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55th GST (Goods and Services Tax) Council Meeting Highlights

 

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The 55th meeting of the GST Council, chaired by the Union Minister for Finance & Corporate Affairs, Smt. Nirmala Sitharaman, convened on 21 December 2024, in Jaisalmer, Rajasthan, and recommended various amendments to the GST framework. The Council proposed a retrospective amendment to Section 17(5)(d) of the CGST Act, 2017, substituting the phrase “plant or machinery” with “plant and machinery” in the blocked credit provisions. Amendments were also recommended to the Input Service Distributor (ISD) mechanism to explicitly include inter-state supplies of goods or services taxable under the Reverse Charge Mechanism (RCM). Further, the Council proposed reducing the pre-deposit requirement for filing appeals under Section 129 of the CGST Act, 2017, concerning penalties for detention or seizure of goods or conveyances.

Clarifications issued by the Council include the classification of vouchers as neither “goods” nor “services” under GST and the exclusion of penal charges collected by banks or Non-Banking Financial Companies (NBFCs) from borrowers from GST applicability. Compliance measures proposed include the introduction of the Invoice Management System (IMS) functionality and a track-and-trace mechanism for evasion-prone commodities. Rate changes recommended by the Council include 18% GST on the margin value of used vehicle sales, including electric vehicles, full exemption for gene therapy, and inclusion of sponsorship services by body corporates under forward charge. These recommendations are subject to legislative approval and rule-based implementation.

Key Recommendations of the GST Council

A. Proposed Legislative Changes:

  1. Amendment in Section 17(5)(d) of the CGST Act, 2017: GST Council proposed retrospective amendment effective from July 1, 2017, to replace the phrase “plant or machinery” with “plant and machinery” in Section 17(5)(d) of the CGST Act to align its interpretation with the explanation appended to the provision.
  2. Amendment in ISD Provisions: Amendments to the definition of ISD and related provisions governing the distribution of credit to explicitly include inter-state transactions taxable under the RCM within the ISD mechanism. These changes, along with related procedural amendments, are proposed to take effect from 1 April 2025.
  3. Amendments to Pre-Deposit Requirements for Appeals in Penalty-Only Cases:
    • Section 107(6): Reduction in the pre-deposit requirement from 25% to 10% of the penalty amount for filing appeals before the appellate authority in cases involving detention or seizure of goods or conveyances.
    • Section 112(8): Introduction of a similar pre-deposit requirement, i.e., 10% of the penalty amount, for appeals filed before the appellate tribunal in such cases.
  4. Taxability of Vouchers: Transactions in vouchers are to be classified as neither a supply of goods nor a supply of services. Provisions related to time of supply and valuation for vouchers are proposed to be omitted from the law. GST will apply to commissions or fees charged in principal-to-agent transactions, but not to principal-to-principal transactions involving voucher distribution. GST shall apply to related services, including advertisement, co-branding, marketing, promotion, and technology support. Unredeemed vouchers (breakage) will not constitute a supply under GST.
  5. Amendment to Schedule III of the CGST Act: Retrospective amendment to Para 8 of Schedule III to include the supply of goods warehoused in SEZs/FTWZs before clearance for export or Domestic Tariff Area (DTA) as neither a supply of goods nor a supply of services, aligning the treatment with that of goods in Customs bonded warehouses.
  6. Compliance and Monitoring Enhancements:
    • Track and Trace Mechanism for Evasion-Prone Commodities: GST Council proposed insertion of Section 148A in the CGST Act to implement a track and trace mechanism using unique identification marking for specified evasion-prone commodities.
    • Provisions for IMS Functionality: Amendments to return-related provisions to establish a legal framework for generating Form GSTR-2B based on taxpayer actions in the Invoice Management System (IMS). Amendments to credit note provisions to mandate Input Tax Credit (ITC) reversal for credit notes and enable corresponding reduction in output tax liability for suppliers in a prescribed manner. Filing of Form GSTR-3B will be permitted only after the availability of FORM GSTR-2B on the portal.

