GST Council agrees on five areas; differ over 1st meet decision

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In signs of fracture, the Centre and states disagreed on decisions reached at the first meeting of the GST Council on service tax assessment although they reached a consensus on area based exemption in the new tax regime. 

The second meeting of the all-powerful GST Council, headed by Finance Minister Arun Jaitley, agreed on five subordinate legislations dealing with issues ranging from registration to invoicing under the new Goods and Service Tax (GST) regime. 

It also agreed on the treatment of exemption from GST. Currently, the Centre gives exemption to 11 states mostly in North East and hilly regions from excise duty as also many states give the same as incentive for setting up industry.

The council decided that under GST, which will subsume excise duty and VAT among other levies, taxes will have to be collected and it can be reimbursed from the annual budgets to the exempted categories. 

But there were divisions over ratifying or approving the minutes of the first meeting of the Council, held last week, after at least two states disagreed with what was documented as decided on the Centre’s assessing 11 lakh service tax filers in the new dispensation.

“Obviously the first item has to be approval of minutes of the last meeting. With regard to one item recorded in the minutes with regard to the service tax assessments in the new dispensation, there was a long discussion on the interpretation on the decision taken in the last meeting and that discussion consumed a lot of time today.

“That discussion was inconclusive and therefore it will continue in the next meeting on 18th (October),” Jaitley told reporters.

The second meeting of the GST Council finalised rules for registration, rules for payments, returns, refunds and invoices.

With this as many as 6 issues have been settled by the Council, that has representatives of all the states, in two meetings in a span of one week.

Discussions on service tax assessment and the formula for calculating compensation to be paid to states in case of revenue shortfall as a result of implementation of the GST regime, possibly from April 1, 2017, would be taken up at the next meeting on October 18-20. 

It will also decide on the all important GST rate, Jaitley said, adding that the government is targeting November 22 for completing major work on deciding tax rate, exemptions and draft legislation by the Council.

There were two items regarding draft GST rules on agenda of GST Council meeting, he said.

“Now these rules are with regard to registration, rules for payments, return, refund and invoices. These rules are notified once the Act is passed. These 5 sets of rules were taken up for consideration and have been approved. So we are in a state of readiness with the subordinate legislation once the act itself is approved,” he said.

Stating that the second item on agenda was treatment of existing tax incentives by the Centre, he said, has given some exemptions from excise duty to 11 North-East and hill states. Similarly, states too give out a series of incentives.

It is possible that some of the exemptions may get phased out. But for the exemptions which may remain how will these exemptions fit into the GST system. So the Council took up for discussion the management of these exemptions and it was agreed that there would be a levy of tax under the GST system on all exempted entities.

Under the GST system, everybody will have to pay tax but those exempted would be entitled to be reimbursed the levy they pay.

On services that are taxed partly by the Centre and partly by states, he said experts will examine and report it in next meeting for a final decision.

Which exempted entities will remain or not will be decided by states and the Centre, he said, adding that states would have to decide on exempted entities as they will reimburse tax to them.

Jaitley said there were discussions on interpretation of service tax, division of authority between centre and states, but they were inconclusive.

“Now after this, two items remain. The rates would be the big item to discuss and then after we will go to draft rules of GST law,” he added.

Explaining how the area-based exemptions would be doled out, Jaitley said the centre gives incentives to North Eastern states. But the tax that comes to the central kitty, 58 per cent belongs to Centre and 42 per cent is devolved to the states.

“Hence, we (Centre) will reimburse only 58 per cent. How the remaining 42 per cent will be reimbursed that arrangement has to be worked out. I can’t get 58 per cent tax and reimburse 100 per cent,” he said.

The 14th Finance Commission in its report has scaled up devolution to states from the central pool of taxes to 42 per cent from 32 per cent.

Asked how the supply contracts, where both goods and services components are there, would be taxed in the GST regime, Revenue Secretary Hasmukh Adhia said that has been referred to the officers committee.

So the question is what happens to those kind of cases where there is both goods and services. Now it will become supply contracts. Now the officers committee will look into this and come back to GST Council,” Adhia said.

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