7th GST Council Meeting Dated:- 23-12-2016 GST Council – Minutes – Circulars – GST – Minutes of the 7th GST Council Meeting held on 22-23 December 2016 The seventh meeting of the GST Council (hereinafter referred to as 'the Council') was held on 22 and 23 December 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 Council who attended the meeting is at Annexure 1. The list of officers of the Centre, the States, the GST Council and the Goods and Services Tax Network (GSTN) who attended the meeting is at Annexure 2 . 2. The following agenda items werelisted for discussion in the seventh meeting of the Council 1. Confirmation of the Minutes of the 6th GST Council meeting held on 11th December 2016. 2. Approval of the Draft GST Law, Draft IGST Law and Draft GST Compensation Law 2A. GST Treatment of Land and Building (Real Estate
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ber suggested the following amendment to the draft Minutes of the 6th meeting of the Council (hereinafter referred to as 'the Minutes') – i. Para 6 (xiv) of the Minutes: The Secretary to the Council informed that a letter had been received from the Government of Rajasthan to replace the version of the Hon'ble Minister of Rajasthan recorded in this paragraph with the following version: 'The Hon 'ble Minister from Rajasthan stated that penalty should not be considered as a source of revenue, rather it should be used as deterrent.' The Council agreed to the suggestion to replace the version of the Hon' ble Minister from Rajasthan. 5. In view of the above discussion, for Agenda item l, the Council decided to adopt the draft Minutes of the 6th meeting of the Council with the following change – i. To replace the version of the Hon'ble Minister of Rajasthan recorded in paragraph 6(iv) of the draft Minutes with the following – 'The Hon'ble Mini
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tion (Section 81 and 92) as well as the Section 100 to 197 and Schedules I to V are as follows – i. Section 81 (Power to arrest) and Section 92 (Prosecution): Shri M.K. Sinha, Commissioner, GST Council explained the changes made in these two provisions. He stated that arrest was proposed in only three instances, and out of these, two related to cases where either only invoice had been issued without any supply of goods or services or where goods or services had been supplied without issue of invoice and the third related to collecting tax but not depositing it with the Government. He also informed that the provision regarding gross mis-declaration in the description of the supply on invoices had been deleted keeping in view the guideline agreed upon in the last meeting that no arrest should be made in a case relating to any grey area in assessment. He also pointed out that the threshold for arrest was tax evasion of ₹ 2 Crore or more and arrests relating to tax evasion up t
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r the ease of doing business. The Hon'ble Minister from Bihar observed that there would be administrative check and control over misuse of arrest provision as was the case with the police department. He further observed that the Commissioner could also be punished for misusing this provision. The Hon 'ble Minister from Assam also supported this view. iii. The Hon'ble Chief Minister of Puducherry observed that proportionality should be maintained for large and small tax evaders and punishment should be in proportion to the amount of tax evasion involved. The Hon'ble Minister from Madhya Pradesh also observed that the big and small crime should not have the same punishment. The Hon'ble Minister from West Bengal observed that economic offences were not the same as offences under the Indian Penal Code (IPC). He further observed that arrest was a serious issue and its provisions were to be used as a last resort. He supported the principle of making a distinction betw
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nto account the statement of the Hon'ble Minister from Bihar that the States and the Central tax laws were being merged and that though VAT laws did not have arrest provision, the Central laws, namely Central Excise and Service Tax had provisions of arrest. He further added that grounds of arrest had been whittled down under Service Tax and a similar approach was being followed in the GST regime and the circumstances of arrest were being limited to those violations which were similar to those in criminal law, namely for forgery (fake invoices), breach of trust (failing in the duty to act as agent of the Government to collect and deposit tax into government account) and cheating (moving goods without paying tax). He pointed out that in the new text, no arrest could be made where non-payment of tax was due to dispute in interpretation and that there were sufficient safeguards against harassment, namely that arrest could be only authorized by the Commissioner and tax evasion threshold
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yers. v. The Hon 'ble Deputy Chief Minister of Delhi raised another issue in relation to the proviso to the explanation contained in revised Section 92(1). He pointed out that this required prosecution to be instituted after the previous sanction of the Central Government which was not desirable in a case where action was initiated by the State tax administration. The Hon'ble Chairperson observed that sanction of the Central Government would be required if action was initiated under the CGST Act and if action was initiated under the SGST Act, sanction of the State Government would be required. vi The Hon'ble Deputy Chief Minister of Puducherry observed that for sanctioning prosecution, a prosecution wing would be needed to decide whether prosecution was legally justified. The Hon'ble Chairperson observed that the States would need to set up internal mechanisms for sanctioning prosecution and could also take the help of legal advisors. The Secretary to the Counci
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could be waived if the evaded amount, as determined by the competent authority, was paid by the accused person as the compounding amount but this facility could be used only once. vii. The Hon'ble Minister from Andhra Pradesh observed that there was no arrest provision under the VAT law and incorporating arrest provision under SGST Act, even with the prescribed threshold, would adversely affect the ease of doing business and could create a fear psychosis amongst the traders. He added that this could also cause political problems. The Hon'ble Minister from Karnataka stated that in the last meeting, it was decided to make the arrest provisions more restrictive, and the revised formulation was acceptable, as also was the original formulation. He added that in the proviso to the explanation in the revised Section 92(1), the expression 'Central Government' should be replaced by the expression 'designated authority.' The Council agreed to this proposal. viii.
