Key Proposals in the 55th GST Council Meeting

The much anticipated 55th Goods and Services Tax Council meeting was held on December 21^st, 2024. The meeting addressed key changes in GST tax rates, exemptions, measures for trade facilitation, streamlining of compliance and measures pertaining to law and procedure.

The much awaited clarification on the issue of whether charges collected by municipalities for granting Floor Space Index (“FSI”) including additional FSI is chargeable to GST under reverse charge basis, has been deferred for further examination on the behest of the Central Government on the ground that this amount relates to Municipalities or local authority.

The summary of significant decisions and recommendations made during the meeting are provided below:

• The changes in GST rates of goods recommended during the meeting are tabulated below:

• Equipment and consumable samples imported by Inspection Team of International Atomic Energy Agency: The import of equipment and consumable samples by Inspection Team of International Atomic Energy Agency is exempt from levy of GST subject to fulfilment of specified conditions.
• Compensation cess on supplies to merchant exporters: The Council has recommended to reduce the rate of GST Compensation Cess to 0.1% on supplies made to merchant exporters to bring it at par with the prevailing GST rate on such supplies. This is proposed to increase working capital for exporters.
• Autoclaved Aerated Concrete blocks: It is proposed to clarify that Autoclaved Aerated Concrete blocks, containing more than 50% fly ash content, will fall under HSN 6815 and attract GST at the rate of 12%.
• Pepper and raisins: It is recommended to be clarified that no GST would be applicable on supply of pepper (whether fresh green or dried pepper) and raisins by an agriculturist.
• Classification of pre-packaged and labelled goods: The expression ‘pre-packaged and labelled’ is recommended to be amended to cover all commodities that are intended for retail sale and containing not more than 25 kg or 25 litre, which are ‘pre-packed’ as defined under the Legal Metrology Act, or where a label is securely affixed thereto which is required to bear the declarations under the provisions of the Legal Metrology Act, 2009 (1 of 2010) and the rules made thereunder.

• Ready to eat popcorn: The following clarification is provided as regards applicable rate of GST on ready to eat popcorn to settle the confusion / disputes arising in connection therewith. Further, it is also recommended that the issues for the past are to be regularized on “as is where is” basis.

• GST Compensation Cess on motor vehicles: GST compensation cess is leviable at the rate of 22% on supply of motor vehicles known as Utility Vehicles, by whatever name called including Sports Utility Vehicles (SUV), Multi Utility Vehicles (MUV), Multi-purpose vehicles (MPV) or Cross-Over Utility Vehicles (XUV), with engine capacity exceeding 1500 cc, length exceeding 4000 mm and ground clearance of 170 mm and above. Further, an explanation was inserted to clarify that ground clearance means ground clearance in unladen condition. It is recommended to clarify that the said Explanation would apply only with effect from 26.07.2023.

• Sponsorship services provided by Body corporate: It is recommended to bring sponsorship services supplied by body corporates under forward charge mechanism.
• Contribution to Motor Vehicle Accident Fund: It is recommended to exempt GST on the contributions made by general insurance companies from the third-party motor vehicle premiums collected by them to the Motor Vehicle Accident Fund, constituted under section 164B of the Motor Vehicles Act, 1988. This fund is constituted for providing compensation/ cashless treatment to the victims of road accidents including hit and run cases.
• Accommodation, food and beverage service: It is recommended that the term “declared tariff” as defined under the rate Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 (as amended from time to time) would be omitted. Accordingly, the term “specified premises” which is defined currently to mean premises providing hotel accommodation services having declared tariff of any unit of accommodation above Rs. 7500/- per unit per day or equivalent would also be suitably amended.

It is recommended that the GST rate on supply of services of accommodation, food and beverage would be linked with actual value of supply of any unit of accommodation provided by the hotel.

Further, the rate of GST applicable on restaurant services in hotels, for a given financial year, is proposed to be dependent upon the ‘value of supply’ of units of accommodation made in the preceding financial year, i.e. 18% with ITC if the ‘value of supply’ exceeded Rs. 7,500/- for any unit of accommodation in the preceding financial year, and 5% without ITC otherwise. Further, it is also recommended that the suppliers shall have an option to pay tax on restaurant service in hotels at the rate of 18% with ITC, if the hotel so chooses, by giving a declaration to that effect on or before the beginning of the financial year or on obtaining registration.

These changes are likely to be made effective from 01.04.2025 to avoid any transition difficulties.

• Service by way of renting of any immovable property other than residential dwelling: To exempt levy of GST under reverse charge mechanism basis for taxpayers registered under composition levy scheme which received services by way of renting of any immovable property (other than residential dwelling) from unregistered person.

