GST Update – 55th GST Council Meeting Recommendations

The council meeting held on December 21, 2024, thoughtfully addressed the long-awaited concerns and hopes expressed by taxpayers

Recommendations with respect to Changes in rates

1. GOODS

1. Reduction of GST rate on Fortified Rice Kernel (FRK) to 5%

2. Reduction of compensation cess to 0.1% on supplies to merchant exporters at par with GST rate on such supplies

3. To extend the Concessional rate of 5% on food inputs used in making food for free distribution to economically weaker sections under government schemes

2. SERVICES

1. Restaurant Services:

• The concept of ‘declared tariff’ is to be replaced with the ‘value of supply’ to determine tax rates:

• 𝟏 18% GST with ITC: If the value of supply exceeds ₹7,500 per unit

• 5% GST without ITC: If below ₹7,500.

• Restaurants in hotels can choose between 5% GST (without ITC) or 18% GST (with ITC).

2. Increase of GST rate from 12% to 18% on the sale of all old and used vehicles, including EVs (except specified categories already taxed at 18%). GST is applicable only on suppliers’ margins (difference between purchase and selling price or depreciated value if claimed). However, it is not applicable to unregistered persons.

Recommendations with respect to Exemptions

1. GST on Gene Therapy to be exempted

2. To extend the IGST exemption to systems, sub-systems, equipment, parts, sub-parts, tools, test equipment, and software used for the assembly or manufacture of the LRSAM system.

3. To exempt from IGST imports of all equipment and consumable samples by the Inspection Team of the International Atomic Energy Agency (IAEA) subject to the specified condition

4. To exempt GST on contributions made by general insurance companies from third- party motor vehicle premiums to the Motor Vehicle Accident Fund.

Recommendations with respect to Exemptions

1. To exclude taxpayers registered under the composition levy scheme from the scope of Sr. No. 5AB of Notification No. 09/2024-CTR (dated 08.10.2024), which brought the renting of commercial/immovable property (excluding residential dwellings) by unregistered persons to registered persons under the reverse charge mechanism. Additionally, to regularize the period from the effective date of the notification (10.10.2024) until the issuance of the proposed notification on an “as-is-where-is” basis.

2. The supply of sponsorship services provided by body corporates is to be brought under the Forward Charge Mechanism.

Clarifications Recommended

1. Autoclaved Aerated Concrete (AAC) blocks with a fly ash content exceeding 50% are classified under HSN code 6815 and are subject to a 12% GST rate.

2. Pepper whether fresh green or dried pepper and raisins when supplied by an agriculturist is not liable to GST.

3. Proposed amendment to redefine “Pre-Packaged and Labelled” to include all retail commodities up to 25 kg or 25 litres, either pre-packed as per the Legal Metrology Act or labeled in compliance with its declaration requirements Clarifications On GST rates of “Ready to eat popcorn” which is mixed with salt and spices classifiable under HSN 21069099

• If supplied as other than pre-packaged and labelled-5%
• If supplied as pre-packaged and labelled-12%
• However, when popcorn is mixed with sugar thereby changing its character to sugar confectionery (eg: Caramel Popcorn) it would be classifiable under HS 17049090 and attract 18%

4. Payment Aggregators regulated by the RBI are eligible for the exemption under entry at Sl. No. 34 of Notification No. 12/2017-CT(R) dated 28.06.2017, as they fall within the scope of the term ‘acquiring bank’ defined in the said entry. However, this exemption does not extend to payment gateways (PG) or other fintech services that do not involve the settlement of funds.

5. No GST is applicable on ‘penal charges’ levied and collected by banks and NBFCs from borrowers for non-compliance with loan terms.

Recommendations with respect to Exemptions

1. The supply of goods warehoused in Special Economic Zones (SEZ) or Free Trade Warehousing Zones (FTWZ) is treated as Neither a supply of goods nor a supply of services:

▪ This applies when the goods are supplied to any person before clearance for:

▪ Export or Domestic Tariff Area (DTA).

▪ The provision aligns SEZ/FTWZ warehousing transactions with existing GST rules for Customs bonded warehouses.

2. Omission of Sections 12(4) and 13(4) of the CGST Act, 2017, and Rule 32(6) of the CGST Rules, 2017, to resolve existing ambiguities regarding vouchers.

Clarifications on Transactions Involving Vouchers:

• Non-Supply Nature: Transactions in vouchers will neither be treated as a supply of goods nor as a supply of services.

• Principal-to-Principal Basis: The distribution of vouchers on a principal-to-principal basis will not attract GST. However, for distribution on a principal-to-agent basis, GST will apply to the commission, fee, or other amounts charged by the agent.

• Associated Services: Additional services like advertisement, marketing, co-branding, customization, and technological or customer support associated with vouchers will be subject to GST based on the charges for these services.

• Unredeemed Vouchers (Breakage): Income recognized from unredeemed vouchers will not be treated as supply, and no GST will be levied on such breakage income.

