GST Council meet: What to expect next

An advantage of a law such as GST is that there is no dearth of items of goods and services on which tax rates can be increased, decreased, exempted or retained

If there is one word that can describe the approach of the GST Council while making recommendations on the law, it would be “cautious”. The need to be cautious probably arose because of the recent diktat given by the Supreme Court in the case of Mohit Minerals.

The apex court stated that the recommendations of the GST Council are not binding on the Union and states since the deletion of Article 279B and the inclusion of Article 279(1) by the Constitution Amendment Act 2016 indicates that Parliament intended for the recommendations of the GST Council to only have a persuasive value. This fact is further confirmed if one considers the fact that the objective of the GST regime is to foster cooperative federalism and harmony between the constituent units. It was widely expected that the 47th meeting of the GST Council that was held recently would provide recommendations on the rates of GST on casinos, race horses and gambling, setting up of GST appellate tribunals and IT reforms. Displaying a cautious approach, the GST Council decided to refer all three matters to a Group of Ministers (GoM).

One of the advantages of a law such as GST is that there is no dearth of items of goods and services on which tax rates can be increased, decreased, exempted or retained. Over the last five years, the GST Council has kept tinkering with GST rates with a view to ensuring that the rates are harmonised. The mantra of the Council has been to ensure that essential commodities are in the 5 per cent bracket, sin goods are in the 28 per cent bracket while most other items are either in the 12 per cent or 18 per cent bracket. However, due to the sheer number of items, it is possible that the tax on inputs is higher than the tax on outputs (christened inverted duty structure), thereby denying taxpayers the entire benefit of input tax credit.

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The GST Council corrected the existing inverted duty structure on 17 items by raising tax rates to the level of input taxes. Services provided by the RBI, IRDA, Sebi, FSSAI and GSTN will now be taxable. The exemption provided to hotels with a published tariff of Rs 1,000 per day has been removed and they will now have to charge GST at 12 per cent. Room rents charged by hospitals exceeding Rs 5,000 per day per patient shall be taxed to the extent of the amount charged for the room at 5 per cent without input tax credit.

However, days spent in the ICU by patients would not attract GST. The recommendations of the GST Council also include a proposal that would be welcomed by ice cream parlours — the rate of GST has been made 5 per cent from 1.7.2017 to 5.10.2021. The revised rates of tax for all categories wherein there has been a change would come into effect from July 18, 2022.

A notable omission in all the recommendations of the GST Council is the lack of recommendations on availing input tax credit (ITC). At the 47th meeting, the GST Council rationalised tax rates, facilitated filing of returns and eased the process of claiming a refund but refrained from announcing anything significant on availing ITC.

The only proposal regarding ITC is the change in the formula for calculation of refund under rule 89(5) to take into account utilisation of ITC on account of inputs and input services for payment of output tax on inverted rated supplies in the same ratio in which ITC has been availed on inputs and input services during the said tax period. The requirement that a certain set of taxpayers needs to pay GST in cash (Rule 86B) and the condition that ITC can be availed only if the counterparty has fulfilled all compliances under GST still continues. Rationalisation of tax rates would work well only if there are no restrictive conditions imposed on availing ITC.

Another proposal that could have been recommended by the GST Council was permitting revision of the monthly return Form GSTR 3B. One of the major lacunae in the GST system from inception has been the lack of an opportunity to the taxpayer to revise his return.

The next meeting of the GST Council is scheduled in the first week of August in Madurai. Taxpayers will be hoping that the environment of the temple town will encourage the GST Council to remove the restrictions on availing input tax credit.

Taxpayers would also be praying that the appellate tribunals get up and running fast in order that they have a forum to appeal against adverse orders being passed. The issue of distribution of the compensation cess that has been extended till 2026 would also need to be resolved. State governments would be keen on getting their pound of flesh from the cess failing they may think of levying local levies — something that is best avoided in a nation-wide tax.

(The writer is a tax expert based in Bengaluru)