed concern regarding considerable time being taken for logging in to the system for migration. Shri Navin Kumar, Chairman, Goods and Services Tax Network (GSTN) informed that migration of existing taxpayers to GSTN had commenced from 8 November 2016. He further informed that 62% of de
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ded that the tax element should be shown in B2C invoices as well so that the consumer was aware of the amount of tax he paid for a transaction and that this would enhance transparency. The Hon'ble Chief Minister of Puducherry observed that every consumer should know as to how much tax he paid. The Hon'ble Deputy Chief Minister of Gujarat observed that even today, tax was being shown separately in the invoices. The Council agreed not to make any change in the provision.
xxvi. Section 42 (Levy of late fee): The Hon'ble Minister from Haryana observed that the maximum late fee of Rs. 5,000 was too low. He also enquired as why the term 'late fee' was used instead of the term 'penalty'. The CCT, Karnataka explained that late fee would be charged under all three Acts and effectively, this would come to Rs. 15,000. If a higher late fee was charged, it would be burdensome for small taxpayers. As regards nomenclature, he explained that the expressi
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'ble Minister from Haryana also supported this demand and also suggested that the TDS rate should be higher. The Secretary stated that a higher TDS rate was not desirable as TDS was only meant to create an audit trail. The Hon'ble Minister from Jammu & Kashmir stated that law should not be made to address the errant taxpayers and that imposing TDS for all transactions would become very cumbersome. The Hon'ble Minister from Karnataka also warned that TDS on all Government transactions would create a lot of workload for the officers. The CCT, Karnataka stated that there was an alternative provision in the Draft Model GST Law of giving a Unique Identity Number (UIN) which could be obtained by panchayats, etc. and that they could report their purchases at a fixed periodicity (say one year) and upload it on GSTN for the purpose of matching. He added that this arrangement would be less onerous than TDS for all Government transactions. The Principal Secretary (Finance), Odisha sta
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r TDS under this Section shall be Rs. 2.5 lakh for all categories of supplies and to define the term 'Governmental agencies' III Section 46(1).
12. The Hon'ble Chairperson stated that discussion on the rest of the Sections of the Draft Model GST Law could be deferred for the next meeting of the Council and that some time should be devoted for discussion on agenda item 3 (Provision for Cross-Empowerment to ensure Single Interface under GST). The Council agreed to defer discussion on the remaining provisions of the Draft Model GST Law for the next Council meeting.
13. Accordingly, for agenda item 2, the Council approved the provisions of Chapters I to IX of the Model GST Law (Sections 1 to 46) subject to the decisions/observations recorded below and also subject to changes that might be suggested by the Union Law Ministry during the process of vetting of the draft GST Laws. The Council further agreed that the changes made during the legal vetting would be highlighted and br
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ollection of minor forest produce, raising of man-made forest or rearing of seedlings or plants.
iii. Section 2(8) and Section 2(106) (Definitions): To merge the definitions under these two sections as follows – “agriculturist” means an individual or a Hindu Undivided Family, who carries on any agricultural operation on his own account-
a) by one's own labour, or
b) by the labour of one's family, or
c) by servants on wages payable in cash or kind or by hired labour under one's personal supervision or the personal supervision of any member of one's family and to retain the Explanation 1 and 2 under Section 2(106).
iv. To consider the issue of exemption from GST for lease of agricultural land at the time of discussing exemptions from GST.
v. Section 2(11) (Definitions): To discuss the definition of 'State' at the time of discussion on the draft IGST Act.
vi. Section 2(17) (Definitions): To add the following provision in Schedule IV of the Draft Model
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scuss it later as it related to cross-empowerment.
xii. Section 8(1) (Levy and Collection 0/ Centra/IState Goods and Services Tax): To change the rate cap from the existing rate of 14% to 20%.