The said service was bought under the taxable net for levy of GST under reverse charge mechanism with effect from 10.10.2024 vide issuance of Notification No. 09/2024-Ccentral Tax, Rate dated 08.10.2024. It is also recommended that demand of GST on such services for past period shall be regularized on ‘as is where is’ basis. till the date of issuance of the proposed notification.

• Services by an acquiring bank: It is recommended to clarify that the exemption from levy of GST on services supplied by an acquiring bank, to any person in relation to settlement of an amount upto Rs. 2000/- in a single transaction transacted through credit card, debit card, charge card or other payment card service shall be applicable only to acquiring banks which are RBI regulated Payment Aggregators. It would also be clarified that such exemption would not be applicable on payment gateway (PG) and other fintech services which do not involve settlement of funds.
• Penal charges for non-compliance with loan terms: It is recommended to clarify that no GST is payable on the ‘penal charges’ levied and collected by banks and NBFCs from borrowers for non-compliance with loan terms.

• Amendment to Schedule III to the Central Goods and Services Tax Act, 2017 (“CGST Act”):
  • It is recommended to insert clause (aa) in paragraph 8 of Schedule III of the CGST Act, to explicitly provide that supply of goods warehoused in a Special Economic Zone (SEZ) or Free Trade Warehousing Zone (FTWZ) to any person before clearance of such goods, for exports or to the Domestic Tariff Area (“DTA”), shall be treated neither as supply of goods nor as supply of services.
  • Such amendment is proposed to align the transactions relating to supply of goods warehoused in SEZ/FTWZ with the existing provision in GST qua supply of warehoused goods to any person before clearance for home consumption.
  • The said insertion is recommended to have a retrospective application with effect from 01.07.2017.

• Issues related to taxability of vouchers:
  • The Council recommended that the Sections 12(4) and 13(4) from CGST Act, both dealing with Time of supply of vouchers, and Rule 32(6) from CGST Rules which lays down the mechanism for determination of taxable value for supply of vouchers shall be omitted to resolve ambiguities in the treatment of vouchers.
  • It is also recommended that the following clarifications may be issued:
  • Transactions in vouchers shall be treated neither as a supply of goods nor as a supply of services.
  • Distribution of vouchers on principal-to-principal basis shall not be subject to GST.
  • Distribution of vouchers on principal-to-agent basis shall be taxable under GST to the extent of the commission/fee or any other amount charged by the agent for such distribution.
  • Services such as advertisement, co-branding, marketing and promotion, customization and technology support, customer support etc. related to vouchers would be leviable to GST on the amount paid for these services.
  • Unredeemed vouchers (breakage) would not be considered as supply under GST and no GST is payable on income booked in the accounts in respect of breakage.

• Removal of ambiguity and legal disputes in certain issues:

The Council recommended issuing circulars to provide clarity and remove doubts and ambiguities arising in the following issues:

• Reversal of Input Tax Credit by electronic commerce operators.
• It is recommended to clarify that no proportional reversal of ITC under Section 17 (1) or Section 17(2) of CGST Act is required to be made by the electronic commerce operators in respect of supplies for which they are required to pay tax under section 9(5) of CGST Act.
• Availability of Input Tax Credit on goods delivered by supplier on ex-works basis.
• It is recommended that a Circular be issued to clarify that in an ex-works contract, where goods are delivered by the supplier to the recipient or a transporter at the supplier’s place of business, and the property in goods transfers to the recipient at that point, the goods are considered to be “received” by the recipient under Section 16(2)(b) of CGST Act and the recipient may claim Input Tax Credit (ITC) on such goods, subject to the conditions outlined in Sections 16 and 17 of the CGST Act, 2017.
• Applicability of late fee for delay in furnishing of FORM GSTR-9C
• It is recommended to clarify that the late fee under Section 47(2) of the CGST Act is leviable for the delay in filing the complete annual return under Section 44 of the CGST Act, which includes both FORM GSTR-9 (Annual Return) and FORM GSTR-9C (Reconciliation Statement), where applicable.
• It is also recommended to issue a notification under Section 128 of CGST Act for waiver of the amount of late fee for delayed filing of FORM GSTR-9C for the period 2017-18 to 2022-23, in excess of the amount of late fee payable till the date of filing of FORM GSTR-9, provided the said FORM GSTR-9C is filed on or before 31.03.2025.