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cern. After the discussion, the revised formulation presented during the meeting in respect of Section 81 (power to arrest) and Section 92 (prosecution) was approved by the Council with two amendments, namely, (a) arrest could be made for repeat offences; and (b) in Section 92(1), the expression 'Central Government' to be replaced by the expression 'designated authority.' ix. Section 100 (Constitution of the National Appellate Tribunal), Section 101 (Appeals to the Appellate Tribunal), Section 102 (Orders of Appellate Tribunal) and Section 103 (Procedure of Appellate Tribunal): The Secretary to the Council explained that these provisions related to the Appellate Tribunal (hereinafter called the 'Tribunal') and that the Union Law Ministry had suggested some changes to the existing draft. He invited Shri Upender Gupta, Commissioner (GST), CBEC to explain the proposed changes. The Commissioner (GST), CBEC explained that the changes suggested by the Union Law
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appeal against it could lie before the Supreme Court. The Hon'ble Minister from Haryana suggested that disputes relating to subject matters of Union Territories could also be handled by the National Tribunal. x. The Hon'ble Minister from West Bengal stated that under the existing provision of Section 100 and Section 103 of the GST Law, each State Tribunal was to be headed by a President and that he was to be appointed by the State Government under the SGST Law. Commissioner (GST), CBEC informed that the Union Law Ministry had observed that there could not be a National President and a State President and it had suggested to rename the heads of State Tribunals as Vice President but they would be appointed by the State Government and the State Tribunals could have as many benches as required. The Deputy Chief Minister of Delhi suggested that the head of the State Tribunal should also be called President as otherwise, the structure appeared to be hierarchical with a National
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observed that instead of creating work for a National Tribunal, it could be removed altogether and all disputes could go to the State Tribunals. The Commissioner (GST), CBEC explained that if Tribunals were created under SGST Acts, the CGST Act would need to adopt thirty-one State Tribunals under the CGST Act and instead, it was proposed to create one Tribunal under the CGST Act which could be adopted the by States to create State Tribunals under the respective SGST Acts. The Hon'ble Chairperson observed that the option of incorporating State Tribunals under the CGST Act should also be explored and cautioned against creating superfluous Tribunal causing a drain on the public exchequer. The Hon'ble Minister from Haryana pointed out that a National Tribunal would also be needed for disputes relating to Union Territories. The Hon'ble Minister from Bihar suggested that the expression President of the Tribunal should be replaced by the term Chairperson . The Hon'ble Depu
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irperson observed that the Tribunals created under the State VAT Acts as well as the Customs Excise and Service Tax Appellate Tribunal (CESTAT) could deal with the old cases. xiv. The Hon'ble Minister from West Bengal suggested to give the State Tribunals in law the power of a single bench of the High Court in order to avoid the matters from Tribunals being heard by a single bench of the High Court and then being subjected to an appeal before the Division bench of the same High Court. He therefore suggested to create Tribunal under Article 323 B of the Constitution. Shri Ritvik Pandey, the Commissioner Commercial Tax (hereinafter referred as CCT), Karnataka pointed out that under Section 106 (9) of the GST Act, it was provided that appeal in the High Court shall be heard by a bench of not less than two Judges of the High Court. xv. The Commissioner (GST), CBEC raised the issue that the quantum of pre- deposit for filing appeal in Tribunals could be the same as agreed in the
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at presently, under their VAT Act, it was 25%. The Hon'ble Minister from Karnataka suggested to keep pre-deposit at 20% of the disputed tax amount for appeal before the First Appellate Authority and 10% for appeal before the Tribunal. He observed that for filing appeal in Tribunal, pre-deposit would be effectively 30%. The Hon'ble Chairperson observed that taking pre-deposit of 20% at both levels of appeals made the pre-deposit amount too high. The Hon'ble Minister from West Bengal stated that this would deter frivolous appeals. The Hon'ble Chairperson observed that another option could be to keep pre-deposit at 20% each at the level of the First Appellate Authority and the Tribunal respectively but the Tribunal could be given the power to waive pre-deposit in deserving cases. The Secretary to the Council cautioned that if the Tribunal was given such a discretion, a lot of time would be spent in deciding stay applications before the Tribunal. The Hon 'ble Minister f
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tion order might suffer from revenue bias but the order at the second level was expected to be more balanced and therefore, for the next appeal, the amount of pre-deposit should be higher. The Hon'ble Minister from Punjab observed that keeping 10% pre-deposit at both the levels would give a big relief to the VAT assessees and he suggested to keep the pre- deposit as 10% for appeal before the First Appellate Authority and 20% for appeal before the Tribunal. The Hon'ble Deputy Chief Minister of Gujarat suggested to keep the pre-deposit at 10% at both the levels. The Hon'ble Chief Minister of Puducherry and the Hon 'ble Ministers from Andhra Pradesh, Bihar and Chhattisgarh supported pre-deposit of 10% for appeal before the First Appellate Authority and 20% for appeal before the Tribunal. The Council agreed that pre-deposit for appeal before the First Appellate Authority shall be 10% of the disputed amount and that for the Tribunal it shall be 20% of the disputed amount.
