Indirect Tax Alert - Recommendations of the 52nd GST Council Meeting held on 7 October 2023

The 52^nd GST Council Meeting was held on 7 October 2023 in New Delhi. The gist of the recommendations made in the aforesaid GST Council meeting is summarised in the ensuing paragraphs.

Changes in GST rate on ‘Goods’ and ‘Services’

• GST rate on ‘Food preparation of millet flour in powder form, containing at least 70% millets by weight’ falling under HSN code 1901 is recommended to be reduced from 18% as under:
  • 0% - If sold in other than pre-packaged and labelled form;
  • 5% - If sold in pre-packaged and labelled form
• GST rate on molasses is recommended to be reduced from 28% to 5%.
• Presently, foreign going vessels are liable to pay IGST @ 5% on the value of the vessel if the vessel is converted to a coastal-run vessel. It has been recommended to grant a conditional IGST exemption to foreign flag foreign going vessel when it converts to coastal run subject to its reconversion to foreign going vessel in six months.
• The exemption currently available in respect of pure and composite services provided to Central/State/UT governments and local authorities in relation to any function entrusted to Panchayat/ Municipality under Article 243G and 243W of the Constitution of India to be continued. Further, exemption has also been extended to ‘Services of water supply, public health, sanitation conservancy, solid waste management and slum improvement and upgradation supplied to Governmental Authorities’.

Levy of GST on Extra Neutral Alcohol (ENA)

• It is recommended to keep ENA used for manufacture of alcoholic liquor for human consumption outside the purview of GST. Law Committee will examine suitable amendments in the law to exclude ENA for use in manufacture of alcoholic liquors for human consumption from ambit of GST.
• A separate tariff HS code has already been notified at 8-digit level in the First Schedule to the Customs Tariff Act, 1975 to cover ‘Rectified Spirit for industrial use’¹. The GST rate on ENA supplied for industrial use would be notified to be 18%.

Miscellaneous clarifications to be provided in respect of GST rate on ‘Goods’ and ‘Services’

• It is clarified that imitation zari thread or yarn made out of metallised polyester film/plastic film, falling under HS 5605 are covered by the entry for ‘Imitation zari thread or yarn’ attracting 5% GST rate. However, no refund will be allowed on polyester film (metallised)/plastic film on account of Inverted Duty Structure.
• A Clarification would be issued that job-work services for processing of barley into malt attracts GST @ 5% and would be covered under ‘job-work in relation to food and food products’ and would not attract GST @ 18%.
• Effective 1 January 2022, Electronic Commerce Operators (ECOs) are liable to pay GST on bus transportation services supplied through ECOs under Section 9(5) of Central Goods and Services Tax Act, 2017 (CGST Act). In this regard, GST Council has recommended that bus operators organised as companies may be excluded from the purview of Section 9(5) of CGST Act. Accordingly, such companies can pay GST on their supplies by utilising Input Tax Credit (ITC).
• It is clarified that District Mineral Foundations Trusts set up by the State Governments are ‘Governmental Authorities’ and are eligible for the GST exemptions as available to any other Governmental Authority.
• Supply of all goods and services by Indian Railways shall be taxed under the forward charge mechanism to enable Indian Railways to avail ITC.

Amnesty scheme for filing of appeals

• The following class of taxpayers are eligible to claim the benefit under the Amnesty Scheme:
  • Taxpayers who could not file appeal under Section 107 of the CGST Act against the demand order under Section 73 or 74 of the CGST Act which was passed on or before 31 March 2023; or
  • Taxpayer whose appeal against the aforesaid order was rejected solely on the ground that the appeal was not filed within the time limit provided under Section 107(1) of the CGST Act.
• The above class of taxpayers would now be entitled to file an appeal against the aforesaid orders up to 31 January 2024, subject to the condition of payment of an amount of pre-deposit of 12.5% of the tax in dispute, out of which, at least 20% (i.e., 2.5% of the tax in dispute) should be debited from Electronic Cash Ledger.

Levy of GST on personal guarantees (by directors)/corporate guarantees (by, say, a holding company)

• Personal guarantees by directors: A Circular would be issued clarifying that when no consideration is paid by the company to the director in any form, directly or indirectly, for providing personal guarantee to the bank/financial institutions on their behalf, the Open Market Value (OMV) for the said transaction/supply may be treated as ‘zero’, and hence, no tax would be payable in respect of such supply.
• Corporate guarantees by related parties:
  • Rule 28(2) of the Central Goods and Services Tax Rules, 2017 (CGST Rules) would be inserted to provide that the value of supply of corporate guarantee provided by related parties would be higher of the following:
    • 1% of the amount of guarantee;
    • The actual consideration charged.
  • A Circular would be issued clarifying that after the above insertion, the value of supply of ‘corporate guarantees’ between related parties would be governed by the above Rule, irrespective of whether or not full ITC is available to the recipient.