xiii. Section 9 (Composition Levy): To modify the original decision taken in the 1st GST Council meeting dated 22-23 September 2016 as per which manufacturers were not to be extended the benefit of the Composition Scheme and agreed to extend the said benefit to manufacturers also, subject to clause (e) of Section 9(1) of the Model GST Law, and that such a scheme shall be limited to turnover-based composition rather than capacity based composition.
xiv. Section 9(1) (Composition Levy): To amend the section so as to provide that the benefit of Composition scheme shall be availed on the basis of intimation rather than permission.
xv. Section 9(1) (Composition Levy): To amend the provision by inserting that the aggregate turnover for availing the Composition Scheme shall be such amount as may
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in respect of capital goods till data on the total quantum of ITC availed on capital goods was received from CBEC.
xx. Section 16(2) (Eligibility and conditions for taking input tax credit): To increase the time period for making payment from three months to six months from the date of issuance of invoice for both goods and services.
xxi. Section 22 (Manner of recovery of credit distributed in excess): To make the wordings of Section 22 clearer regarding recovery of excess distribution of credit to one or more recipients of credit.
xxii. Section 42 (Levy of late fee): To change the wording in the law suitably to reflect that the maximum late fee shall not be less than Rs. 5,000 or an amount as recommended by the Council.
xxiii. Section 46 (Tax deduction at source): To prescribe the limit for T DS to Rs. 2.5 lakh for all categories of supplies and to define the term 'Governmental agencies' in sub-section (1)
Agenda item 3: Provision for Cross-Empowerment to
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empowerment of IGST was a critical element. The Hon'ble Minister from Karnataka supported the view of the Hon'ble Minister from Tamil Nadu on the issue of cross-empowerment under IGST. He further observed that if one tried to divide the base, the lines of division became very sensitive. The alternative suggestion referred to by the Hon'ble Minister from Tamil Nadu would help to utilise both the administrations optimally without dividing the taxpayer base, but some variation could be made in the suggestion.
15. The Hon'ble Chairperson invited the Chairman, CBEC to express his views on the subject. The Chairman, CBEC stated that there was useful discussion during the officers' meeting. He stated that for smooth working of CGST and SGST, cross-empowerment was essential but it should apply across the value chain without exclusion of any tax administration from any segment as Constitutionally both the administrations were empowered to tax the entire value chain. He expr
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istered under CST but the position would be different under IGST and that the number of taxpayers doing inter-State transaction would be lesser in GST than that in CST. He also observed that IGST being a destination based tax, the place of supply was a very important issue, and the revenue concern would essentially be that of the destination State and the Centre and that the origin State was not concerned with it. The Hon'ble Minister from Tamil Nadu raised a question regarding the relevance of buyer and seller being under CST. The Commissioner, GST Policy Wing, CBEC clarified that in CST, C-forms were given by destination States and thus, the buyers also became registered as inter-State dealers even if their subsequent transactions were only intra-State, whereas under GST, a buying dealer alone would no longer require registration under IGST, unless he was also supplying inter-State.
16. The Hon'ble Minister from Tamil Nadu observed that while legal opinion could be taken on
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this view and observed that in his State, about 50% of dealers were carrying out inter-State transaction and it was necessary to allow State governments to administer IGST. The Commissioner (GST Policy Wing), CBEC clarified the fund settlement procedure under GST. He explained that if IGST was cross-utilised for payment of SGST in a State, the Central government would transfer the equivalent amount of money to that State government and if SGST was used to pay IGST in a State, the concerned State would transfer an equivalent amount to the Centre. He further clarified that as per data received by the GST Council for twenty States, the all-India average of inter-State dealers was only 27%. The Hon'ble Minister from Kamataka stated that the all-India average might be different from State specific numbers as mentioned by the Hon'ble Minister from Tamil Nadu.
17. The Hon'ble Minister from Karnataka observed that the Central Government could allow States to administer IGST on its
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o to the Central administration. The Hon'ble Minister from Tamil Nadu stated that it was essential that the key processes under GST, namely registration, return, scrutiny, audit, enforcement, appeals, refund and demand should be conducted by one authority only, and to achieve such a single interface, a horizontal division was necessary as suggested under Option II.