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icult to establish deliberate delay. The Commissioner (GST), CBEC further pointed out that there was already a provision of not granting more than three adjournments during an appeal. xvii. Section 105 (Appearance by authorised representative): The Hon'ble Minister from Tamil Nadu suggested to replace the expression 'Tax Return Preparer' in Section 105 (2)(e) with the expression 'GST Practitioner' as agreed in the 6th GST Council meeting held on 11 December 2016. The Council agreed to the suggestion. xviii. Sections 113 – 124 (Advance Ruling): The Hon'ble Chairperson introducing this provision, explained that the provision of Advance Ruling was often used by those making new investment, say in a manufacturing activity, to determine the rate of duty on the new product with certainty and it helps them in their financial planning. The Secretary to the Council further explained that it was not to be headed by a Judge but to consist of a Committee of tax
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subject decisions of Advance Ruling Authority to appeal before a Tribunal and that after one level of appeal before the Appellate Authority for Advance Ruling, if there was no agreement between the two members of the Appellate Authority, then it would be deemed that no Advance Ruling could be given. The Secretary to the Council observed that such cases would be rare and it would be prudent for such matters to go for regular assessment. xix. The Hon'ble Minister from Tamil Nadu said that under Section 121, Advance Ruling should also apply to other similar cases within the jurisdiction of the Commissioner of Commercial Tax and suggested to make a suitable amendment in this regard in Section 157. The Hon'ble Chairperson explained that the rulings were given in personem and not in rem , that is, not to the whole world and therefore, rulings could not apply to other similar cases. The Secretary to the Council further clarified that each ruling was based on the facts of a part
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in the Goods sector, a taxpayer operating in multiple States was registered in every State. He added that it was not advisable to create an artificial distinction between goods and services, particularly when audit was envisaged for only 5% of taxpayers. He cautioned that providing special treatment to a certain category of taxpayers could lead to litigation by those who were denied such special treatment. In this view, he suggested to delete this provision. The Secretary to the Council explained that sectors like Telecommunication, Financial Services (Banking and Insurance), Airlines, Railways, IT and ITeS had raised several issues relating to registration in individual States. He explained that their main concern was that under GST law, they should be allowed to pool their Input Tax Credit (ITC) so that surplus ITC in one State could be used for payment of tax in another State. He added that as no unanimity could be reached on this issue, it was proposed to have an enabling power for
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cials of the Central Government and a few State Governments. He added that no agreement could be reached regarding cross-utilization of input tax credit of SGST between States. The Hon 'ble Minister from Tamil Nadu observed that if pooling of ITC was the only issue, a separate provision could be made for this and not for other processes like registration, etc. mentioned in Section 137 of the GST Law. The Hon'ble Chairperson stated that the Indian Bank Association (IBA) had made a strong representation for permitting centralized registration. He stated that such a provision could be considered for those sectors whose nature of business was such as to make it a necessity, but no special dispensation was desirable only for certain categories of big taxpayers. The Hon'ble Minister from Jammu Kashmir observed that the nature of service provided by banks made centralised registration a necessity for them as a credit card could be swiped in one city, the IT Centre could be locat
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ed in the Council. The Hon 'ble Chairperson stated that the Council could hear the stakeholders from Banking, Insurance, Information Technology (IT and ITeS), Telecom, Airlines and Railways for one hour in the next Council meeting. The Hon'ble Minister from Kerala stated that the proposal to have a separate special treatment for a class of taxpayers was discriminatory. The Hon'ble Chairperson observed that for a distinct class of persons, a separate procedure was possible but there could be no discrimination between Ovo equally placed persons. The Hon'ble Minister from West Bcngal posed a query whether they could be considered as a separate class and the Hon'ble Chairperson observed that if they were unable to show that they were a separate class, then, no separate procedure could be allowed. xxiii. The Hon'ble Minister from Tamil Nadu suggested that keeping in view the need not to make a distinction between goods and services, this issue presented an opportu
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s from Banking, Insurance, Information Technology (IT ITeS), Telecom, Airlines and Railways could be heard in the next Council meeting. The Council agreed to this suggestion. xxiv. Section 138 (GST compliance rating): The Secretary to the Council explained the rationale of GST compliance rating for taxpayers provided for in this Section. He pointed out that in the GST Law, there was a provision of reversal of ITC in the hands of the recipients where suppliers did not upload invoices within a fixed period of time. He explained that it would help traders if defaulters were identified in advance to alert prospective customers, and keeping this in view, every GST-registered taxpayer would be given a compliance rating. He suggested to replace the word 'shall' with the word 'may' in Section 138(1). The Hon'ble Minister from Tamil Nadu suggested to retain the word 'shall' and pointed out that this provision would be a powerful selling point for GST. The Sec
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uncil agreed to this suggestion and it was agreed to amend Section 138(2) by adding the phrase 'by the GST Council' at the end of the sentence. xxv. Section 142 (Disclosure of information required under section 141): The Secretary to the Council pointed out that in Section 142(3), the maximum limit set for imposing fine was only Rupees One Thousand which was too low and suggested to enhance it to Rupees Twenty-Five Thousand. The Council agreed to this suggestion. The Hon'ble Minister from Tamil Nadu observed that the State Government should have equal power to call for information and collect statistics. The Commissioner (GST), CBEC clarified that the law was common for both CGST and SGST and that reference to Commissioner in Section 141 of the SGST Law would mean Commissioner of SGST. xxvi Section 145 (Burden of Proof) : Shri Vivek Kumar, Additional Commissioner, Commercial Taxes, Uttar Pradesh observed that in the original text, the burden of proof was on
