After long deliberations in the GST Council, the Kerala Flood Cess (KFC) was introduced on August 1, 2019, with a view to raising resources for rebuilding the state following the devastating floods of 2018. In the Budget 2019-20, the Government has estimated additional revenue of Rs 600 crore per year from flood cess. Fortunately, the State was able to collect Rs 2118 crore, which is Rs 918 crore, higher than what was expected. This was considered as a big achievement as the State was going through a difficult time between the two consecutive floods and Covid-19 pandemic.

It is a remarkable achievement that Kerala was able to collect Rs. 2118 crore from the Flood Cess, during the Covid-19 pandemic period. This is Rs. 918 crore higher than the Budget Estimate.

The timeframe of KFC ended on 31st July 2021, which led to a slight price reduction of around 1000 items coming under the tax slabs of 12%, 18%, 28% and 0.25%.TheState's proposal for calamity cess was initially raised before the 30th GST Council held on 28th September 2018.In the opening remark, the State's Finance Minister, Dr. Thomas Isaac, stated "the recent natural calamities have severely affected the State finance not only in the form of lower tax collection but also increased the expenditure like anything. The Fiscal Responsibility and Budget Management (FRBM) Act placed a limit on the expenditure of the State vis-à-vis its revenue receipts, and therefore flexibility was needed in the GST regime for the States to mobilise additional resources". Hence, Kerala was compelled to approach GST Council for permission to levy calamity cess under Article 279, 4 (a)(f) of the Constitution, which permits States to raise additional resources during natural calamity or disaster.

The Council conducted deliberative discussions on Kerala's request, and one of the major issues that came up was that whether any additional tax in the form of cess should be imposed on the people of the State, who had already suffered a great deal. There were also concerns regarding whether the implementation of cess might cause the businesses to shift from the State due to an increase in the tax rates. After careful deliberation, the Council constituted a seven-member Group of Ministers (GoM) to examine all aspects, including the constitutionality of imposing cess under the GST regime.

Accordingly, the GoM, under the Chairmanship of Shri Sushil Kumar Modi, submitted its report in favour of Kerala's request. Subsequently, the 32nd GST Council held on 10thJanuary 2019 permitted the State to levy 1% flood cess for two years applicable only on retail transactions within the State. Based on this, the State government decided to levy KFC on all goods and services coming under the tax brackets of 12%, 18% and 28%, and also all goods coming under the fifth schedule of GST Act. The government exempted items drawing 5% to avoid price hike of essential goods.

Although the State was successful in attaining permission from the GST Council, it was compelled to extend the date of implementation twice due to the amendment required in the CGST Rule 2017. Hence, it approached the GST Council again to make necessary amendments in the CGST Rule, and the concerned provisions on the SGST Act were amended through the Finance Bill of 2019-20. The 35th GST Council held on 21stJune 2019 amended the CGST Rule by incorporating a new section, 32A, prescribing that value of intra-state supply of goods or services or both (B2C) in the State of Kerala shall not include the said cess. Finally, it was introduced on 1st August 2019, after six months of its announcement in the State Budget 2019-20.

References

1. Budget Speech (Kerala) 2019-20 (Para. 256)
2. Minutes of 30th , 32nd and 35th GST Council Meetings
3. 15th Kerala Legislative Assembly, Unstared Question No.5219, dated 12.08.2021

 

 

 

 

 

Highlights of 45th GST council meeting

Less scope for compensation to states beyond June 2021

 

The 45th GST Council was held on 17 September 2021 at Lucknow under the Chairpersonship of Smt. Nirmala Sitharaman, Union Minister for Finance & Corporate Affairs. Previously, it was decided that that meeting will be held exclusively for discussing the   issue of GST compensation to the States but the Centre changed the course of the meeting to various other issues. With related to compensation, a brief presentation was made by the Revenue Secretary pointing out that the revenue collections from Compensation cess in the period beyond June 2022 would be exhausted in repayment of borrowings and debt servicing will be made to bridge the revenue gap in 2020-21 and 2021-22. In other words the Council decided to extend the Compensation cess period till March 2026, but the collection will be used exclusively to repay the back-to-back loans taken between 2020-21 and 2021-22, indicating that there is no scope for compensation to States beyond June 2022, even though many States demanded for an extension. Towards paying Compensation to States, the Centre borrowed Rs 1.10 lakh crore in 2020-21 and Rs 75,000 crore out of Rs 1.59 lakh crore so far in 2021-22 to meet the revenue shortfall during these years."The GST law prescribes compensation pay out for five years. Now, the Council has agreed to use the collection from the compensation cess to pay interest and repay the principal. The cess will continue to be levied till March 2026," Finance Minister Nirmala Sitharaman said in the press conference conducted after meeting and on the question of what will happen to compensation payout beyond five years, she made it clear that it will be used only for debt servicing.

