By Abhishek A Rastogi
While the slew of litigations continue under the GST regime through writ petitions on new issues—such as IGST on branches providing services outside India, entitlement to transitional input tax credit, double taxation of ocean freight, inverted duty structure, purchases from unregistered dealers and lack of infrastructure for filing advance ruling applications—the GST Council has been keeping a close watch on these issues every month to iron out challenges faced by businesses. Perhaps this is the reason why the GST Council, in its 23rd meeting, has decided to allow manual filing of advance ruling applications. Most of the decisions taken by the GST Council were a reflection of a populist appeal. While there were expectations of massive rate cuts, nobody anticipated a colossal overhaul in the rate structure. Keeping in line with recommendations from the fitment committee, the GST Council decided to reduce the rates of 177 supplies from the peak rate of 28% to 18%. It is concerning to see that the latest economic indicators are suggesting a decline in both consumption and factory outputs, and the nation’s GDP is also taking a hit. The reduction of GST rates on 177 items—such as detergent, chewing gum, chocolate, aftershave lotion and washing powder—is perhaps a step to address this situation to boost consumption and provide the much-needed impetus to the economy even at the cost of an exchequer loss of approximately Rs 20,000 crore this fiscal. Even though the list of “sin goods” under the high tax bracket of 28% has been significantly pruned down, about 50 items still remain under the highest tax bracket.
These include luxury items such as air conditioners and washing machines. While the 28% slab retains essential items for construction sector such as cement, various other products such as granite and marble used significantly for the construction sector will become cheap. Similarly, 13 items have been moved from the 18% to the 12% bracket, six items from 18% to 5%, eight items from 12% to 5%, and six items from 5% to nil. The GST Council also did away with the tax rate distinction between AC and non-AC restaurants. It has proposed a uniform tax rate of 5% without the benefit of input tax credit. Previously, GST was levied at 12% on non-AC restaurants, while it was 18% for air-conditioned ones with the benefit of input tax credit. However, the government decided to isolate restaurant businesses and set an example by removing the benefit of input tax as restaurants did not pass on the benefits of increased credit to customers. Outdoor caterers and restaurants in hotels with room tariff rates of more than Rs 7,500 per unit per day will be liable to pay 18% with input tax credit benefits.
The GST Council has made significant efforts towards easing the compliance burden for all businesses. In a bid to encourage registration of small players, the threshold for the Composition Scheme is further hiked from Rs 1 crore to Rs 1.5 crore, and the rates have been reduced to 1% for traders on only taxable supplies. However, restaurants will not be eligible for this scheme. While big businesses may shy away from purchases from dealers under the Composition Scheme because of cost concerns over blocked credit chain, this will ensure simpler tax compliance for small businesses who choose to be registered under GST and remain in the GST system. This will also make life easier for revenue officers who need not go into detailed and complicated scrutiny of accounts and records for small composition dealers because of the inherent simplicity within the system. For businesses with annual aggregate turnover of less than Rs 1.5 crore per year, the Form GSTR-1 needs to be filed only on a quarterly basis, instead of being filed every month. The government has extended the time limit of filing GSTR-1 for pending invoices for July to September 2017 till December 2017.
Similarly, the time limit for filing GSTR-3B has been extended till March 31, 2018, and for persons filing nil returns, the format of GSTR-3B will be further simplified. In response to concerns raised over the complexity of filing GSTR-2 and GSTR-3, the GST Council has decided that only GSTR-1 is to be filed in the current fiscal up to March 31, 2018. A committee under the chairmanship of GSTN along with state and central government officers has been appointed to simplify the format of GSTR-2 and GSTR-3 during the interim period. However, the government had abundantly clarified that it is not prepared to dilute the invoice-wise entry in GSTR-1 or the invoice matching requirements in returns. The due dates for GSTR-4 and ITC-04 were further extended up to December 24, 2017. To assist small businesses and encourage them to register themselves under the Composition Scheme, the government has extended benefit of services up to an annual turnover of Rs 5 lakh, in addition to goods.
While structurally nothing much has changed and various critical legal issues have not been addressed, and even the rate cuts are likely to result in lesser tax collections and a significant loss to the government exchequer, it is hoped that short-term revenue losses can be recovered by way of expanding the tax base and improving long-term tax compliance. This move provides respite to consumers and businesses alike, and may prove to be a much-needed boost to the economy, which has sagged on account of a slowdown in growth and a harrowing transition phase to the new tax regime. It is also interesting to note that while real estate and petroleum were in the agenda of the GST Council meeting, they have been deferred for discussion until the next meeting. Lastly, it is worth noting that the government has clarified that these changes are expected to take effect prospectively from November 15.
Writer is Partner, Khaitan & Co