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r any Regulation that might be made in respect of the Tribunal and the Advance Ruling Authority and that the relevance of this Section would be determined after the GST Law was finalized. xxviii Section 163 (Anti-profiteering Measure): Introducing this section, the Secretary to the Council explained that while implementing GST, some taxpayers could indulge in profiteering in two different ways. One situation was that a retailer might not pass on the benefit of ITC of the embedded Central Excise duty component on a good allowed under the transitional provision of the GST Law and charge the customer the cumulative tax of CGST and SGST claiming that both taxes had been imposed under the new GST Law. Second situation could be a ease where tax rate on a commodity was lowered in GST as compared to the existing combined rate of tax of Central Excise and VAT but the benefit of lower tax was not passed on to the customer by a commensurate reduction in the price of the commodity. He pointe
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nd this helped to check inflation and price-rise. He warned that without implementing this provision, GST could be a failure and suggested that in Section 163(1), the word 'may' should be replaced by the word 'shall'. He also stated that it was desirable to create a body like ACCC with a proper database. The Hon'ble Chairperson observed that if the anti-profiteering authority was not to be created under the GST Law, then the phrase 'by law' used in Section 163(1) could be replaced by the expression 'on the recommendation of the Council by a notification'. The Council agreed to this suggestion. The Hon'ble Minister from Tamil Nadu observed that it would be laudable to create this institution and suggested to replace the word 'may' in Section 163(1) with the word 'shall'. The Hon'ble Chairperson observed that the word 'may' coupled with the exercise of a duty would be read as 'shall' and that the authority could
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cipal Secretary (Finance), Odisha observed that the objective was laudable but its implementation could be challenging as the authority could be swamped with representations in a situation of rising price which could be on account of various reasons and it would be a challenge to determine whether it was due to non-passing of the benefit of ITC. The Hon'ble Minister from Punjab stated that the provision could also create a fear amongst the traders that the government was monitoring the price situation. The Hon'ble Minister from Karnataka observed that there was an agreement in the Council about the need to pass the benefit of lower tax to the consumers and any challenge relating to verification could not be a reason to remove this provision altogether. He further added that the law was very specific that this provision would apply only when the rate of tax was altered and not in other circumstances. The Hon'ble Chairperson observed that difficulty in implementation could no
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es. He further observed that in Australia, such a body could be successful as Australia has a formal market economy whereas India faced various challenges like a large segment of informal economy as also presence of a large number of small and medium enterprises, unregistered units and exempt farming sector and that if such a provision was to be adopted, it must be implemented with seriousness. The Hon'ble Minister from Kerala stated that there must be a mechanism for monitoring prices and it should be transparent. The Hon 'ble Chairperson stated that at this stage, it was only an enabling provision and that the exact formulation of words would be done in the relevant Regulation. The Hon'ble Chief Minister of Puducherry observed that the Regulation should be brought back to the Council for approval. Shri P. Marapandiyan, Additional Chief Secretary, Kerala informed that during the introduction of VAT, the Empowered Committee (EC) had several meetings with traders who promise
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ed out that Section gave the enabling power for audit. The Hon'ble Minister from Haryana suggested to add the words 'or after' following the word 'before' in Section The Consultant (GST), CBEC pointed out that such a provision was already contained in Section 182. The Hon'ble Minister from Hawana suggested to harmonise the provisions of Section and Section 182. The Council agreed to this suggestion. xxx Section 167 (Amount of CENVAT credit carried forward in a return to he allowed as input tax credit): The Principal Secretary (Finance), Odisha pointedout that in Section 167 as also in Section 169 and 171, carry-forward of credit under VAT was allowed but they had no provision of carry forward of entry tax and therefore, rationale for keeping it under the SGST Law was not clear. The CCT, Karnataka explained that credit of entry tax was available in some States like Gujarat and therefore, it was indicated in brackets and it would be included in the SGST Laws
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in the original text of the Model GST Law. He gave an example that the building of bus body on a chassis was also a Works Contract. The Council agreed that the Law Committee of officers would look into it. xxxiii. Section 4 (Classes of officers under the Central/State Goods and Services Tax Act) and Section 5 (Appointment of officers under the CentraVState Goods and Services Tax Act) : The Hon'ble Minister from West Bengal pointed out that Section 4(2) relating to SGST provided that jurisdiction of officers other than Commissioner shall be specified by the Commissioner whereas in Section 5(2), it was provided that the jurisdiction of officers other than Commissioner shall be specified by the State and that this contradiction needed to be addressed. The Council agreed to this suggestion. xxxiv. Sections 165 – 197 (Transitional Provisions): The Hon'ble Chairperson observed that these were technical provisions relating to transition from the existing Central and State t
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hedule-Il) shall be treated as composite supply on which all provisions relating to services shall apply. He therefore suggested to revisit the need for Clauses 5(f) and 5(h) of Schedule Il. The Council agreed to the suggestion and approved the rest of the Schedule. xxxvii. Schedule Ill (Activities or transactions which shall be treated neither as a supply of goods nor a supply of services) : The Secretary to the Council explained that this Schedule treated certain transactions neither as a supply of goods 'nor as supply of services. The Commissioner, GST Council suggested an addition to Clause 4 of the Schedule namely, 'or any specialized agency of the United Nations Organization or any Multilateral Financial Institution and Organization notified under the United Nations (Privileges and Immunities) Act, 1947.' However, he later added that this could also be exempted by way of notification and the Council agreed to this suggestion. xxxviii. Schedule IV (Activities
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f companies like Gas Authority of India Limited (GAIL), Oil and Natural Gas Corporation (ONGC), etc. were permitted to be laid on Government land without charging any rent or charge. The Hon' ble Deputy Chief Minister of Delhi observed that the same principle was followed for laying fibre optic cables. The Secretary to the Council explained that exemption to Government activities/services through a Schedule in the Act was very inflexible and it would be desirable to operate these exemptions through a notification so that greater flexibility could be exercised in bringing certain services in the tax net at a future date without making an amendment to the GST Law. He, therefore, suggested to delete Schedule IV except the entry at Clause 4 (relating to exemption to Government Services for diplomatic or consular activities, citizenship, etc.) and to take a decision in the Council that all the Government services listed in Schedule IV shall be exempted through a notification. The Hon
