Key Decisions and Outcomes from the 54th GST Council Meeting

The 54th Goods and Services Tax (GST) Council convened on September 9, 2024, in New Delhi. The Union Finance and Corporate Affairs Minister chaired the meeting, which saw participation from various Union and State ministers, including the Union Minister of State for Finance, Chief Ministers, Deputy Chief Ministers, and Finance Ministers from several states and Union Territories, alongside senior officials from the Ministry of Finance and state/UT administrations.

Key Decisions from the 54th GST Council Meeting

The GST Council made several important resolutions:

• Phased e-Invoicing for B2C Transactions: The council suggested a gradual rollout of e-invoicing for B2C transactions. Previously, e-invoicing was mandatory only for B2B transactions for registered entities with turnovers exceeding Rs.5 crore, a measure aimed at combating fake invoicing.
• GST Portal Enhancements: Improvements to the existing GST return filing mechanism were announced, including the introduction of an Invoice Management System, Reverse Charge Mechanism (RCM) ledger, and an Input Tax Credit Reclaim ledger. Taxpayers are advised to declare their opening balances for these ledgers by October 31, 2024.
• GoM Reports on Rate Rationalisation and Real Estate: Status reports from the Groups of Ministers (GoMs) concerning rate rationalisation and real estate were submitted, with future discussions on these topics planned for upcoming council meetings.
• Online Gaming GST Rate Maintained: The GST rate on online gaming, casinos, and race courses remains at 28%, as initially decided in the 50th GST Council meeting in October 2023. A review was scheduled six months post-implementation. Data presented to the Council showed a significant increase in revenue from online gaming (412% to Rs. 6,909 crores) and casinos (30% to Rs. 214 crores) in the six months following the notification.
• Formation of New GoMs: Two new GoMs were established:
  • One GoM, comprising representatives from various states like Bihar, UP, West Bengal, and Karnataka, was formed with a specific mandate and is expected to submit its report by October 2024. This led to the GST Council maintaining the 18% GST rate on life and health insurance, deferring further discussion to the November meeting.
  • Another GoM was constituted to analyze compensation cess figures and determine future strategies. The central government had previously extended the compensation cess on luxury and demerit goods until March 2026. The Union Minister confirmed that back-to-back loans and interest would be repaid by January 2026.
• Committee on IGST: A Committee of Secretaries, led by the additional secretary of revenue, will be formed to clarify and address the procedures for IGST, particularly regarding the retrieval of excess IGST passed to certain states due to a negative balance. This report is also due by the end of October 2024.
• GST Exemption for Research Funds: Research funds provided to state-affiliated universities or research centers established under state/central laws, or institutions with income tax exemptions under Section 35 of the Income Tax Act, are exempt from GST, irrespective of their funding source (public or private).
• Finance Act, 2024 Sections Notified: The GST Council recommended the notification of Sections 118 and 150 of the Finance Act, 2024. This introduces CGST Sections 16(5) and (6) retrospectively from July 1, 2017, to clarify Input Tax Credit (ITC) eligibility and the rectification of incorrect ITC claims. A special procedure under CGST Section 148 will allow taxpayers who received demand orders for wrong ITC claims under CGST Section 16(4) to rectify their position if the ITC is now permissible under the new CGST Sections 16(5) or (6), even if they haven’t appealed the original orders.
• Waiver of Interest and Penalties: New conditions and procedures will be outlined in CGST Rule 164 for waiving interest, penalties, or both for tax demands under Section 73 of the CGST Act for financial years 2017-18, 2018-19, and 2019-20. Registered taxpayers can avail this waiver by making the required tax payments by March 31, 2025, as per Section 128A. A circular will clarify the waiver process, effective from November 1, 2024.
• Reverse Charge Mechanism (RCM) Transactions: The following two types of transactions will attract tax under the reverse charge mechanism:
  • Sale of metal scrap by unregistered persons to registered persons.
  • Renting of commercial property by unregistered persons to registered persons.

Note: A 2% TDS will apply to Business to Business (B2B) supplies of metal scrap by registered persons.

Cost and Savings Post-54th GST Council Meeting

The meeting resulted in changes affecting the cost of certain goods and services:

GST Council Clarifications

The GST Council also provided clarifications on several matters:

• RMPU Air Conditioning for Railways: Roof-Mounted Package Unit (RMPU) Air Conditioning Machines for Railways will be classified under HSN 8415, attracting a 28% GST rate.
• Flying Training Courses: Flying training courses approved by the Directorate General of Civil Aviation (DGCA) and conducted by Flying Training Organisations (FTOs) are exempt from GST.
• Preferential Location Charges (PLC): PLCs paid alongside construction services are part of a composite supply and will receive the same tax treatment as construction services.
• Affiliation Services: Affiliation services from boards like CBSE are taxable. However, services provided by state/central boards to government schools will be prospectively exempted, with past liabilities (July 1, 2017, to June 17, 2021) regularized. Affiliation services by universities to their constituent colleges remain taxable at 18%.
• Ancillary GTA Services: Ancillary services (e.g., loading, unloading, trans-shipment) provided by Goods Transport Agencies (GTA) during transportation are part of a composite supply when issued with a consignment note. If separately invoiced, these services are not considered part of goods transportation.
• Film Distributor Liability: GST liability for film distributors operating on a principal basis, for the period before October 1, 2021, will be regularized.
• Electricity Meter Services Exemption: Incidental services related to electricity supply, such as meter and testing charges, provided as part of a composite supply by utilities, will be exempt from GST. Past liabilities for these services will also be regularized on an "as is where is" basis.
• IGST Refunds for Exporters: The Council recommended that exporters who initially imported inputs without paying IGST and compensation cess, but later paid them with interest and had their Bill of Entry reassessed, can still claim IGST refunds on exports without violating Rule 96(10). Rules 96(10), 89(4A), and 89(4B) will be prospectively omitted to streamline the refund process for such exports.
• Place of Supply and ITC Clarifications: Circulars will be issued to clarify the Place of Supply for advertising services rendered to foreign entities and data hosting services for overseas cloud computing providers. Input Tax Credit availability on demo vehicles used by vehicle dealers will also be clarified to reduce ambiguities and prevent legal disputes.