18. The Hon'ble Deputy Chief Minister of Gujarat observed that the issue of cross-empowerment had been discussed four times but the Constitutionality of eros -empowerment under IGST was being raised for the first time. He suggested dividing the taxpayer base in the ratio of 60% to States and 40% to the Centre. The Hon'ble Minister from Tamil Nadu observed that Article 269A itself gave power to the Council to apportion the IGST between the Union and the States. The Hon'ble Chairperson observed that there was no dispute regarding apportionment but the issue raised by the Chairman, CBEC was whether delegation u
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ortionment of tax between the Centre and the States, which meant sharing a portion. The CCT Gujarat stated that without cross-empowerment under IGST, GST could not be implemented efficiently and the distinction between Origin State and Destination State was an artificial one. He emphasized that the Origin State also had a stake in IGST. The Hon'ble Minister from Rajasthan stated that cross-empowerment was required in all three Acts as otherwise, the aim of single interface would not be achieved. The Hon'ble Chairperson observed that in case there was no Constitutional problem for cross-empowerment under IGST, one needed to look at an optimal solution. The Hon'ble Minister from Karnataka stated that one solution could be to do cross-empowerment and provide for a small percent of audit of taxpayers below Rs. 1.5 crore turnover by the Central administration. The Hon'ble Minister from Tamil Nadu stated that except intelligence based action where both administrations should
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complete access to data regarding scrutiny etc. The Hon'ble Minister from West Bengal stated that to avoid complications for taxpayers below Rs. 1.5 crores, they should remain with the States. The Hon'ble Minister from Kerala supported the suggestion of the Hon'ble Ministers of Uttar Pradesh, West Bengal and Gujarat. The Hon'ble Deputy Chief Minister of Gujarat suggested that for units with turnover below Rs. 1.5 crore, the auditable units could be divided in the ratio of 70:30 for the States and the Centre and for units above Rs. 1.5 crore turnover, it could be 60:40 for the States and the Centre for all purposes, including audit and enforcement. The Hon'ble Minister from Punjab stated that if, for units with turnover below Rs.l.5 crore, audit was done by the Central administration and the other processes was done by the State administration, this would lead to complications about which administration would do adjudication, appeal, etc. The Commissioner (GST Polic
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State administration could draw funds from the Consolidate Fund of India. The Hon'ble Minister from Tamil Nadu observed that the model suggested by the Centre would require creation of more offices of the Central Government. The Chairman, CBEC clarified that the reorganization of CBEC did not envisage any expansion of the manpower and that the entire work would be performed by the existing manpower. He also pointed out that in Service Tax, the Central tax administration had a very significant presence in the taxpayer segment of turnover below Rs. 1.5 crore.
19. The Secretary suggested certain broad parameters as a possible solution for this Issue. He suggested that the enforcement-based action shall lie with both the tax administrations without any restriction and that audit and scrutiny in a year should not exceed 5% of the total taxpayer base. He added that the division of taxpayers should be limited only with reference to this 5% and the proportion of the division could possib
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y, audit of taxpayers with turnover below Rs. 1.5 crore by the Central administration shall not exceed 1 % of the total taxpayer base below Rs. 1.5 crore, but there would be no restriction regarding the intervention by the Centre III respect of taxpayers having turnover above Rs. 1.5 crore and by the States for taxpayers with turnover below and above Rs. 1.5 crore. The Hon'ble Minister from West Bengal wondered why the Centre needed to have any toehold over taxpayers with a turnover below Rs. 1.5 crore. The Hon'ble Minister from Assam observed that the Centre had been administering taxpayers with turnover below Rs. 1.5 crore in Service Tax and suggested to vertically divide the taxpayer base so that the more important portion of taxpayers with turnover above Rs. 1.5 crore did not go to the Central administration. He also pointed out that all States did not unanimously want control over taxpayers with turnover below Rs. 1.5 crore. The CCT, Karnataka explained the proposed soluti
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to defer a decision on this issue and to continue further discussion in the next meeting of the Council.