B. Proposed Clarificatory Changes:

  1. ITC Eligibility for Ex-Works Contracts: In ex-works contracts, wherein goods are delivered by the supplier to the recipient or transporter at the supplier's place of business and ownership transfers at that point, such goods shall be deemed as "received" by the recipient for the purposes of Input Tax Credit (ITC) eligibility under Section 16 of the CGST Act, 2017.
  2. ITC Reversal by Electronic Commerce Operators (ECOs): ECOs are not required to undertake proportional ITC reversal for supplies taxable under Section 9(5) of the CGST Act, 2017.
  3. Penal Charges: GST shall not be applicable on penal charges collected by Banks or Non-Banking Financial Companies (NBFCs) from borrowers for non-compliance with the terms of a loan agreement.
  4. RBI-Regulated Payment Aggregators: Payment aggregators regulated by the Reserve Bank of India (RBI) shall qualify for an exemption under GST as they fall within the definition of an "acquiring bank." However, this exemption does not extend to payment gateways and other fintech services that do not involve the settlement of funds.
  5. Recording of Correct Details in Respect of Supply of ‘Online Services’:
    • Suppliers of "Online Services," including online money gaming and OIDAR services, shall mandatorily record the state name of the unregistered recipient on tax invoices.
    • The recorded state name shall be deemed the "address on record" for compliance with the provisions relating to the time of supply and tax invoices under the CGST Act, 2017.
  6. Late Fee for FORM GSTR-9C:
    • Late fees under Section 47(2) of the CGST Act, 2017, shall be applicable for delays in filing the complete annual return, which includes both FORM GSTR-9 and FORM GSTR-9C.
    • Excess late fees for delayed filing of FORM GSTR-9C for the financial years 2017-18 to 2022-23 shall be waived, provided such returns are filed by 31 March 2025, and the fees payable do not exceed those for FORM GSTR-9.

C. Proposed Rate Changes, Exemptions and Clarifications:

  1. Fortified Rice Kernel (FRK): The GST rate on FRK, classified under HSN 1904, shall be reduced from 18% to 5%.
  2. Gene Therapy Treatments: GST shall be exempted for gene therapy treatments.
  3. Long-Range Surface-to-Air Missile (LRSAM) System Components: IGST exemption shall apply to the import of systems, sub-systems, equipment, parts, sub-parts, tools, test equipment, and software intended for the assembly or manufacture of LRSAM systems for defence forces, aligning with existing customs duty exemptions.
  4. Compensation Cess for Merchant Exporters: The compensation cess rate for supplies to merchant exporters shall be reduced to 0.1%, aligning with the GST rate applicable to such supplies.
  5. Equipment and Consumable Samples for International Atomic Energy Agency (IAEA): IGST exemption shall apply to imports of all equipment and consumable samples by the IAEA inspection team.
  6. Food Inputs for Food Preparations: A concessional GST rate of 5% shall apply to food inputs classifiable under HSN Chapters 19 or 21, supplied for food preparations intended for free distribution to economically weaker sections.
  7. Sponsorship Services: Sponsorship services provided by body corporates shall be subject to GST under the forward charge mechanism.
  8. Contributions to Motor Vehicle Accident Fund (MVAF): Contributions made by general insurance companies from third-party motor vehicle premiums to the MVAF, used to provide compensation and cashless treatment for road accident victims, including hit-and-run cases, shall be exempt from GST.
  9. Sale of Old and Used Vehicles: The GST rate on the sale of all old and used vehicles, including electric vehicles (EVs), shall be increased from 12% to 18%. GST will apply to the margin value, defined as the difference between the sale and purchase price, for supplies made by registered persons.
  10. Ready-to-Eat Popcorn: Popcorn containing added sugar, such as caramel popcorn, shall be classified under HS 1704 9090 and attract 18% GST. Past classification and tax issues shall be regularized on an "as is where is" basis.
  11. Autoclaved Aerated Concrete (ACC) Blocks: ACC blocks containing more than 50% fly ash content shall be classified under HS 6815 and attract 12% GST.
  12. Hotel Accommodation and Restaurant Services:
  • The term "declared tariff" shall be omitted, and the linkage for "specified premises" will shift to the actual value of the supply of accommodation.
  • Effective April 1, 2025, the GST rate for restaurant services in hotels will depend on the preceding financial year's accommodation value:
    • 18% with ITC if the value exceeded INR 7,500 per unit.
    • 5% without ITC if the value was below INR 7,500 per unit.
  • Hotels may opt to pay GST at 18% with ITC by declaring their choice at the beginning of the financial year or upon registration.

D. Other Measures:

  1. Temporary Identification Numbers: A new Rule 16A shall be inserted into the Central Goods and Services Tax Rules, 2017, to provide for the generation of temporary identification numbers for unregistered persons making payments under Rule 87(4) of the CGST Rules.
  2. Pre-Packaged and Labelled Commodities: The definition of "pre-packaged and labelled" under the GST law shall be amended to include all commodities intended for retail sale that are pre-packed or affixed with a label, provided such packages contain up to 25 kgs or 25 liters. These packages must bear mandatory declarations as prescribed under the applicable laws.

Note: The recommendations made by the GST Council, as outlined in this release, have been articulated in a simplified manner for the information and understanding of stakeholders. These recommendations are subject to implementation through the issuance of relevant circulars, notifications, or amendments to the existing law. The circulars, notifications, and amendments issued in this regard shall be the only instruments possessing the force of law, governing the application and enforcement of these recommendations. Stakeholders are advised to refer to such legal instruments to ensure compliance and understanding of the provisions as prescribed by the GST Council.

 

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