Petroleum products kept out of GST

The Council also considered the possibility of inclusion of petroleum products under the ambit of GST mainly due to an order of the Hon'ble High Court of Kerala. Post a brief discussion, the Council decided that "it is not the right time to bring petrol and diesel under GST". The demand for inclusion of petroleum products under GST has been under serious public debate in the recent past as fuel prices crossed Rs 100 per litre in the country. But both the Centre and states are not in agreement with this proposal as they will stand to lose a substantial portion of their revenue. Presently they are collecting over Rs 5 lakh crore from petroleum products each year and if this is to be brought under GST, maximum 28 per cent would be levied on them which would result significant revenue shortfall for both the Centre and the States.

"Kerala will vehemently oppose any move to bring petroleum products under the GST as that will further reduce revenue generation for the state. It is estimated that, the state would lose around Rs 8000 crore annually if it brought under GST" Kerala Finance Minister, KN Balagoal

Clause 12(A) of the Article 366 of the Constitution provides "Goods and Services Tax" means any tax on supply of goods, or services or both except taxes on the supply of the alcoholic liquor for human consumption. Thus, supply of petroleum products is not excluded from the purview of GST. Article 279 A (5) of the Constitution prescribes that the GST Council shall recommend the date on which the goods and services tax be levied on petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel (ATF), also as per the Section 9(2) of the CGST Act, inclusion of these products in GST will require recommendation of the GST Council.

Reduction on life saving drugs

The Council has decided to give tax exemption and reduction for selected life-saving drugs. There will be no GST on Amphotericin B, Tocilizumab till December 31, 2021. Concessional GST rates on Covid-19 related drugs, which were till September 30, have now been extended till December 31, 2021 only for medicines, but not for medical equipment. The proposal of reducing GST from 12% to 5% on seven more drugs used for cancer treatment till December 31, 2021 was also approved: Itolizumab, Posaconazole, Infliximab, Bamlanivimab and Etesevimab, Casirivimab and Imdevimab, 2-Deoxy-D-Glucose and Favipiravir. In the press conference conducted after GST Council meeting, Hon'ble Union Finance Minister said "There are some life-saving drugs not connected with Covid-19, but are very expensive, for which exemptions are being given. Zolgngelsma and Viltepso used for treatment of Spinal Muscular Atrophy (SMA), costing around Rs 16 crore will now be exempted from GST".

Chief Minister of Kerala has also written to Prime Minister seeking a waiver of Customs duty and GST on these costly life saving drugs. The customs duty of this was waived recently and the decision to exempt GST will be a great relief to the suffering people.

 

 

Food delivery platforms

The Council decided that e-commerce operators (ECOs) dealing with food delivery such as Swiggy and Zomato need to pay GST. Currently, it is being paid by the restaurant. Revenue Secretary clarified that "this is not a new tax and that there will be no implication on customers as the tax rate will continue to be 5 per cent". The two apps are now registered as tax collectors at source under GST.

Other important recommendations

1. The rate of GST has been increased to help mines and industries to adjust their ITC accumulated due to inverted duty structure, which was otherwise not eligible for refund.

1. Ores and concentrates of metals such as iron, copper, aluminum, zinc and few others increased from 5% to 18%
2. Specified Renewable Energy Devices and parts from 5% to 12%
3. Cartons, boxes, bags, packing containers of paper etc. from 12/18% to 18%
4. Waste and scrap of polyurethanes and other plastics from 5% to 18%
5. All kinds of pens from 12/18% to 18%
6. Railway parts, locomotives & other goods in Chapter 86 from 12% to 18%
7. Miscellaneous goods of paper like cards, catalogue and printed material (Chapter 49 of tariff) from 12% to 18%

2. GST rate reduced to 5% on Retro fitment kits for vehicles used by the disabled, Fortified Rice Kernels for schemes like ICDS etc, Medicine Keytruda for treatment of cancer and Biodiesel supplied to OMCs for blending with Diesel.
3. Supply of Mentha oil from unregistered person has been brought under reverse charge. Further, Council has also recommended that exports of Mentha oil should be allowed only against LUT and consequential refund of ITC. Hence export of menthe oil with payment of IGST and getting refund of the same will not be allowed.
4. BRICK KILNS would be brought under special composition scheme with threshold limit of Rs. 20 lakhs, with effect from 1.4.2022. Bricks would attract GST at the rate of 6% without ITC under the scheme. GST rate of 12% with ITC would otherwise apply to bricks.
5. Various state transport authorities are charging GST on transport vehicles given on hire to transport operators. This GST leads to increase in their cost of service as the output service is exempted. GST Council has now clarified that the renting of vehicle by State Transport Undertakings and Local Authorities is covered by expression 'giving on hire' for the purposes of GST exemption
6. There has been long confusion in GST rate on Royalty paid on mining rights for the period 01.07.2017 to 31.12.2018. The confusion has been due to various contrary advance rulings. However it is now clarified that the services by way of grant of mineral exploration and mining rights attracted GST rate of 18% e.f. 01.07.2017.
7. Admission to amusement parks having rides etc. attracts GST rate of 18%. The GST rate of 28% applies only to admission to such facilities that have casinos etc.
8. Now Unutilized balance in CGST and IGST cash ledger may be allowed to be transferred between distinct persons (entities having same PAN but registered in different states), without going through the refund procedure.
9. The GST council had already clarified in its earlier meeting that Interest u/s 50 shall be charged only on delayed payment of tax from cash ledger. There has been continuous effort from the department to demand interest at 24% on all kinds of ITC reversals, even if it is ITC availed and not utilized, causing undue hardship on assesses.