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at the clause suggested by the Hon'ble Minister from West Bengal, with suitable modification, could also be added in the exemption list under the proposed notification. The Hon'ble Minister from Tamil Nadu stated that there were certain services which should be legitimately attracting service tax like spectrum sale on which the Central Government had removed service tax only a few months back knowing fully well that GST was around the corner and this would lead to loss of Service Tax to the tune of about ₹ 10,000 Crore. He suggested to bring such services back in the Service Tax net. The Secretary to the Council clarified that spectrum sale had been subject to Service Tax from the current year and that the TRU Circular dated 13 April 2016 circulated in this meeting only clarified certain exemptions and clarifications given by the Central Government. The Hon'ble Chairperson observed that there would be greater flexibility to control the entire universe of Governmental
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hat using this formulation might lead to an interpretation in which license fees for spectrum could become non-taxable and therefore, the formulation suggested by the Hon'ble Minister from West Bengal needed some redrafting. The Hon'ble Minister for Karnataka stated that while he agreed with the flexibility principle by bringing Schedule IV in a notification, one advantage of keeping these items as neither supply of goods nor of services was that the suppliers of Government services would not be required to take registration if they were also making small quantum of taxable supply. The Commissioner(GST), CBEC amplified that in the GST law, registration had to be taken if aggregate turnover of a supplier, including the exempt supplies, crossed ₹ 20 lakh and that if a government hospital, whose value of supply of exempted health services was say ₹ 50 lakhs and it also rented out a shop for an annual rent of Rs. S lakh, the government hospital would require to be regis
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the Council would notify a list of services provided by the Government for which there would be no requirement of registration. The Hon'ble Minister from Tamil Nadu observed that the way Schedule IV was presently worded seemed to be a denial of reality. He suggested that instead of stating that Services under Schedule IV were not service, it would be more appropriate to state that such services were 'excluded' from GST. He also pointed that there was already a provision for exemption of services through a notification in Section 3(4)(c) of the GST Law. The Hon'ble Minister from Andhra Pradesh observed that the issue was whether exemption for Government services should be in a Schedule or in a notification and he expressed his agreement to provide for exemption through a notification. The Hon'ble Chairperson suggested that the Officers' Committee might examine Schedule IV and to suggest a draft formulation that the services mentioned in Schedule IV (except those
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uty Chief Minister of Gujarat had requested to revisit this definition as the new definition would lead to substantial loss of revenue. Stalting the discussion, the Hon'ble Deputy Chief Minister of Gujarat stated that the definition of 'agriculture' should not be kept as wide as in the revised formulation. He added that 'agriculturist' should not cover manufacturers of processed agricultural products. The Hon'ble Minister from Punjab suggested to define 'agriculture' as only primary produce from the land and the processed products should be subject to tax. The Hon 'ble Minister from Maharashtra stated that his concern was similar to that expressed by the Hon 'ble Deputy Chief Minister of Gujarat. He pointed out that by keeping the definition of 'agriculture' very wide, industrialists operating in 'agriculture' sector, like big centres of horse breeding and chicken processing would get the benefit of tax exemption. He suggested tha
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re' narrow and then adopt the exemption route. The Hon 'ble Minister from Maharashtra stated that exemption limit of ₹ 20 lakh of annual turnover would help actual producers to be out of the tax net but bigger industrialists should not be given the benefit of tax exemption. The Hon'ble Minister from Andhra Pradesh suggested to include fish farming in the exempted category. The Hon'ble Minister from Tamil Nadu suggested to define agriculture product which could be exempt and not to define agriculture. He informed that in Tamil Nadu, there was tax on sugar cane and this would go out of the tax net if a wide definition of 'agriculture' was adopted. The Hon'ble Minister from Kerala expressed agreement with the wider definition of 'agriculture' and suggested that conservation of soil and water shed management should also be added to the definition of 'agriculture' as these formed the basis of agriculture. The CCT, Gujarat informed that the i
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specific products were exempt. He stated that in his State, paddy was charged to VAT under reverse charge. He suggested not to define the terms 'agriculture' and 'agriculturist'. The Hon'ble Minister from Maharashtra pointed out that in Article 366 of the Constitution, 'agricultural income' was defined as for the purposes of the enactments relating to Indian income-tax and that the GST law should adopt the definition of agriculture from Income Tax Act. The Hon'ble Chairperson observed that States like Tamil Nadu and Odisha had argued for specific exemption for products rather than a generic exemption. He elaborated that all the produce that came out of land like paddy, wheat and pulses could be exempted as also other products like poultry, egg or milk but the Council might not want to exempt high-end products like prawn and salmon. He further observed that if the definition of 'agriculture' was to be based on process, then like Income Tax, it wo
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ant (GST), CBEC explained that exemption for agricultural products could be handled through the classification of products under the Harmonized System of Nomenclature (HSN). He pointed out that internationally, as per the WTO definition of 'agriculture', products covered under Chapters 1-24 of HSN were normally treated as 'agricultural product' with certain exceptions like fish and fish products and with certain additions like raw silk, wool and raw cotton falling in chapters other than Chapter 1-24. He explained that exemption could be given product-wise as for instance, wheat could be exempted but its product like biscuit could be charged to tax. The Secretary to the Council sought the view of the House as to whether the definitions of the terms 'agriculture' and 'agriculturist' could be removed from the GST Law. The CCT, Karnataka explained that Schedule V of the GST Law exempted agriculturists from taking registration under the GST Law and that if th