Agenda item 4: Date of the next meeting of the GST Council
21. After discussion, it was agreed that the next meeting of the Council would be held on 11-12 December 2016 in New Delhi.
Agenda item 5: Any other agenda item with the permission of the Chairperson
22. Some Members of the Council desired to discuss the impact of demonetization. The Hon'ble Chief Minister of Puducherry stated that it was important to discuss how to overcome loss of revenue due to demonetization. The Hon'ble Minister from West Bengal stated that it was important to discuss as to how much revenue would be lost due to deceleration of economic growth both of the Centre and the States and whether Rs. 50,000 crore kept for compensation would be sufficient in the new situation. The Hon'ble Minister from Chhattisgarh stated that this question was hypothetical at this stage and that the Central Gover
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inister from Punjab observed that as the Central Government had decided to compensate the States, the matter should be left to the Centre. The Hon'ble Minister from Uttar Pradesh stated that an assurance was needed that States would continue to be compensated even if there was a shortfall in the revenue collection. The Hon'ble Minister from Rajasthan observed that the Constitutional amendment itself had an assurance regarding the compensation. He suggested that demonetization should be discussed separately with the Hon'ble Union Finance Minister. The Hon'ble Minister from Kerala stated that States were also facing the crisis of currency and there was a need to exchange ideas on how to face the situation. He also observed that revenue of the States had taken a big hit and this also needed to be discussed. The Hon'ble Minister from Telangana observed that demonetization would lead to problems of finances for States due to loss of revenue in the coming few months. The
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losed an hour earlier and then, the impact of demonetization on the States would be discussed informally without the presence of the officers. The Council agreed to this suggestion.
23. The meeting ended with a vote of thanks to the Chair.
(Arun Jaitely)
Chairperson GST Council
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Document 1
CHAIRMAN'S
INITIALS
MINUTE BOOK
Annexure-1
S No
State/Centre
1
Govt of India
Shri Arun Jaitley
2
Govt of India
Shri Santosh Kumar Gangwar
List of Ministers who attended the 5th GST Council Meeting on 2-3 Dec 2016
Name of the Minister
Charge
Finance Minister
Minister of State for Finance
3
Puducherry
Shri V. Narayanasamy
Chief Minister
4
Delhi
Shri Manish Sisodia
Deputy Chief Minister
5
Gujarat
Shri Nitin Patel
Deputy Chief Minister
6
Arunachal Pradesh
Shri Chowna Mein
7
84
Arunachal Pradesh
Assam
Shri Honchun Ngandam
Dr. Himanta B. Sarma
9
Bihar
10
11
Chattisgarh
Haryana
13
12 Himachal Pradesh
Jammu & Kashmir
14
Jharkhand
15
Karnataka
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orts & Youth Welfare
Finance Minister
Finance Minister
Minister for Skill Development
Finance Minister
Page 26 of 29
JAYNA BOOK DEPOT
Estd. 1949
MINUTE BOOK
Annexure-2
JAYNA
List of Officials who attended the 5th GST Council Meeting on 2-3 Dec 2016
S No
State
Name of the Officer
Charge
1
Govt of India
Shri Hasmukh Adhia
23
Govt of India
Shri Najib Shah
Govt of India
Shri Arvind Subramanian
4
Govt of India
Shri Ram Tirath
5
Govt of India
Shri P.K. Jain
6
Govt of India
7 0
Govt of India
Shri Vivek Johri
8
Govt of India
Shri PK Mohanty
9
Govt of India
Shri Alok Shukla
10
Govt of India
Shri Upender Gupta
11
Govt of India
12
Govt of India
13
Govt of India
Shri G.D. Lohani
14
Govt of India
Shri Manu Tentiwal
15
Govt of India
Shri Paras Sankhla
16
Govt of India
17
Govt of India
18
Govt of India
19
Govt of India
20
Govt of India
21
Govt of India
22
GSTC Sectt.