However the GST council has now clarified that section 50(3) of the CGST Act to be amended retrospectively, w.e.f. 01.07.2017, to provide that interest is to be paid by a taxpayer on "ineligible ITC availed and utilized" and not on "ineligible ITC availed". It has also been decided that interest in such cases should be charged on ineligible ITC availed and utilized at 18% w.e.f. 01.07.2017.

10. There is no need to carry the physical copy of tax invoice in cases where invoice has been generated from e-invoice portal having IRN;
11. As per the provision of section 54(3) of GST law, no refund of unutilised ITC shall be allowed in cases where the goods exported out of India are subjected to export duty. There has been a dispute from department that goods attracting NIL rate of duty is also a rate of duty as per the judgment of Hon'ble Supreme Court and therefore goods attracting NIL rate shall also be considered as goods subject to export duty, hence refund not allowed.

The issue is now clarified that only those goods which are actually subjected to export duty i.e., on which some export duty has to be paid at the time of export, will be covered under the restriction imposed under section 54(3) of CGST Act, 2017 from availment of refund of accumulated ITC.

12. GST law shall be amended to restrict registered person from filing of FORM GSTR-1, if he has not furnished the return in FORM GSTR-3B for the preceding month. Currently the condition is on non-filing of FORM GSTR-3B for the preceding two months.

Two GoM formed to examine the possibilities of rate rationalization and system reforms

The GST Council has discussed the need to undertake GST rate rationalization including correction of inverted duty structure with an objective to simplify the rate structure, to reduce classification related dispute and enhance GST revenue. Accordingly, a seven member GoM has constituted under the convenorship of Shri Basavaraj S. Bommai, Hon'ble Chief Minister of Karnataka to study and report on rate rationalization within two months. Shri K.N Balagopal, Finance Minister of Kerala is also part of the GoM along with Finance Ministers of Bihar, Goa, Rajasthan, Uttar Pradesh and west Bengal. The GoM shall consider the following issues:

1. 1. Review the supply of goods and Services exempt under GST with an objective to expand the tax base and eliminate breaking of ITC chain;
   2. Review the instances of inverted duty structure other than where Council has already taken a decision to correct the inverted structure and recommend suitable rates to eliminate inverted duty structure as far as possible so as to minimize instances of refund.
   3. Review the current tax slab rates and recommend changes in the same as may be needed to garner required resources; and
   4. Review the current rate slab structure of GST, including special rates, and recommend rationalization measures, including merger of tax rate slabs, required for a simpler rate structure in GST.

The Council has acknowledged that IT systems have stabilized and there is a need to introduce IT based cheeks and balances in the GST IT system. The Council has also acknowledged the use of data analysis like BIFA system of GSTN and stressed on expanding use of data analytics in increasing efficacy and efficiency of GST administration. Accordingly, an eight member GoM has constituted under the convenorship of Shri Ajit Pawar, Hon'ble Dy. Chief Minister of Maharashtra to study and report on GST system reforms with the following ToR;

1. 1. Review the IT tools and interface available with tax officers and suggest measures to make the system more effective and efficient including changes in business process;
   2. Identify potential sources of evasion and suggest changes in business process and IT systems to plug revenue leakage;
   3. Identify possible use of data analysis towards better compliance and revenue augmentation and suggest use of such data analysis;
   4. Identify mechanisms for better coordination between Central and State tax administration and tax administrations of different States; and suggest timeline for changes recommended.

 

 

GST revenue collection for August and September 2021: An analysis

Gross GST collection was Rs 1,12,020 crore in August 2021 and Rs.1,17,010 crore in September 2021

The gross GST collections for August and September 2021 have crossed Rs 1 lakh crore, which indicates that the economy is recovering gradually from the second wave of Covid-19. Apart from that, the revenue augmentation and anti-evasion measures, especially action against fake billers have also been contributing to the enhanced GST collections. The gross GST revenue collection in the month of August 2021 was Rs 1,12,020 crore of which CGST is Rs 20,522 crore, SGST is Rs 26,605 crore, IGST is Rs 56,247 crore and Cess is Rs 8,646 crore. The government has settled Rs 23,043 crore to CGST and Rs 19,139 crore to SGST from IGST as regular settlement. In addition, Centre has also settled Rs 24,000 crore as IGST ad-hoc settlement in the ratio of 50:50 between Centre and States/UTs. The total revenue of Centre and the States after regular and ad-hoc settlements in the month of August 2021 is Rs 55,565 crore for CGST and Rs 57,744 crore for the SGST. The revenues for the month of August 2021 are 30% higher than the GST revenues in the same month last year. During the month, the revenues from domestic transaction (including import of services) are 27% higher than the revenues from these sources during the same month last year. Even as compared to the August revenues in 2019-20 of Rs 98,202 crore, this is a growth of 14%.

Comparison of GST Collection for August & September 2021

Reference