Key Decisions from the 48th GST Council Meeting

The 48th Goods and Services Tax (GST) Council meeting, led by Union Finance Minister Smt. Nirmala Sitharaman and state/Union Territory Finance Ministers, convened virtually in New Delhi on December 17, 2022. This crucial meeting, held after a five-to-six-month interval since the 47th GST Council meeting in June 2022, addressed various pressing issues.

Recent Update

The 49th GST Council meeting was scheduled for February 18, 2023, in New Delhi.

Overview of the 48th GST Council Meeting Outcomes

Out of 15 scheduled items, including data-sharing discussions, eight were deliberated. Topics such as revenue growth, the establishment of the GST appellate tribunal, and GST on specific products like gutkha and pan masala could not be addressed due to time constraints expressed by members. The meeting concluded earlier than anticipated.

Key resolutions from the 48th GST Council meeting included:

• Decriminalization of GST Offenses: Three types of offenses under GST law were decriminalized. The threshold for initiating criminal proceedings increased from INR 1 crore to INR 2 crore, except for cases involving fake invoices. Compounding of offenses was also reduced to streamline the judicial process.
• GST Rate Adjustments and Clarifications: Significant rate rationalization measures were approved. For instance, GST on pulse husks for cattle feed (including chilka and concentrates) was reduced from 5% to Nil. The concessional 5% GST rate on ethyl alcohol was extended to refineries for petrol blending, previously taxed at 18%.
• Clarifications on Taxation: Guidance was provided on GST for equipment used by petroleum companies for exploration activities and procedures for addressing invoice mismatches between GSTR-1 and GSTR-3B from earlier financial years.
• Support for E-commerce: Provisions were made to allow suppliers registered under the composition scheme and unregistered vendors to sell goods through e-commerce operators, promoting digital trade for micro-enterprises.
• Casino and Online Gaming Report: The second report concerning GST on casinos and online gaming was not circulated and therefore not discussed in this meeting.
• No GST Rate Hike: No decisions were made regarding any increase in GST rates.
• Cess on SUVs Clarified: The 22% cess on SUVs was clarified to apply if a vehicle meets four specific criteria: it is popularly recognized as an SUV, has an engine capacity exceeding 1500 cc, is longer than 4000 mm, and has a ground clearance of 170 mm or more.
• No GST on No-Claim Bonus: The Council clarified that no GST is levied on the 'No-Claim Bonus' offered by insurance companies. This amount is deductible from the premium before GST calculation.

Adjusted Tax Rates and Clarifications

Effective from January 1, 2023, GST rates were reduced for the following items:

*Note: The intervening period from August 3, 2022, will be regularized as per the clarifying Circular.

Further GST rate change notifications and circulars were issued by the CBIC on December 26 and 27, 2022. These adjustments took effect from the specified notification date, i.e., January 1, 2023, or the publication date in the Official Gazette, December 27, 2022.

Additional clarifications on tax rates for goods and services supplies included:

• Rab (also known as rab-salawat) is classified under HSN code 1702 and is subject to an 18% GST rate.
• Fryums produced via extrusion, under HSN code 19059030, are subject to an 18% GST rate.
• The 22% cess on SUVs is applicable if the vehicle satisfies four conditions: it is widely known as an SUV, its engine capacity exceeds 1500 cc, its length is greater than 4000 mm, and its ground clearance is 170 mm or more.
• A 5% GST applies to imported equipment or goods for petroleum operations that fall under the concessional 5% GST rate category. If the general rate is higher than 12%, a 12% GST applies.
• No GST is levied when a residential dwelling is rented to a GST-registered individual for personal use, not for business purposes.
• Incentives provided to banks by the Central Government as a subsidy for promoting RuPay Debit Cards and low-value BHIM-UPI transactions are exempt from GST.