23
GSTC Sectt.
Shri Siddharth Jain
Shri Arun Goyal
Shri Shas
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r (GST),
CBEC
Additional Secretary
Commissioner
Commissioner
Joint Commissioner
Joint Commissioner
Deputy Commissioner
28
GSTC Sectt.
Ms. Thari Sitkil
29
GSTC Sectt.
Shri Kaushik TG
Deputy Commissioner
Assistant Commissioner
30
Andhra Pradesh
Shri J. Syamala Rao
Arunachal
32
Pradesh
Shri Marnya Ete
33
Arunachal Pradesh Shri Tapas Dutta
Commissioner, Commercial Tax
Commissioner, Industry
Assistant Commissioner, VATS
CHAIRMAN'S
INITIALS
Page 27 of 29
MINUTE BOOK
Name of the Officer
S No State
34 Assam
Dr. Ravi Kota
35
Assam
Shri Anurag Goel
36
Bihar
Ms. Sujata Chaturvedi
Shri Arun Kumar Mishra
Shri Khemraj Jhariya
Shri H. Rajesh Prasad
Shri R.K. Mishra
Shri Anand Kumar Tiwari
Shri Dipak Bandekar
Shri Tarun Kapoor
Shri Pushpendra Rajput
Shri Navin K. Choudhary
Shri P.I. Khateeb
37
Bihar
38
Bihar
Shri Ajitabh Mishra
39
Chattisgarh
Shri Amit Agrawal
40
Chattisgarh
Ms. Sangeetha P
41
Chattisgarh
42
Delhi
43
Delhi
44
Delhi
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sioner
Secretary, Finance & Commercial
Tax
Commissioner, Commercial Taxes
Additional Commissioner,
Commercial Taxes
Commissioner, VAT
Special Commissioner (Policy)
Joint Commissioner (GST)
Commissioner, Commercial Tax
Commissioner, Commercial Taxes
Secretary (EA), Finance
Additional Chief Secretary
Commissioner, Excise & Taxation
Joint Commissioner, Excise &
Taxation
Principal Secretary, Excise &
Taxation
Commissioner, Excise & Taxation
Finance Secretary
Commissioner, Commercial Taxes
Additional Commissioner,
Commercial Taxes
Joint Commissioner, Commercial
Taxes
Deputy Commissioner, Commercial
Taxes
Commissioner, Commercial Taxes
Additional Chief Secretary, Taxes
Commissioner, Commercial Taxes
Assistant Commissioner
Commissioner, Commercial Taxes
Deputy Commissioner, Commercial
Taxes
Commissioner, Commercial Taxes
Joint Commissioner, Sales Tax
Commissioner, Taxes
Assistant Commissioner, Taxes
Commissioner, Taxes
Superintendent, Taxes
JAYNA BOOK D
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ioner, Taxes
Principal Secretary (Finance)
Commissioner, Commercial Taxes
Joint Commissioner, Commercial
Taxes
Secretary (Finance & Commercial
Tax)
Commissioner, Commercial Taxes
Additional Chief Secretary
(Taxation)
Excise & Taxation Commissioner
Advisor, GST
Additional Commissioner
Assistant Commissioner
Commissioner, Commercial Taxes
Deputy Commissioner, GST
Assistant Commericial Taxes
Officer
Joint Commissioner, Commercial
Taxes
Additional Chief Secretary,
Commercial Taxes
Additional Commissioner, Taxation
Principal Secretary (Revenue)
Commissioner, Commercial Taxes
Deputy Commissioner, Commercial
Taxes
Principal Secretary (Finance)
Commissioner, Commercial Taxes
Special Secretary
Additional Commissioner, Law
Commissioner, Taxes
Additional Commissioner
Commissioner, Commercial Tax
Senior Joint Commissioner,
Commercial Tax
94
95
96
Uttarakhand
Uttarakhand
West Bengal
97
West Bengal
98
GSTN
99
GSTN
Shri Khalid A Anwar
Shri Navin Kumar
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