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e Secretary to the Council suggested that Officers of the Law Committee should examine whether or not the definition of 'agriculture' and 'agriculturist' was needed in the GST Law and to revert to the Council. The Council agreed to this suggestion. ii. Section 87A (Power to waive penalty): The Secretary to the Council stated that there was a suggestion from the Central Board of Excise and Customs (CBEC) to add a new Section 87A which read as follows: Power to waive Penalty: Notwithstanding anything contained in the provisions of section 85 or 86 of this Act, no penalty may be imposed on an assessee for any failure referred to in the said provisions, if the assessee proves that there was reasonable cause for the said failure or that he had made a reasonable attempt to comply with the provisions of this act to avoid such failure. The Commissioner, GST Council explained that this provision was meant to give discretion of not imposing penalty and that the officers o
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'penalties' and 'general penalty'. The Hon'ble Minister from Uttar Pradesh suggested an alternative approach to reduce the penalty limit for certain class of taxpayers or to provide that for one year after implementation of GST, no penalty to be imposed on taxpayers up to a turnover of say ₹ 50 lakh. The Hon 'ble Minister from Andhra Pradesh observed that discretionary powers created problems at the ground level. The Hon'ble Deputy Chief Minister of Delhi also observed that discretionary powers would be difficult to control. The Secretary to the Council stated that the proposed provision just gave an enabling power to exempt certain categories of taxpayers from penalty and that the Law Committee could redraft the proposed Section 87A on the basis of these discussions and present it before the Council. The Hon'ble Minister from West Bengal and the Hon'ble Deputy Chief Minister of Delhi stated that the provision should be drafted in a manner tha
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pital goods till data on the total quantum of ITC availed on capital goods was received. The Additional Secretary to the Council stated that based on figures gathered from the GAIL and the Department of Telecommunication, the approximate incidence of input tax credit on account of pipelines and telecom towers could be between ₹ 3,600 Crore and ₹ 4,500 Crore per year for the next four to five years. The Hon 'ble Minister from Karnataka observed that if ITC was given for pipelines and telecom towers, this would place the existing investors at a disadvantage visvis new investors whose capital investment per connection would be lower. The Hon'ble Deputy Chief Minister of Gujarat expressed that credit on pipelines might be allowed for the first five years of implementation of GST only for which compensation was going to be paid to the States. He added that the entire credit might be allowed in the first year for these five years and that no credit should be allowed there
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might be accounting for 80% of the pipeline business but in future, this could change and the beneficiaries could be other companies such as pipelines laid for transmission of coal-bed methane. He further observed that, in principle, there might not be objection to extending ITC for pipelines. The Hon 'ble Deputy Chief Minister of Gujarat suggested that ITC could be allowed for government entities like Gujarat State Petroleum Corporation Limited (GSPCL). The Council felt that the law should not result in competitive advantage to new players. After further discussion, it was agreed not to extend the benefit of ITC for pipelines and telecom towers. 9. For agenda item 2, the Council approved the GST Law subject to the relevant decisions/observations as recorded in the Minutes of the 5th and 6th Council meeting on this agenda and as recorded below. It was also agreed that a revised draft incorporating the changes agreed upon in the Council and the suggestions of the Union Law Mini
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s. v. Revised Section 81 (power to arrest) and 92 (prosecution): The revised formulation in respect of Section 81 and Section 92 approved with the following changes: (a) arrest to be provided for repeat offences; (b) to replace the expression 'Central Government' in the proviso to the explanation in the revised Section 92(1) by the expression 'designated authority.' vi. Section 87 A (Power to waive penalty): Officers of the Law Committee to redraft Section 87A and it is to be drafted in a manner so as not to give discretion to officers for levying penalty. vii. Section 95(2) (Relevancy of statements under certain circumstances): To delete the sub-section (2) of Section 95. vii. Section 100 (Constitution of the National Appellate Tribunal), Section 101 (Appeals to the Appellate Tribunal), Section 102 (Orders of Appellate Tribunal) and Section 103 (Procedure of Appellate Tribunal): The revised draft to be shared with the States in advance. In the revis
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(2) by adding the phrase 'by the GST Council' at the end of the sentence. xii. Section 142 (Disclosure of information required under section 141): To amend Section 142(3) by changing the maximum limit set for imposing fine from Rupees One Thousand to Rupees Twenty-Five Thousand. xiii. Section 163 (Anti-profiteering Measure): To amend Section 163(1) by replacing the phrase 'by law' by the phrase 'on the recommendation of the Council by a notification'. Additionally, the requirement of passing the benefit of duty reduction to the consumers should be incorporated in the relevant provisions of the GST Law in addition to that contained in Section xiv. Section 164 (Repeal and saving): To harmonise the provisions of Section and Section 182. xv. Section 169 (Credit of eligible duties and taxes in respect of inputs held in stock to be allowed in certain situations): The Rules Committee of Officers to provide for allowing ITC of embedded VAT through Ru
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e issued on the recommendation of the Council. Agenda Item 2A – GST Treatment of Land and Building (Real Estate) 10. The Secretary to the Council introduced this agenda and explained that in Section 2(49), the definition of 'goods' included only movable property. He pointed out that under the Constitution, States had power to charge stamp duty on transactions in land and building and that the rate of this duty ranged between 5% and 6%. He emphasized that under this agenda item, no change in the scheme of stamp duty was proposed as entry 63 of the State List of Schedule 7 of the Constitution empowering States to charge stamp duty remained intact. He pointed out that today, there existed a dichotomy in rates of Service Tax on property depending upon the fact whether it was bought as an under construction property (which attracted' Service Tax) or as a ready-built property after obtaining completion certificate (which did not attract Service Tax). He explained that