GST Amendments for Business Facilitation

1. Decriminalization under GST:

The Council resolved to decriminalize three offenses within the GST framework:

• The financial threshold for initiating prosecution or criminal action under GST was raised from INR 1 crore to INR 2 crore, with an exception for cases involving fake invoices. Offenses related to issuing invoices without corresponding goods or services, or dealing with fake invoices, will still be prosecuted if the tax amount exceeds INR 1 crore.
• The compounding amount was reduced from the previous range of 50%-150% of the tax to 25%-100%.
• Certain offenses under Section 132(1) clauses (g), (j), and (k) of the CGST Act, such as obstructing officers, intentionally tampering with evidence, and failing to provide information, were decriminalized.

2. New GST Refund Rules for Unregistered Persons:

Previously, there was no clear process for refund claims by buyers not registered under GST, especially after contract cancellations for services like flat construction or long-term insurance policies, or when the supplier's credit note issuance time limit expired. The GST Council decided to modify the CGST Rules and instructed the CBIC to issue a Circular outlining the procedure for such unregistered buyers to file refund applications.

3. E-commerce Facilitation for Micro-enterprises from October 1, 2023:

Starting October 1, 2023, GST-unregistered suppliers, dealers, and composition taxable persons will be permitted to sell goods through e-commerce operators within their state, provided certain conditions are met. The CBIC and GSTN will implement necessary amendments to the rules and the Act, and prepare the GST portal for this new functionality.

4. Clarifying Applicability Date for New Schedule III Entries:

New entries were introduced in Schedule III (Items not covered under GST) effective February 1, 2019, including scenarios like sales from one non-taxable territory to another (e.g., high sea sales), sales of warehoused goods before home consumption clearance, and sales by consignees before home consumption clearance for goods dispatched from foreign ports. To resolve confusion regarding their taxability from July 1, 2017, to January 31, 2019, the GST Council recommended applying these additions from the inception of GST. However, no refund will be granted for taxes already paid during this period.

5. Reversal of Input Tax Credit (ITC) for Invoice Non-payment within 180 Days:

CGST Rule 37(1) will be amended retrospectively from October 1, 2022. This amendment clarifies that ITC reversal, as per the second proviso to Section 16 of the CGST Act, will apply only to the extent of the unpaid invoice amount relative to the supply's value and payable tax.

6. New CGST Rule 37A for ITC Reversal on Supplier's Tax Default:

The GST Council decided to introduce Rule 37A into the CGST Rules. This rule will outline the process for reversing ITC claimed on taxes that the supplier failed to deposit by a specified date. It will also detail the procedure for re-availing such ITC once the supplier subsequently remits the tax. This aims to simplify compliance with the ITC claim condition under Section 16(2)(c) of the CGST Act.

7. Amendments for Timely and Easier GST Appeal Processing:

• Changes in CGST Rules 108(3) and 109: These amendments provide clearer guidelines for submitting certified copies of orders against which an appeal is filed and for the final acknowledgment issued by the appellate authority.
• Change in CGST Rule 109C and New Form GST APL-01/03 W: This introduces a facility for withdrawing an appeal application up to a certain stage, thereby reducing litigation at the appellate authority level.

8. Insurance – No Claim Bonus (NCB): The 'No Claim Bonus' (NCB) offered by insurance companies, particularly in motor vehicle insurance, is permitted as a deduction from the taxable premium amount for valuation purposes.