• Insertion of new provision for Track and Trace Mechanism:
  • The Council recommended the insertion of an enabling provision vide Section 148A to the CGST Act so as to empower the Government to enforce the Track and Trace Mechanism for specified evasion prone commodities.
  • The proposed system shall be based on a Unique Identification Marking which shall be affixed on the said goods or the packages thereof. This will provide a legal framework for developing such a system and will help in implementation of mechanism for tracing specified commodities throughout the supply chain.
• Recording of correct details of name of the State of the un-registered recipient as well as correct declaration of place of supply in respect of supply of ‘Online Services’
  • It is recommended to clarify that in respect of supply of ‘Online Services’ such as supply of online money gaming, OIDAR services, etc. to unregistered recipients, the supplier is required to mandatorily record the name of the State of the unregistered recipient on the tax invoice and such name of State of recipient shall be deemed to be the address on record of the recipient for the purpose of section 12(2)(b) of Integrated Goods and Services Tax Act, 2017 (“IGST Act”) read with proviso to Rule 46(f) of Central Goods and Services Tax Rules, 2017 (“CGST Rules”).

• Amendment in Section 17(5)(d) of the CGST Act
  • The Council has recommended amending Section 17(5)(d) of CGST Act, 2017, to replace the phrase “plant or machinery” with “plant and machinery”, retrospectively, with effect from 01.07.2017. This said amendment is proposed to ensure that the said phrase in Section 17(5)(d) be interpreted as per the Explanation provided under Section 17 of CGST Act.

• Reduction in pre-deposit amount for filing an appeal in respect of an order passed which involves only demand of penalty without involving the demand of tax
  • It is recommended to amend the proviso to Section 107(6) of CGST Act providing for payment of pre-deposit at 10% instead of 25% for filing appeals before Appellate Authority.
  • It is also recommended to insert a new proviso to Section 112(8) of CGST Act providing for payment of pre-deposit at 10% for filing appeals before Appellate Tribunal.

• Amendment to the definition of “local authority” under Section 2(69) of CGST Act
  • It is recommended to insert an Explanation under clause (c) of Section 2(69) of CGST Act to provide for definitions of the terms ‘Local Fund’ and ‘Municipal Fund’ used in the said clause.
• Amendment to Input service distributor mechanism
  • It is recommended to amend the definition of “Input service distributor” under Section 2(61) of the CGST Act to include inter-state transactions, liable to tax under reverse charge mechanism, by including reference to supplies subject to tax under section 5(3) and 5(4) of IGST Act.
  • Similar amendments are also recommended to be carried out in Section 20(1) of the CGST Act which outlines the manner of distribution of credit by an Input service distributor.
  • Consequential amendments are also proposed to be made to Section 20(2) of CGST Act and Rule 39(1A) of the CGST Rules to align with the above amendments.
  • These amendments in CGST Act are proposed to be made effective from 01.04.2025.
• Provision for grant of Temporary Identification Number by Tax Officers to persons, not liable to be registered otherwise
  • It is recommended to insert new Rule 16A in CGST Rules to provide for a separate provision for generation of temporary identification number for persons, who are not liable to be registered under CGST Act but are required to make any payment as per Rule 87(4) of CGST Rules.
  • Rule 87 (4) of CGST Rules is also proposed to be amended to incorporate a reference to the Rule 16A.
  • Consequential modifications are also proposed to be made to FORM GST REG-12.
• Amendment in the field ‘category of registered person’ for taxpayers who opted for composition levy through FORM CMP-02
  • It is recommended to amend Rule 19(1) of CGST Rules to include reference to FORM GST CMP-02 in the said rule to allow the composition taxpayers to modify their “category of registered person” in Table 5 of FORM GST CMP-02 through FORM GST REG-14.
• Amendment with respect to functionality of Invoice Management System (IMS)
  • The GST Council inter alia recommended:
  • To amend Section 38 of CGST Act and Rule 60 of CGST Rules to provide a legal framework in respect of generation of FORM GSTR-2B based on the action taken by the taxpayers on the IMS.
  • To amend Section 34(2) of CGST Act, to specifically provide for requirement of reversal of input tax credit, as is attributable to a credit note, by the recipient, to enable the reduction of output tax liability of the supplier.
  • To insert a new Rule 67B in CGST Rules, to prescribe the manner in which the output tax liability of the supplier shall be adjusted against the credit note issued by him.
  • To amend Section 39 (1) of CGST Act and Rule 61 of CGST Rules to provide that FORM GSTR-3B of a tax period shall be allowed to be filed only after FORM GSTR-2B of the said tax period is made available on the portal.

• The GST Council approved the recommendation of the committee of officers suggesting measures for various issues raised by the States in respect of issues pertaining to IGST settlement and directed the committee to conclude the desired changes by March, 2025.
• The GST Council took note of the procedural rules proposed for the internal functioning of the Goods and Services Tax Appellate Tribunal (“GSTAT”) , which would be notified after examination by the Law Committee. This would help in operationalization of the GSTAT.
• The Council also recommended to extend the time frame for the Group of Ministers on the restructuring of the GST Compensation, till 30.06.2025.
• The Council also recommended that a Group of Ministers be constituted to examine the legal and structural issues, and recommend a uniform policy on imposition of levy in case of a natural disaster/calamity in the State.

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