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n as to what percentage of sale of property was fully-constructed vis vis those under construction. The Secretary to the Council stated that such data was not readily available. The Hon'ble Minister from Uttar Pradesh observed that most property sales would be of under-construction property as it would be difficult for developers to fully fund by themselves the development of a property. The Hon'ble Minister from Uttarakhand stated that the hill States should have special exemption. The Hon'ble Chairperson observed that this would be decided once the main issue was settled. The Hon'ble Minister from Punjab observed that if a developer constructed the property on his own, then the completed project's cost would be higher as the developer would also recover the cost of capital investment. The Hon'ble Deputy Chief Minister of Gujarat did not support the proposal under this agenda item. He observed that in almost 90% cases, an under-construction flat was booked by c
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ed on re-sale of property, say, a hotel, this would help in claiming ITC and lowering the cost of business for the buyer of the hotel. He also stated that charging GST on re-sale of property would also capture the value addition over a period of time. The Hon'ble Deputy Chief Minister of Gujarat pointed out that there was stamp duty on re-sale. The Hon'ble Minister from West Bengal stated that he supported the views expressed by the Hon 'ble Deputy Chief Minister of Gujarat and the Hon'ble Ministers from Uttar Pradesh and Telangana. He observed that all fittings and raw materials used in buildings would largely be tax-paid and this was presently an additional tax gain for the State as no ITC was available on them. He expressed that the proportion of evaded inputs like steel, cement, etc. might not be very high. He further stated that there were much larger transactions in smaller and medium houses and these should not be taxed in addition to the levy of stamp duty. He c
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tates. The Hon'ble Minister from Tamil Nadu stated that the proposal under this agenda item appeared to be unconstitutional as stamp duty was constitutionally retained. He also added that the definition of goods in the Constitution did not include land and building. The Hon'ble Chairperson summed up the two broad viewpoints namely that incidence of tax was likely to go up and the other that the tax amount would remain the same due to availability of ITC on inputs used as construction material. The Hon 'ble Minister from Punjab observed that if GST was imposed on land and building, the cost for the customer would go up. The Chief Economic Advisor stated that if GST was extended to land and building, it would be a transformational GST and would also have a strong anti-corruption, anti-black money signalling. He reminded the House that internationally, GST was charged on supply of property. The Hon'ble Chairperson observed that this idea was transformational but instead of
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amil Nadu suggested to inselt after Section 2(3) of the Compensation Law, a definition of 'compensation fund' as follows: Compensation fund means, a non-lapsable fund in the Public Account, for the purpose of compensation to the States for loss of revenue arising on account of implementation of the Goods and Services Tax for a period of five years as per section 18 of the Constitution (101st Amendment) Act 2016. He further suggested to add the following in the Compensation Law: The Goods and Services Tax Compensation Fund shall comprise of the Compensation Cess and such other revenues that the Central Government may transfer to it. He also suggested to add in Section 2(8), the words 'under this Act' after the words 'taxable person'. Similarly, he suggested that in Section 2(12), the words 'under this Act' be added after the word 'State'. He further pointed out that in Section 5(1), there was no reference to ITC adjustment and ITC reversal but
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ces Tax. The Hon'ble Minister from Telangana supported these proposals. 13. The Hon'ble Minister from Odisha stated that as he had stated in the 3rd meeting of the Council, the rate of royalty on coal fixed at 14% ad valorem had had not been received for more than four years. He added that even though the Ministry of Coal had constituted a Committee to revise the rate of royalty on 21 July 2014, the rate of royalty had remained unrevised. He added that while the Central Government had enhanced the Clean Environment Cess to ₹ 400 per tonne in 2016-17, this cess was not being shared with the coal-bearing States. He further suggested that the Clean Environment Cess should be renamed as 'Environment and Rehabilitation Cess' and at least 60% of its proceeds should be shared with the coal-bearing States to meet the negative externalities and remaining 40% of the cess may go to the GST Compensation Fund. He further added that during the 3rd and 4th meetings of the Co
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und fell short of the amount claimed as compensation by the States. He therefore suggested to add that in case the amount in the Compensation Fund fell short of the total claim made by the States in a year, the balance shall be paid by the Government of India from its Consolidated Fund. He also suggested to re-number the paragraphs relating to 'Base Year', 'Base Year Revenue', 'Projected Growth Rate' and 'Projected Revenue for Any Year' as Section 3, 4, 5 and 6 respectively for the sake of clarity and simplicity. 14. The Hon'ble Minister from Andhra Pradesh observed that collection of cess for giving compensation was not correct and instead, compensation for GST should be borne by the Central Government. He recalled that when VAT was introduced, compensation was paid from the Consolidated Fund of India. The Hon'ble Minister from Maharashtra suggested giving compensation every month. He further suggested and that in view of abolition of the Loc
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was not sufficient to pay compensation, the States must be paid compensation within the five-year period and that levy of cess might be extended beyond five years to recover the shortfall. 15. The Hon'ble Minister from Punjab observed that quarterly payment of cess would, in actual effect, lead to payment after 4 months and suggested to make the period of payment as monthly or bimonthly. He further suggested that if the amount in the Compensation Fund was insufficient, the Government of India should commit to make payment from any other source. He also suggested to add the word 'fee' in Section 5(1)(g). 16. The Hon'ble Minister from Telangana stated that the experience of States for compensation during VAT was not good. He suggested that there should be a provision that if the cess amount was not sufficient for payment of compensation, it would be paid through the Consolidated Fund of India. He also highlighted the need to compensate for Rural Development (RD) Ce
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ction 5(2) of the IGST Act needed more discussion. He further added that the collection of taxes had fallen during the third quarter and the situation was likely to worsen in the fourth quarter and that there was a likely shortfall of revenue in his State of ₹ 5000 to ₹ 7000 Crore. He observed that the projected collection of compensation amount of about ₹ 55000 Crore might not be sufficient and there was a need to provide in the Act that if there was a shortfall in collection of cess, compensation shall be paid from the Consolidated Fund of India or from some other source. The Hon 'ble Minister from Meghalaya stated that North Eastern States had less resources and compensation should be given on monthly or bi monthly basis. He added that it had been agreed by the Council earlier that tax exempted under the Industrial Policy of Special Category States shall be added to their base year revenue. He observed that this would give them only limited benefit and he urged