Allowing supplies to SEZ developers/SEZ units on payment of IGST (and subsequently claim refund of such tax)

Notification no:1/2023-Integrated Tax dated 31 July 2023² would be amended with retrospective effect from 1 October 2023 to permit supply of goods or services (other than the specific exclusions already notified such as tobacco, pan masala and specified essential oils) to Special Economic Zones (SEZ) Developers or SEZ units when such supplies are made for authorized operations. Accordingly, such supplies can now be made on payment of IGST which can subsequently be claimed as refund.

Automatic restoration of provisionally attached property after completion of one year

Rule 159(2) of the CGST Rules and Form GST DRC-22 would be amended to provide that the order for provisional attachment of property shall not be valid after expiry of one year from the date of the provisional attachment order. Consequently, there would not be any requirement of obtaining a specific written order from the Commissioner for release of such property.

Clarification pertaining to ‘export of services’ concerning remittances received in Special INR Vostro Account

A Circular would be issued clarifying the admissibility of export remittances received in Special INR Vostro Account, as permitted by RBI, for the purpose of consideration of supply of services to qualify as ‘export of services’ as per Section 2(6)(iv) of the Integrated Goods and Services Tax Act, 2017.

Miscellaneous Recommendations

• The following amendments to Section 110 of the CGST Act inter alia with respect to the appointment of the President and the Members of the Goods and Services Tax Tribunal (GSTAT) to be notified to align the provisions concerning the GSTAT with the provisions of the Tribunal Reforms Act, 2021:
  • An advocate for ten years with substantial experience in litigation under the Indirect Tax laws in the Appellate Tribunal, Central Excise and Service Tax Appellate Tribunal, State VAT Tribunals, by whatever name called, High Court or Supreme Court would be eligible for appointment as a Judicial Member of the GSTAT;
  • The minimum eligible age of appointment of both President and Members to be 50 years;
  • The President and Members shall have a tenure up to a maximum age of 70 years and 67 years respectively;
• GST Council, in its 50^th meeting had recommended that the Input Service Distributor (ISD) procedure laid down in Section 20 of the CGST Act would be made mandatory on a prospective basis for distribution of ITC in respect of input services procured by Head Office (HO) from a third-party but attributable to both HO and Branch Office (BO) or exclusively to one or more BOs³. The Council has now recommended amendments to Sections 2(61) and 20 of the CGST Act as well as an amendment to Rule 39 of the CGST Rules for implementing these recommendations. 
• A Circular would be issued clarifying that the place of supply in respect of the following:
  • Supply of service of transportation of goods, including by mail or courier, in cases where the location of supplier or the location of recipient of services is outside India;
  • Supply of advertising services; and
  • Supply of co-location services.

BDO Comments

The GST Council has addressed two of the significantly debated issues, i.e., the tax treatment of the personal guarantees issued by the directors and also the guarantees given by the corporates as well as the tax treatment of ENA supplied for making alcoholic liquor for human consumption. The industry would need to await the fine prints of the specific amendments to assess if there are any further open issues.

Another positive step is announcement of amnesty scheme for filing time barred appeals against demand orders issued up to 31 March 2023. The amendments relating to qualifications of members of the GSTAT, and their age limit may resolve various challenges on validity of these rules and may pave the way for operationalisation of the GSTAT. The Council has also addressed some of the inadvertently arising issues such as supply to SEZ units on payment of IGST and temporary nature of provisional attachment of properties. All these would help the taxpayers and help in achieving ‘ease of doing business’.

Lastly, during the Press Conference after the GST Council meeting, it was mentioned that thirteen States which have not yet passed the amendments to operationalise the amendments made for online gaming would bring requisite amendments to make these provisions effective from 1 October 2023. This resolves a lingering uncertainty for the Online Gaming and the Casino industry.

[Source: Press Release dated 7 October 2023 and statements made in the press conference by the Hon’ble FM and the officials. The exact language and effective date of the proposed amendments would be known from the amendment Act/ Notification/ Circular, as and when issued and made effective.]