54th GST Council Meeting Press Release

The official press release from the Finance Ministry, following the September 9, 2024, press conference, can be downloaded here. The Finance Minister announced that the 55th GST Council meeting is tentatively scheduled for November.

Expectations Prior to the 54th GST Council Meeting

Following a strong GST revenue collection of Rs. 1.82 lakh crore in July, there was anticipation for a GST rate rationalisation from a four-tier to a three-tier structure. The Council was also expected to introduce measures to facilitate trade and simplify GST compliances, potentially including a decision to discontinue the compensation cess, which was initially introduced for five years to support states through initial revenue losses.

Rate Rationalisation Discussions

After the 53rd Council meeting, the Finance Minister mentioned that the Group of Ministers (GoM), established in September 2021 under Bihar's Deputy Chief Minister, Sumant Chaudhary, would present its progress on rate rationalisation. Consequently, significant announcements regarding a reduction in tax slabs were expected.

GST on Small Transactions via Payment Aggregators

The Fitment Committee had proposed extending GST to small transactions (under Rs. 2000) processed by payment aggregators. While the final decision rests with the Council, this recommendation aimed to capture a significant volume of low-value daily transactions that currently escape GST. An 18% GST levy was anticipated to boost revenue.

Addressing Inverted Duty Rate Structures

Domestic goods manufacturers frequently expressed concerns about accumulating input tax credits and cascading costs due to higher tax rates on inputs compared to finished products. The Commerce and Industry Ministry shared a list of affected products, including paper, furniture, washing machines, solar glass, and air purifiers, with the Finance Ministry for review of inverted duty structure issues.

Future of Compensation Cess

The GST Compensation Cess was initially implemented for five years from July 1, 2017, to compensate states for revenue losses post-GST implementation. Although the original period ended in June 2022, the central government extended the cess on luxury and demerit goods until March 2026. The Council might propose its complete discontinuation or integration into the highest 28% GST tax bracket.

Anticipated Changes in GST Rates

GST Rate on Online Gaming

The 50th GST Council meeting imposed a 28% GST on online games, horse racing, and casinos, settling the debate between "games of skill or chance." This decision, however, caused industry concern regarding sector growth. Minimal changes to this amendment were expected during the 54th meeting, as a review was set for six months after its October 2023 enforcement.

Premiums for Health and Life Insurance

When health and life insurance premiums were initially subjected to an 18% GST rate, there was widespread protest, as pre-GST service tax was 15%. After seven years, a rate reduction on these premiums was anticipated, offering relief to policyholders.

GST on Cancer Drugs

To enhance the affordability of cancer treatment, the 50th Council meeting had exempted Dinutuximab (Qarziba). The fitment committee was expected to consider lowering the GST from 12% to 5% on other essential cancer drugs: Trastuzumab, Deruxtecan, Osimertinib, and Durvalumab.

Exemption for Electricity Meter Services

The supply of electricity and related services by transmission/distribution utilities are typically GST-exempt. However, ancillary services like metering equipment rental charges were taxable, as clarified by CBIC. Given that these ancillary services are essential for electricity supply, the GST Council was expected to clarify their treatment as a composite supply where the principal supply (electricity) is exempt, thus exempting these services too.

Relief for Metal Scrap Industry

The metal recycling industry, highly fragmented with many unorganized players, faces challenges in GST compliance and tax evasion. Currently, an 18% GST applies under the forward charge mechanism. The Material Recycling Association of India (MRAI) requested a review and revision of these rates by the GST Council.

Potential Inclusion of Petrol and Diesel under GST

Section 9 of the CGST Act allows for GST on petrol crude, diesel, motor spirit, natural gas, and aviation turbine fuel from a date to be notified by the government. Although no notification has been issued yet, there were speculations that the GST Council would discuss applicable GST rates for petrol and diesel. A decision could clarify whether including these fuels under GST would stabilize or alter prices, which currently vary across states.

GST on Transactions Between Foreign Branch Offices

Ambiguity existed in GST provisions regarding the taxation and valuation of transactions between Indian companies' foreign branch offices and vice-versa. This issue became prominent when the department issued GST notices to taxpayers, including IT companies and foreign airlines, for unpaid taxes on imported services by Indian branches from their head offices. Clarification from the council meeting was anticipated.