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same at the end of the month after getting certified accounts. He suggested that compensation should not be linked on the basis of past collection but be paid on a projection basis. He also suggested to amend Section 5(4) in reference to Jammu Kashmir to indicate that 'the base year revenue shall include the amount of sales tax collected on services.' He further suggested to amend Section 5(5) by adding the word 'remission' along with the word 'exemption'. 19. The Hon 'ble Minister from Chhattisgarh suggested that the Entry Tax collection should not be added as revenue in the year it was collected. The Hon'ble Minister from West Bengal also supported the stand of the Hon'ble Ministers from Odisha, Haryana and Chhattisgarh of either adding the collection of Entry Tax arising out of the judgement of the Supreme Court in the base year 2015-16 or not to add it in the subsequent year when it was actually collected. The Hon 'ble Minister from Kera
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e 7 of the Constitution. With regard to the suggestion from the Hon'ble Minister from West Bengal, he informed that Section 8 had already been revised and that the revised version had been circulated in the meeting. He stated that as regards the suggestion from the Hon'ble Minister from Odisha and a few other Hon'ble Members, regarding non-inclusion of Entry Tax in the revenue collection of the relevant year, the Council had already agreed earlier that whatever revenue was actually collected by the States would be considered as revenue collected except to the extent that had already been agreed for the Special Category States and that this decision would stand unless the Council agreed to change it. As regards the suggestion of the Hon'ble Deputy Chief Minister from Gujarat regarding refund of cess on exported goods, he pointed out that Section 9 of the Compensation Law provided that all provisions of furnishing return and claiming refund of CGST and IGST shall apply to
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of inclusion of Entry Tax in the revenue base, the Secretary to the Council stated that the issue of Entry Tax litigation was earlier discussed in the Council extensively and then it was decided that only actual revenue earned by a State in a year shall be counted towards the revenue collected during a year and as a part of the overall package, it was agreed that an assured growth rate of 14% shall be considered for compensation to States. He added that the suggestion of subtracting the collection of Entry Tax from the revenue collection of States in a year would be unfair to the Central Government. He further added that if an earlier tax dispute pending in a Court was decided in favour of a taxpayer leading to a large amount of refund in a subsequent year, the calculation of tax collected would be net of this refund. The Hon'ble Minister from Assam informed that the disputed amount of Entry Tax for his State was about ₹ 1200 Crore which was for years 2011-12, 2012-13 and 201
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sation was discussed like through taxation or through the Consolidated Fund of India and finally the formulation that was agreed upon was the one which was least burdensome for consumers, namely to collect cess on certain luxury and demerit goods in excess of 28% tax, and that after five years, this cess could be merged with the tax. He added that revenue for the base year 2014-15 was to be based on actual tax collection figure and not on some hypothetical basis of collection. He added that the projected growth rate of 14% on the base year collection was linked to the overall agreement reached regarding compensation and it was not possible at this stage to open only one limb of the agreement. He mentioned that the demand for payment of compensation from the Consolidated Fund of India essentially meant funding compensation from Income Tax or non-tax revenues of the Central Government, which would be a challenge as the Central Government also had its own committed expenditure. He said th
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and this figure was arrived at after considering various other imponderables. The Hon'ble Minister from Haryana referred to a history of mistrust because CST compensation was not given to the States as per the agreed formula. The Hon'ble Chairperson observed that the Council would now decide upon compensation and the States had also been empowered in the Council. The Hon'ble Minister from Telangana pointed out that the Council had not decided as to how compensation would be paid if there was a shortfall in cess collection. The Hon'ble Chairperson stated that in such an eventuality, the Council could decide to raise the rate of tax or cess. The Hon'ble Minister from Telangana observed that as only four to five Sates were likely to require compensation, it could be provided that in case of a shortfall in cess amount, the compensation could be funded from the Consolidated Fund of the Central Government. The Hon'ble Minister from Tamil Nadu observed that cess shoul
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December, 2016 showed increase in income tax collection by 13.5% and of Central Excise collection by 23%. He added that there was fall in revenue in Service Tax but this was also the trend in the last year and was possibly due to the effect of post-Diwali festival. The Hon'ble Minister from Kerala observed that there should be clear provision in the Compensation Law as to how 100% compensation shall be ensured and shall be paid within the month. The Hon'ble Minister from Jammu Kashmir stated that the formulation earlier agreed for compensation was actually an insurance at 14% and there would be compensation even if a State suffered from a calamity. The Hon'ble Minister from West Bengal stated that it should be clearly recorded that there shall be 100% compensation at the projected growth rate of 14%. The Secretary to the Council stated that this was already a commitment but the Council would need to provide for means of raising resources for compensation. The Hon'ble
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the next meeting. i. To incorporate the definition of 'Compensation Fund' in Section 2 to denote a Fund consisting of GST compensation cess revenue and such other revenue as the Council may decide. ii. To add the word 'fee' in Section 5(1)(g) and this would apply only in case the fee being collected under Entry 66 of the State List (in Schedule 7 of the Constitution) was imposed in respect of those entries of the State List (like Entry 54) which had been omitted under the Constitution (One Hundred and First Amendment) Act, 2016. iii. To add in Section 2(8), the words funder this Act' after the words 'taxable person.' iv. To amend Section 5(4) to indicate that 'the base year revenue shall include the amount of sales tax collected on services.' v. To amend Section 5(5) by adding the word 'remission' along with the word ' exemption'. vi. To give compensation on bi-monthly basis and to this extent the decision taken
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