GST Council 53rd Meeting: A pragmatic approach for business growth

The 53rd GST Council meeting served as a testament to the ongoing commitment towards a robust tax reform framework in India. The Council's dedication to technological advancements, process simplification, and swifter dispute resolution mechanisms was evident yet again.

This recent meeting further solidified the Council's role as a key driver of economic transformation by tackling critical areas that bring clarity and relief to businesses. Regularization of past transactions, clear taxability on Extra Neutral Alcohol (ENA), and a slew of facilitation measures were all on the agenda.

For businesses grappling with unintentional GST underpayment due to common trade practices, the Council's proposal for a new provision empowers the government to regularize such situations. This is a welcome move for companies navigating the complexities of GST on secondment, online gaming, and similar areas. However, clear definitions and guidelines for these common trade practices are paramount for successful implementation.
Clarity on Extra Neutral Alcohol (ENA)

The murky tax status of ENA, a key component in alcoholic beverages, has finally been clarified. The Council's recommendation to amend the CGST law ensures ENA used in manufacturing liquor for human consumption remains outside the ambit of GST. This aligns with the Council's original intent and brings much-needed certainty to the industry.

Valuation of Corporate Guarantee Services

Valuation of corporate guarantee services provided between related persons was another concern addressed by the Council. The clarification that the 1% valuation wouldn't apply to exports or when the recipient receives full input tax credit eliminates ambiguity and potential litigation for businesses offering such services.

Streamlining Tax Credits and Reverse Charge Mechanism

Claiming tax credits, particularly on GST paid under the Reverse Charge Mechanism (RCM) or supplies from unregistered vendors, has been streamlined. Assessees can now claim credit within a stipulated timeframe based on the date of the self-invoice. This eliminates past confusion and ensures timely credit utilization.

The Council also recognized the challenges faced by businesses offering post-sale discounts. A proposed mechanism to clarify how recipients can prove ITC reversal aims to bring transparency and streamline the process for both suppliers and recipients.

Waiving Interest and Penalties, and Dispute Resolution Measures

The evolving nature of GST law, coupled with initial confusion and lack of precedents, led to unintended non-compliance in the early stages. To address this, the Council proposed waiving interest and penalties for such early confusions (up to 2020) – provided there's no evidence of fraud or deliberate misstatement. Additionally, extended credit claims, a monetary limit for filing departmental appeals, and clarified limitation periods for appeals in the GST Appellate Tribunal (GSTAT) are intended to expedite dispute resolution.

Future Steps and Areas of Focus

Establishing a fully functional GSTAT and a national authority for advance rulings are crucial next steps for faster case resolution and consistent legal interpretations. The Council's focus on these areas will provide significant relief and much-needed clarity for businesses.
Moving forward, the Council should consider further rate rationalization, sectoral focus, and a tighter credit mechanism. The current multi-tiered structure, with rates ranging from 0% to 28%, can lead to classification issues, unintentional non-compliance, and duty inversions in certain sectors. Collaboration with businesses to streamline rates can significantly enhance GST's effectiveness.

The proposed phased rollout of Aadhaar authentication for registration applicants is a positive step towards strengthening the registration process. Additionally, a balanced invoice locking facility would further deter invoice manipulation and fraudulent ITC claims.
GST impacts different industries in unique ways. Sectoral committees with industry experts can pinpoint these issues and work with the Council to develop solutions. Standardized manuals and checklists would further improve compliance by providing clear expectations and streamlining audits, fostering a more efficient and equitable GST system overall.

The 53rd GST Council meeting addressed a wide range of industry concerns. Streamlining the complex tax rate structure and establishing a more efficient dispute resolution system are crucial next steps in this evolving journey. Collaborative efforts with industry stakeholders and a focus on these key areas will ensure a smoother and more effective GST regime for all.

Written by Saurabh Agarwal & Divya Bhusan, Tax Partner, EY India. Views expressed do not reflect that of Business Today.