GST Council to focus on compliance, ITC reforms, and energy inclusion

The GST Council, in its next meeting, is likely to focus on further changes to ease processes and policies, a senior government official has said. The Council’s September meeting recommended easing refund and registration processes alongside a rate overhaul.

“Rate exercise is almost done as of now. So, the next meeting is expected to mainly deliberate upon ease of compliance through change in rules, processes and policies,” the official said. When asked about specific policy areas, he said that information is being gathered and based on that, the agenda will be prepared.

Experts call for energy inclusion and e-invoicing expansion

Meanwhile, businessline spoke to tax experts to identify the critical areas that need urgent attention. Saurabh Agarwal, Tax Partner, EY India, listed these areas: “First, the most critical reform is bringing electricity and natural gas under the GST ambit. Their current exclusion breaks the crucial Input Tax Credit (ITC) chain, leading to a cascading effect that inflates the cost of energy for industries. Including them would allow manufacturers to claim ITC, directly lowering their cost of production and promoting clean, cheap energy across domestic and industrial sectors. This is essential for a true ‘One Nation, One Tax’ regime.”

Second, on the compliance front, the next logical step is to expand the e-invoicing model to Business-to-Consumer (B2C) transactions for large businesses. “And third, introducing a GST Arbitration Tribunal would offer an alternative, faster route for resolving tax conflicts, especially complex, factual issues,” he said.

Vivek Baj, Partner at Economic Laws Practice, said GST 2.0 rate rationalisation has further enlarged the situation of Inverted Duty Structure (IDS), where outputs are taxed at lower rates than inputs. However, despite this, the restriction on refund of ITC on account of input services remains unaddressed.

ITC refund and inverted duty structure issues remain critical

“The artificial distinction between goods and services for the purpose of refund has led to significant working capital blockages for various industries. The GST Council may consider allowing refund of such accumulated ITC on input services, thereby ensuring seamless flow of credit and improved liquidity for businesses,” he said.

Second, the GST Council should consider introducing a one-time relief mechanism, either permitting utilisation of credit on account of compensation cess against IGST/CGST/SGST liabilities or enabling proportionate refund, to prevent permanent capital erosion. And third, the Council may consider clarifying or revisiting the deemed valuation mechanism for renewable energy devices to align it with actual transaction values, ensuring the affordability of renewable energy.

Sudipta Bhattacharjee, Partner, Khaitan & Co, said that there is a need for an amnesty scheme under GST for the first 2-3 years of GST, especially for procedural or technical non-compliances (as opposed to serious allegations like fake invoicing). At the same time, strong reforms are needed at the adjudication and first appeal levels to ensure that taxpayers receive a sense of fair hearing at these levels, as opposed to the current perception of a deep pro-revenue bias.

“Effective and expeditious dispute resolution is a key parameter of ease of doing business and reforms in this regard would significantly enhance the ease of business quotient qua GST. A separate and independent adjudication wing within the CBIC, with members specially trained for fair adjudication, could be a reform worth considering,” he said.