GST Update: Summary of decisions taken in 45th GST Council meeting

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GST Update: Summary of decisions taken in 45th GST Council meeting

Tejasvi

@tejasvi

September 18, 2021

Public Policy

210

The 45th meeting of the GST Council was held today in Lucknow. This was the first in-person meeting of the Council after a long gap of 2 years, owing to the pandemic. The meeting was chaired by Finance Minister Smt. Nirmala Sitharaman and was attended by Minister of State for Finance along with Finance Ministers of States & Union Territories. Multiple issues such as extending duty relief on Covid-19 essentials, GST rate rationalisation, sector specific clarifications etc. were discussed and deliberated in the meeting.

As a positive news and result of NASSCOM’s advocacy, the Council has decided as follows:

Clarification on the scope of “Intermediary Services”

The GST Council has approved issuance of a Circular to clarify the scope of ‘intermediary’ services and thus, also address ambiguities around classification of export services which are disputed as ‘intermediary’. NASSCOM had been pursuing this issue for nearly 3 years now with various government departments and made several submissions.

This has been a long standing demand of our Industry. The Circular is expected to provide clarification on the principles for services to be considered as ‘intermediary’. We also expect that with the issue of the Circular, services provided by Information Technology enabled Services (ITeS)/ Business Process Management (BPM) companies would be excluded from the scope of Intermediary, since these services are provided on a principal-to-principal basis. This will put an end to litigation on taxation of exports done by such companies, thereby resolving issues relating to denial of refunds and pending litigation.

We are waiting for the fine print of the approved Circular to provide our detailed comments.

Clarification relating to interpretation of “merely establishment of distinct person” to qualify as exports

The GST Council has clarified that a person incorporated in India under the Companies Act, 2013 and a person incorporated under the laws of any other country shall be treated as separate legal entities and will not be barred from exports benefits. NASSCOM has been advocating this issue for more than 2 years now.

As per NASSCOM Zinnov Report on “GCC India Landscape: 2021 % Beyond”, GCC revenue from India is expected to grow at a Compounded Annual Growth Rate (CAGR) of 11-12% to reach USD 60 bn by 2025. This is a welcome clarification for more than 1400 GCCs established in India by foreign entities by ensuring “export” status to services provided by such GCCs to their parent. This will also help in resolving refund issues and clearing litigations pending before the appellate and judicial authorities, thereby aiding growth of GCCs in India and facilitating ease of doing business.

Announcements relevant for IT-BPM Industry

Introduction of GST liability on food aggregators and all type of passenger transport aggregators

As media reports speculated, the GST Council has agreed to make food aggregators (i.e. Swiggy, Zomato) liable to pay GST on supplies made by restaurants. This is aimed at shifting the responsibility from actual suppliers to aggregators to undertake compliances. The announcement has also been made for transport aggregators for transportation of passengers by all motor vehicle. At present radio-taxi, motorcab, maxicab and motor cycles are covered. We will analyse this issue in detail to understand the impact on the Industry.

Applicability of interest only on Input Tax Credit (ITC) availed and utilised

The GST council has proposed to levy interest under section 50(3) of Central Goods and Services Tax Act, 2017 (CGST Act) on ‘ineligible ITC availed and utilised’ and not on “ineligible ITC availed”. Further, the rate of interest has also been reduced from 24% to 18% w.e.f. July 1, 2017. This will provide much needed relief to taxpayers where any contentious ITC has been availed but remains unutilised. This is aligned to the tax position under service tax as well as with the decisions of the courts.

Effectively, interest would need to be paid only in cases where ITC determined to be ineligible is availed and utilised. With this amendment, we expect that pending litigation before judicial and appellate authorities would get resolved. These changes are proposed to be effective retrospectively from 1^st July 2017.

Eligibility to transfer unutilised balance in CGST and IGST cash ledger between distinct persons

The GST council has approved transfer of unutilised balance in CGST and IGST cash ledger between distinct person (entities having same PAN but registered in different states). Presently, if a taxpayer has any cash balance unutilised due to any reason (TCS, TDS or excess deposit), they are forced to claim refund even if there is liability in different state of same legal person. This recommendation will relax working capital requirements for the entities operating from multiple states and having unutilised cash balances.

Other important announcements

In cases where e-invoice is generated by the registered person, there is no need to carry the physical copy of tax invoice.

W.e.f. 01.01.2022 a registered person shall not be allowed to furnish FORM GSTR-1, if he has not furnished the return in FORM GSTR-3B for the preceding month (this was earlier provided as preceding 2 months).

Aadhaar authentication to be made mandatory for being eligible for filing refund claim and application for revocation of cancellation of registration.

W.e.f. 01.01.2021, the date of issuance of debit note (and not the date of underlying invoice) shall determine the relevant financial year for the purpose of availing ITC.

It is proposed to restrict availment of ITC in respect of invoices/ debit notes, to the extent the details of such invoices/ debit notes are furnished by the supplier in FORM GSTR-1/ IFF and are communicated to the registered person in FORM GSTR-2B from the date section 16(2) of CGST Act, 2017 is notified.

COVID-19 relief measure in form of GST rate concessions has been extended till 31 December 2021 on certain items.

Apart from the above, there are certain rate corrections proposed for goods and services. The same are provided in the press release attached.

We hope you will find the update useful. Copy of the official Press Release is attached for your reference.

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Tejasvi