Recommendations of GST Council Meeting Held on 07th October 2023

Smt. Nirmala Sitharaman, Union Minister for Finance & Corporate Affairs, chaired the 52nd GST Council meeting in New Delhi today. The meeting was attended by Union Minister of State for Finance Shri Pankaj Chaudhary, Chief Ministers of Goa and Meghalaya holding the finance portfolio, as well as Finance Ministers of States & UTs (with legislature) and senior officers of the Ministry of Finance & States/ UTs.

The GST Council made the following recommendations relating to changes in GST tax rates, measures for facilitation of trade, and measures for streamlining compliances in GST.

A. Recommendations Of GST Council relating to GST rates on goods and services

I. Changes in GST rates of goods

1. Prescribe GST rates on “Food preparation of millet flour in powder form, containing at least 70% millets by weight”, falling under HS 1901, with effect from the date of notification.
   • 0% if sold in other than pre-packaged and labelled form
   • 5% if sold in pre-packaged and labelled form
2. Clarify that imitation Zari thread or yarn made out of metallized polyester film/plastic film, falling under HS 5605, is covered by the entry for imitation Zari thread or yarn attracting a 5% GST rate. However, no refund will be allowed on polyester film (metallized)/plastic film on account of inversion.
3. The GST Council recommends granting conditional IGST exemption to foreign flag foreign-going vessels when they convert to coastal run, subject to their reconversion to foreign-going vessels within six months. Foreign-going vessels are liable to pay 5% IGST on the value of the vessel if they convert to coastal run.

II. Other changes relating to goods

1. The GST Council recommended excluding Extra Neutral Alcohol (ENA) used for the manufacture of alcoholic liquor for human consumption from GST. The Law Committee will examine suitable amendments in the law to implement this exclusion of ENA for use in the manufacture of alcoholic liquors for human consumption from the ambit of GST.
2. The decision has been made to reduce GST on molasses from 28% to 5%. This action will enhance liquidity for mills, facilitating quicker clearance of cane dues to sugarcane farmers. Additionally, it will decrease the manufacturing cost of cattle feed, as molasses is one of its ingredients.
3. A separate 8-digit level HS code has been established in the Customs Tariff Act to encompass rectified spirit for industrial use. An amendment will be made to the GST rate notification to introduce an entry for Extra Neutral Alcohol (ENA) for industrial use, attracting an 18% GST.

III. Changes in GST rates of services

1. The GST Council has recommended retaining the existing exemption entries at Sl. No. 3 and 3A of notification No. 12/2017-CTR dated 28.06.2017. These entries exempt 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.
2. Furthermore, the GST Council has recommended exempting services of water supply, public health, sanitation conservancy, solid waste management, and slum improvement and upgradation supplied to Governmental Authorities.

IV. Other changes relating to Services

1. Clarify that job work services for processing barley into malt attract GST at 5%, as applicable to “job work in relation to food and food products,” and not at 18%.
2. From 1st January 2022, Electronic Commerce Operators (ECOs) are now liable to pay GST on bus transportation services under section 9(5) of the CGST Act, 2017. This decision was made in response to representations from industry associations, as many small bus operators supplying services through ECOs owned one or two buses and faced challenges in registration and meeting GST compliances. To strike a balance between the ease of doing business for small operators and the requirements of large organized players to avail Input Tax Credit (ITC), the GST Council has recommended excluding bus operators organized as companies from the purview of section 9(5) of the CGST Act, 2017. This allows them to pay GST on their supplies using their ITC.
3. Clarify that District Mineral Foundations Trusts (DMFT) established by State Governments in mineral mining areas across the country are considered Governmental Authorities. Therefore, they are eligible for the same exemptions from GST as those available to any other Governmental Authority.
4. Supply of all goods and services by Indian Railways shall be taxed under Forward Charge Mechanism to enable them to avail ITC. This will reduce the cost for Indian Railways.

B. Measures for facilitation of trade

I. Amnesty Scheme for filing of appeals against demand orders in cases where appeal could not be filed within the allowable time period

The Council has recommended introducing an amnesty scheme through a special procedure under section 148 of the CGST Act, 2017, for taxable persons who were unable to file an appeal under section 107 of the said Act against the demand order issued under section 73 or 74 of the CGST Act, 2017, on or before the 31st day of March 2023, or whose appeal against the said order was rejected solely because it was not filed within the specified time period in sub-section (1) of section 107. In all such cases, taxpayers will be allowed to file appeals against such orders until 31st January 2024, provided they pay a pre-deposit amount of 12.5% of the tax under dispute, out of which at least 20% (i.e., 2.5% of the tax under dispute) should be debited from the Electronic Cash Ledger. This measure aims to assist a significant number of taxpayers who were unable to file appeals within the specified time frame in the past.

