The world of indirect tax in India was never as exciting prior to the advent of the Goods and Services Tax (GST) Council meetings. Each meeting is awaited like the release of a blockbuster movie. The 53rd meeting was the first in almost 10 months and also the first since the formation of the new government. Working on the principles of cooperative federalism, the council took decisions to enhance the ease of doing business by proposing a set of measures designed to streamline GST procedures and reduce litigation related to past transactions.

The council’s recommendations encompass a wide array of initiatives, starting from rationalisation of GST rates on goods and services and regularising the past period on “as-is where-is basis” to avoid any future litigation, provide exemptions on railway services, and specific hostel accommodation services (outside educational institutions) for rural sections. Besides this, the council decision to declare co-insurance and re-insurance commission as “no supply”, reduce tax collected at source from 1% to 0.5%, clarify place of supply for custodial services by banks and clarification on levying GST on corporate guarantee in case of related person are all decisions that will help resolve ongoing litigations and provide much needed relief to industries.

The council also decided to extend the benefit of Circular 199/11/2023 on taxability of supplies between distinct/ related persons to import of services where if the recipient is eligible for full input tax credit (ITC), even nil valuation would be deemed as open-market value. Possible examples are of activities between related persons without any money transactions, like use of a brand in India or allowing use of software and other intellectual properties for the provision of supply to overseas recipient, for justifiable and legally permissible reasons. For domestic reverse charge mechanism supplies also, the council has clarified that the time limit of availing ITC would be considered from the date of issue of self-invoice. These decisions will help taxpayers manage their working capital and avoid unnecessary litigation on valuation and availing ITC. Further, the proposed mechanism to address past errors stemming from an established industry practice of insertion of Section 11A is a welcome move. Such measures show the government’s commitment to reduce litigation and help taxpayers.

Impact on taxpayers and industries

Another big decision in this meeting was accepting a lasting demand of industry for an amnesty scheme under GST regularising past transaction on self-assessment basis. The announcement to waive interest and penalty on disputes under Section 73 of the Central GST Act, arising up to FY19-20 (with tax paid by March 2025), and extend the time of availing ITC for FY2020-21 reflects the council’s efforts to help settle ambiguities in the initial days of GST implementation.

The decision to pare pre-deposit amounts while filing appeals at the GST Appellate Tribunal (GSTAT); assign monetary limit to the government for filing appeals before GSTAT, high court and the Supreme Court; extend deadline for composition dealers for filing returns; and provide an optional facility to taxpayers in form GSTR-1A to amend details in GSTR-1 for a tax period before filing of GSTR-3B for the stated period would benefit the industry at large. These measures are expected to alleviate tax burden and simplify the GST framework, and thereby foster a more conducive environment for businesses.

Vision for GST

As India moves towards its vision of “Viksit Bharat” by 2047, it is time to take stock of what the council further needs to do to ensure GST becomes an efficient tax which it was purported to be. While the council’s decisions are a testament to the government’s commitment to foster a conducive business environment, it should develop a long-term vision for GST. Four main areas require its attention. The first is rate rationalisation, for which a Group of Ministers (GoM) is already in place and is expected to provide recommendations in the next council meeting post-Budget FY25 and expected in the latter half of August. The second is re-evaluation of ITC’s scope, which will not only require revisiting Section 17(5) of the CGST Act that restricts credits in some cases but also looking at sectors where credits have been restricted to keep the rates low.

The third area that requires immediate attention is the multiplicity of audits, scrutiny, and investigations being faced by corporate organisations across India. Multiple central and state GST bodies, as part of their revenue augmentation targets, audit and investigate entities, most of whom have registrations in various jurisdictions. It is time the council set up assessee-friendly centralised, joint or coordinated audits. The final area requires removing sectoral kinks in taxation structure and procedures. There is a need to set up task forces within a GoM to look at sector-specific issues and remove inefficiencies such as inverted duties, interpretational inconsistencies, and procedural problems. It is also time to set up a technical secretariat that provides solutions to issues on an ongoing basis, leaving the council to debate only major policy issues.

The GST Council’s proactive approach in addressing the concerns of industry is a reassuring sign. While taxpayers soak in the changes that this council has brought in and eagerly await the next meeting, gratitude is due to the members of the fitment committee who have worked hard to scrutinise the industry’s requests and provide solutions.