3. No proportional reversal of ITC under Section 17(1) or Section 17(2) of the CGST Act, 2017, is required to be made by the ECO for supplies on which they are required to pay tax under Section 9(5) of the CGST Act, 2017.

4. Clarification regarding the availability of Input Tax Credit (ITC) under Section 16(2)(b) of the CGST Act, 2017, in the context of Ex-Works contracts:

o In an Ex-Works contract, goods are considered “received” by the recipient when:

▪ Delivered to the recipient or transporter at the supplier’s premises.

▪ Ownership transfers to the recipient at that point.

o This interpretation aligns with Section 16(2)(b) of the CGST Act, 2017, enabling the recipient to claim Input Tax Credit (ITC).

o TC claims are subject to compliance with:

▪ Sections 16 and 17 of the CGST Act.

▪ All eligibility and procedural requirements.

o This clarification ensures smooth ITC claims in cases where ownership transfers at the supplier’s location.

5. Clarification on Late Fees on Delay filing of GSTR 9 and 9C

a. The GST Council recommended clarifying through a circular that the late fee under Section 47(2) of the CGST Act, 2017, is applicable for delays in filing the complete annual return under Section 44 of the CGST Act. This includes both:

• FORM GSTR-9 (Annual Return)

• FORM GSTR-9C (Reconciliation Statement) (where applicable).

▪ All eligibility and procedural requirements.

b. Waiver of Excess Late Fees for Past Returns (FY 2017-18 to 2022-23):

• The GST Council proposed issuing a notification under Section 128 of the CGST Act, 2017 to waive the excess amount of late fees for delayed filing of FORM GSTR-9.

The waiver is conditional:

• The delayed FORM GSTR-9 for these years must be filed on or before March 31, 2024.

• The related FORM GSTR-9C (if applicable) must also be filed within the same timeline.

3. No proportional reversal of ITC under Section 17(1) or Section 17(2) of the CGST Act, 2017, is required to be made by the ECO for supplies on which they are required to pay tax under Section 9(5) of the CGST Act, 2017.

Measures for Streamlining GST Compliance

1. Track and Trace Mechanism:

o A new provision (Section 148A) in the CGST Act, 2017 will enable the government to enforce a Track and Trace Mechanism for specified evasion-prone commodities.

o This system will use a Unique Identification Marking on goods or packages to trace them throughout the supply chain.

2. Clarification on Online Services:

For supplies of online services (e.g., online gaming, OIDAR) to unregistered recipients, the supplier must:

o Record the State name of the recipient on the tax invoice.

o Treat this State name as the recipient’s address under Section 12(2)(b) of IGST Act, 2017 and Rule 46(f) of CGST Rules, 2017.

Key Measures for GST Law and Procedure

1. Retrospective Amendment to Section 17(5)(d):

The phrase “plant or machinery” will be replaced with “plant and machinery” in the CGST Act, effective from July 1, 2017.

SBC Comments:

• The amendment aligns the provision with the explanation of Section 17.

• The Supreme Court, in Safari Retreat, highlighted two exceptions under Section 17(5)(d):

• ITC eligibility for goods or services used to construct “plant or machinery.“

• ITC eligibility for construction of immovable property not made on one’s own account.

• While the amendment addresses the first exception, it leaves ambiguity around the second, potentially leading to further disputes.

• The amendment to Section 17(5)(d) is anticipated but considered incomplete.

• The second exception highlighted by the Supreme Court remains unresolved, leaving scope for litigation

2. Reduction of Pre-deposit for Penalty Appeals:

Pre-deposit for appeals under Section 129(3) reduced from 25% to 10%.Identical provision introduced under Section 112 for first appellate authority orders involving penalties under Section 129(3).

3. ISD Mechanism:

Include inter-state RCM transactions under ISD and amend related provisions (effective from 01.04.2025).

4. Temporary ID Numbers:

Introduce Rule 16A for generating temporary IDs for unregistered persons making payments under Rule 87(4).

5. Composition Levy Modification:

Allow taxpayers to update the “category of registered person” in FORM CMP-02 through FORM GST REG-14.

Key Measures for GST Law and Procedure

6. Amendment to Invoice Management System (IMS)

Key recommendations by the GST Council to strengthen IMS functionality under the CGST Act and Rules:

• Amendment to Section 38 and Rule 60:

• Legal framework for generating FORM GSTR-2B based on taxpayer actions in IMS.

• Ensures consistency in Input Tax Credit (ITC) claims.

• Amendment to Section 34(2): Mandates ITC reversal by recipients for credit notes to enable suppliers to reduce output tax liability.

• Insertion of Rule 67B: Standardized procedure for adjusting suppliers’ output tax liability against credit notes.

• Amendment to Section 39(1) and Rule 61: Links FORM GSTR-3B filing to the availability of FORM GSTR-2B for reconciliation.

SBC Comments:

• Enhances transparency, prevents fraudulent ITC claims, and ensures accurate tax compliance.

• Effective implementation depends on GST portal readiness and taxpayer adaptability.