II. The Council has recommended clarifications regarding the taxability of personal guarantees offered by directors to the bank against the credit limits/loans sanctioned to the company and regarding the taxability of corporate guarantees provided for related persons, including corporate guarantees provided by a holding company to its subsidiary company

1. Issue a circular clarifying that when the company does not pay any consideration to the director, directly or indirectly, for providing a personal guarantee to the bank/financial institutes on their behalf, the open market value of the said transaction/supply should be treated as zero. Consequently, no tax is payable in respect of such supply of services.
2. Insert sub-rule (2) in Rule 28 of CGST Rules, 2017, to provide for the taxable value of supply of corporate guarantee provided between related parties as one percent of the amount of such guarantee offered or the actual consideration, whichever is higher.
3. Issue a circular clarifying that after the insertion of the said sub-rule, the value of such supply of services of corporate guarantee provided between related parties would be governed by the proposed sub-rule (2) of Rule 28 of CGST Rules, 2017, irrespective of whether full Input Tax Credit (ITC) is available to the recipient of services or not.

III. The Council has recommended amending sub-rule (2) of Rule 159 of CGST Rules, 2017, and FORM GST DRC-22 to provide that the order for provisional attachment in FORM GST DRC-22 shall not be valid after expiry of one year from the date of the said order. This change will facilitate the release of provisionally attached properties after the expiration of the one-year period, eliminating the need for a separate specific written order from the Commissioner.

IV.  Clarification on various issues related to Place of Supply: The Council has recommended to issue a Circular to clarify the place of supply in respect of the following supply of services:

• 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.
• Supply of the co-location services.

V. The Council has recommended issuing a circular to clarify the admissibility of export remittances received in Special INR Vostro accounts, as permitted by RBI, for considering the supply of services to qualify as export of services under the provisions of sub-clause (iv) of clause (6) of section 2 of the IGST Act, 2017.

VI. Allowing supplies to SEZ units/ developer for authorized operations for IGST refund route by amendment in Notification 01/2023-Integrated Tax dated 31.07.2023:The Council has recommended amending Notification No. 1/2023-Integrated Tax dated 31.07.2023, effective from 01.10.2023, to allow suppliers to a Special Economic Zone developer or unit for authorized operations to supply goods or services (excluding commodities like pan masala, tobacco, gutkha, etc., as mentioned in Notification No. 1/2023-Integrated Tax dated 31.07.2023) to the Special Economic Zone developer or unit for authorized operations. They can do so by paying integrated tax and claiming a refund of the tax paid.

C. Other measures pertaining to law and procedures

I. Alignment of provisions of the CGST Act, 2017 with the provisions of the Tribunal Reforms Act, 2021 in respect of Appointment of President and Member of the proposed GST Appellate Tribunals: Council has recommended amendments in section 110 of the CGST Act, 2017 to provide that.

• To be eligible for the appointment as a judicial member, an advocate with ten years of substantial experience in litigation under indirect tax laws in the Appellate Tribunal, Central Excise and Service Tax Tribunal, State VAT Tribunals, by whatever name called, High Court, or Supreme Court.
• the minimum age for eligibility for appointment as President and Member to be 50 years.
• President and Members shall have tenure up to a maximum age of 70 years and 67 years respectively.

II.  Law amendment with respect to ISD as recommended by the GST Council in its 50th meeting: In its 50th meeting, the GST Council recommended making the ISD (Input Service Distributor) procedure, as outlined in Section 20 of the CGST Act, 2017, mandatory prospectively for the distribution of Input Tax Credit (ITC) concerning input services acquired by the Head Office (HO) from a third party but attributable to both HO and Branch Office (BO) or exclusively to one or more BOs. The Council has now recommended amendments in Section 2(61) and Section 20 of the CGST Act, 2017, as well as an amendment in Rule 39 of the CGST Rules, 2017, in respect of the same.

Disclaimer: The above information reproduces the recommendations of the GST Council, simplifying major decisions for the readers’ information. These decisions will be implemented through relevant circulars, notifications, or law amendments, which alone will carry the force of law.