Summary of the 36th GST Council Session: Key Decisions

The 36th Goods and Services Tax (GST) Council convened via video conference on Saturday, July 27, 2019, following a two-day postponement. A primary agenda item was to determine a GST rate reduction for electric vehicles, which were then subject to a 12% tax. The Union Budget 2019 had already introduced direct tax incentives to promote the adoption of electric vehicles. The preceding 35th GST Council meeting had previously forwarded the issue of a GST rate decrease to the fitment committee for viability assessment.

Highlights of the 36th GST Council Meeting

To invigorate the electric vehicle (EV) sector, the GST Council lowered the GST rate for EVs from 12% to 5%. Additionally, the GST on EV chargers and charging stations was cut from 18% to 5%. E-buses, with a seating capacity exceeding 12 passengers, can now be leased by local authorities without incurring GST. These revisions were implemented starting August 1, 2019.

The projected annual revenue decrease is approximately Rs 60 crore, indicating a modest financial impact. These declarations are expected to significantly stimulate India's nascent electric vehicle market. A considerable period, potentially exceeding two years, is anticipated before substantial demand growth for these vehicles materializes.

Effective collaboration between manufacturers and the government is crucial for fostering the expansion of this environmentally conscious product. Concurrently, Energy Efficiency Services Limited (EESL) has outlined initiatives to establish over 100 public EV charging stations in Noida, a city known for its high air pollution.

Despite the GST rate reduction, an immediate surge in EV demand is not expected, largely due to their currently higher prices compared to conventional petrol and diesel vehicles. While the rate cut might help equalize market conditions for EV manufacturers by potentially lowering costs, other elements warrant consideration. A significant concern is the higher tax rate on raw materials for EVs, leading to an inverted duty structure where working capital remains with the government until a refund is processed.

Composition Scheme Extensions

The deadline for service providers to opt into the Composition Scheme using CMP-02 was prolonged until September 30, 2019. This extension specifically benefits service providers identified under notification No. 2/2019-Central tax (rate) dated March 7, 2019, who are eligible for a special Composition Scheme. The original deadline was July 31, 2019.

Furthermore, the due date for all composition dealers to remit GST via CMP-08 for the April-June 2019 quarter was pushed back to August 31, 2019, from the initial July 31, 2019. This extension was crucial because the GSTN portal had not yet enabled the CMP-08 filing facility for taxpayers.

Live Updates from the GST Council Meeting (July 27, 2019)

Key highlights included the extension of the deadline for service providers to select the Composition Scheme (CMP-02) until September 30, 2019. Additionally, the due date for composition dealers to file CMP-08 for the April-June 2019 quarter was extended to August 31, 2019.

Decisions regarding rate cuts were also announced:

|| Items | Before | After || |:---|:---|:---|| | Electric chargers | 18% | 5% || | Electric vehicles | 12% | 5% ||

Hiring e-buses by local authorities received a full GST exemption.

Future meetings are slated to address proposals concerning the BS-VI vehicle industry and the safeguarding of revenue and VAT. The implemented rate changes would take effect from August 1, 2019, following a notification from the CBIC.

The GST Council meeting concluded.

Reports suggested that the meeting might grant additional time for service providers to opt into the composition scheme until September 30, 2019, with expectations of an extended due date for CMP-08 for the April-June 2019 quarter or a waiver of associated late fees.

The 36th GST Council meeting commenced at 11 AM on the scheduled day.

Pre-Meeting Expectations

Anticipated Rate Reduction for Electric Vehicles

The fitment committee was scheduled to present its feasibility report on EV rate reductions at the 36th GST Council meeting. At the time, electric vehicles faced a 12% GST rate, with a potential reduction from 18% to 5% for leased electric vehicles. In contrast, petrol and diesel vehicles were taxed at 28%. The adoption of electric vehicles in India remained in its early phases.

Providing adequate incentives to manufacturers could stimulate supply and consequently boost demand. Tax incentives for purchasing EVs could further encourage their adoption. Nevertheless, EVs typically carried higher price tags than conventional petrol vehicles. Additionally, the insufficient charging infrastructure nationwide required attention. It was anticipated that the industry would need approximately three years to achieve broader acceptance among Indian consumers.

Discussion on Lottery Tax Treatment

The 36th GST Council meeting addressed the persistent issue of varying tax treatments for lotteries operated by states versus those authorized by states. The Council had previously resolved to seek legal advice from the Attorney General to establish an appropriate tax framework for lotteries. The main reason for delaying a decision stemmed from the inconsistent tax application within a single state, which conflicted with Article 304 of the Indian Constitution.

Lottery schemes authorized by state governments faced a higher GST rate of 28%, contrasting with the 12% rate for state-operated lotteries. The 36th GST Council meeting was expected to determine if this tax disparity for identical products should persist or if a unified rate should be implemented. Although other GST rate reductions, such as for solar power projects, were possible, given the brevity of the meeting, major decisions beyond those mentioned were not anticipated. Information on decisions and deferrals from the previous 35th GST Council meeting was available for review.