9. Upcoming GST Circulars:

Fresh GST Circulars will be issued on the following subjects:

• Treatment of Pending GST Dues: Addressing GST dues from bankrupt businesses under proceedings filed through the Insolvency and Bankruptcy Code, 2016 (IBC). CGST Rule 161 and form DRC-25 will be amended accordingly.
• Place of Supply for International Mail/Courier Services: Clarifying the place of supply for mail/courier services transporting goods outside India under the proviso to Section 12(8) of the IGST Act, and the availability of ITC to the recipient. The Council further recommended removing that proviso from the law.
• ITC Differences Verification: A procedure for verifying ITC discrepancies between GSTR-3B and GSTR-2A for FY 2017-18 and 2018-19. This aims to reduce litigation and provide clarity for taxpayers and officers.
• Demand Re-determination: The manner of demand re-determination as per Section 75(2) of the CGST Act. If a tax officer alleges misstatement, suppression, or fraud but fails to prove it, taxes will be recomputed under Section 73, not Section 74.
• E-invoicing Applicability: Clarifying the applicability of e-invoicing for a business entity. For example, if turnover in FY 2022-23 exceeds INR 10 crore, whether e-invoicing applies from the next financial year (April 1, 2023) or the current year.

10. GST Registration for TDS Deductors and TCS Collectors:

CGST Rule 12(3) will be amended to allow GST-registered TDS deductors and TCS collectors to apply for GST registration cancellation.

Note: GST rate change notifications and circulars were issued by the CBIC on December 26 and 27, 2022. These changes will come into effect from the date of such notification, i.e., January 1, 2023, or the date of publishing the notification in the Official Gazette, i.e., December 27, 2022.

Streamlining GST Compliance Procedures

1. Biometric Aadhaar Authentication and Risk-Based Verification: A pilot program for biometric-based Aadhaar authentication and risk-based physical verification of GST registration applicants has been proposed in Gujarat. Amendments to CGST Rules 8 and 9 are intended to combat fake and fraudulent registrations.
2. PAN-Linked Mobile and Email Verification: Form REG-01 will now capture PAN-linked mobile numbers and email IDs from the CBDT database, requiring OTP verification. This measure aims to prevent misuse of a person's PAN and curb identity theft or fraud.
3. Time Limit for GST Return Filings: An amendment will restrict the filing of all GST returns and statements (e.g., GSTR-1, GSTR-3B, GSTR-4, GSTR-9, GSTR-9C) after a maximum period of three years from their respective due dates.
4. GSTR-1 Amendment for E-commerce Sales: GSTR-1 will be amended to enable e-commerce operators and sellers to report sales conducted through e-commerce operators, as outlined under Sections 52 and 9(5) of the CGST Act.
5. CGST Rule 88C and Form DRC-01B for Tax Liability Differences: CGST Rule 88C and form DRC-01B will be introduced. These will facilitate intimation to taxpayers via the GST portal regarding any significant tax liability differences between GSTR-1 and GSTR-3B for a tax period. Taxpayers will then be required to either pay the difference or provide an explanation.
6. Restriction on GSTR-1 Filing: A new clause (d) will be added to CGST Rule 59(6) to prevent the filing of GSTR-1 for future tax periods if a taxpayer has not deposited the tax specified in an intimation or has failed to respond with reasons for the unpaid tax, without requiring direct intervention from tax officers.
7. OIDAR Services Definition Amendments: The definitions of “non-taxable online recipient” under Section 2(16) of the IGST Act, 2017, and “Online Information and Database Access or Retrieval Services (OIDAR)” under Section 2(17) of the IGST Act, 2017, will be amended. These changes aim to reduce interpretation issues and litigation concerning the taxation of OIDAR services.

Note: The above changes, to be enacted via notifications and circulars by CBIC, will become effective from their respective notification dates or as specified within those notifications.

Union Finance Minister Smt. Nirmala Sitharaman and Revenue Secretary Shri Sanjay Malhotra addressed the media following the meeting. They clarified that discussions on GST for online gaming, horse races, and gambling would be postponed to subsequent meetings as the relevant GoM report was not circulated in time. The 49th GST Council meeting might be scheduled in February 2023 to address the GoM's report on GSTAT and online gaming taxation.

Official Press Release of the 48th GST Council Meeting

The GST Council's decisions from the December 17, 2022 meeting were officially announced via a press release from the PIB (Ministry of Finance).

Click here for the detailed official Press Release

Live Updates from the 48th GST Council Meeting

• 2:15 p.m.: The 48th GST Council meeting concluded, with the Finance Minister scheduled to address the media shortly.
• 12:15 p.m.: The Union Finance Minister was expected to brief the media/press on the meeting's outcomes at 2 p.m. on December 17, 2022.
• 11:30 a.m.: The 48th GST Council meeting commenced with the attendance of Smt. Nirmala Sitharaman, Union FM, along with Union Minister of State for Finance Shri M. P. Chaudhary, state and UT Finance Ministers, and senior government officials.

Agenda of the 48th GST Council Meeting

The agenda for the 48th GST Council meeting, held on December 17, 2022, included the following items:

• Decriminalization of certain offenses under GST law.
• Establishment and powers of the GST Appellate Tribunal in 2023.
• Potential reduction of GST on health insurance from 18% to 12%.
• Defining the scope of the Competition Commission of India (CCI) as the Anti-profiteering Authority.
• Changes to GST valuation rules for tobacco.
• Clarification on tax issues by the GST rate panel, including a potential 22% compensation cess on SUVs meeting specific criteria (engine capacity >1,500 cc, length >4,000 mm).
• Possible imposition of a 28% GST on carbonated fruit pulp/juice-based drinks.
• Consideration of exemptions for incentives paid to banks for RuPay debit cards and BHIM-UPI transactions, and viability gap funding subsidies for airlines under regional connectivity schemes.

Key Expectations from the 48th GST Council Meeting

Decriminalization of GST Offenses:

In September 2022, the government indicated that prosecution could be launched against GST offenders where tax evasion or misuse of input tax credits exceeded INR 5 crore. A proposal was anticipated to be tabled before the GST Council to potentially increase this limit to INR 20 crore. The Council was also expected to remove penal provisions already covered by the Indian Penal Code (IPC). Approval of decriminalization would lead to amendments in the CGST Act, to be presented to Parliament during the December 2022 winter session, followed by incorporation into respective SGST laws by Union Territories and states.

Establishment of an Appellate Tribunal:

The Centre was discussing and planning to establish the Goods and Services Tax Appellate Tribunal (GSTAT) by December 2023, pending approval from the GST Council. The GSTAT would have a primary bench in New Delhi and additional benches in various states to address GST disputes, currently burdening local courts. The tribunal was expected to be headed by a Supreme Court judge or a High Court Chief Justice, with each state bench potentially including a High Court judge and a senior tax officer as a technical member. The Council needed to decide on details such as a maximum of five benches per state and concessions for state governments in nominating technical members.

GST Rate Adjustments for Health Insurance:

The GST Council received requests to lower the GST rate on health insurance policies and renewals from the current 18% to 12%. The Council was also expected to review the report from the Group of Ministers (GoM) on rate rationalization. Additionally, the GST rate panel was slated to provide clarity on tax matters, including the potential 22% compensation cess on SUVs meeting specific criteria (engine capacity over 1,500 cc and length over 4,000 mm).

Role of Competition Commission of India as Anti-profiteering Authority:

The GST Council needed to consider the role and powers of the Competition Commission of India (CCI) as the anti-profiteering authority under GST. This was to alleviate ambiguities faced by businesses. While the CCI was empowered by the 45th GST Council meeting and notified by CBIC in November 2022, the absence of industry-specific guidelines for calculating warranted price reductions made compliance challenging. Thus, the Council's intervention was crucial.

Online Gaming and Casinos Report Omitted from Agenda:

The Group of Ministers (GoM) had yet to submit its report on imposing GST on online gaming, meaning it was not ready for the 48th GST Council meeting. While earlier media reports suggested an in-principle agreement for a 28% GST rate on gross gaming revenue, many industry stakeholders had expressed concerns about such a high rate. The 48th GST Council meeting, being the last one for 2022 and before the 2023 Budget, was closely watched for key updates.