– By Shivam Mehta and Tanya Garg
The last year has been truly an instrumental year in shaping the GST landscape. Notably, three back-to-back GST Council meetings were held, each serving as a platform for critical decisions aimed at addressing long-standing concerns of the taxpayers.
These meetings saw major announcements, including changes in tax rates, introducing exemptions, tweaks in compliance procedures, and other decisions aimed at smoothing out the taxpayers grievances.
Nevertheless, some of the concerns that were previously tackled have only been met with half-baked solutions, failing to provide comprehensive relief to taxpayers. Moreover, there are various issues which are still waiting to be addressed by the GST Council. This article aims to highlight some of the key issues that remain unresolved, shedding light on the areas where taxpayers are eagerly awaiting for meaningful relief and effective solutions.
Alcohol Industry hoping for a Lasting Fix!
Past Period ENA Taxability: Awaiting Final Resolution
While the amendment introduced in Section 9 of CGST Act to exclude un-denatured ENA or rectified spirit used for manufacture of alcoholic liquor, for human consumption from the ambit of GST has been a blessing for Alcohol Industry, its prospective application from 01.11.2024 is still an impediment in reaping the full benefit.
After the press release dated 17.10.2023 was issued after 52nd GST Council Meeting, recommending the above ENA to be kept outside the ambit of GST, many ENA manufacturers have stopped paying GST on un-denatured ENA or rectified spirit, anticipating that the amendment in the GST law would be made applicable retrospectively (at least from the date of press release). Furthermore, many taxpayers have started remitting VAT for the said period to the state authorities. To the surprise of the taxpayers, the amendment has been made applicable prospectively and not retrospectively, creating hardships for the taxpayers who have stopped paying GST.
Economic Surplus: Mired in Ambiguity
The taxpayers are also being swamped with the notices with GST demands on economic surplus in contract bottling arrangements entered between Brand Owner (BO) and contact bottling unit (CBU). To give a background, in these arrangements, the CBU agrees to produce liquor of brands of the BO using its own infrastructure while the risk and rewards vests with BO, who possesses know-how and ownership of the brand of liquor to be manufactured. Any amount remaining in the bank account from the sale, after deduction of various costs required to be borne by BO is retained/transferred to the BO, which is known as economic surplus.
The primary allegations revolve around the economic surplus being a consideration for services of transfer of right to use intellectual property or for franchisee service by the BO.
Unlike pre-GST regime wherein it was considered to be in the nature of Business Profit and hence, non-taxable, there are no specific clarifications issued under GST regime. The contradictory AARs on the other hand have further provoked the issue.
With the taxpayers grappling with the past demands, a clarity and relief on both the above issues is eagerly awaited by the alcohol industry.
Food Aggregators: Aggravated by constant demands
Food Aggregators are in the spotlight, owing to the tax demands being raised on them, due to the ambiguity surrounding the supplier of delivery services. The Aggregators, operating under the Marketplace model, consider themselves merely as a facilitator for the provision of goods and services between third-party suppliers and are of view that the service provider is the delivery partner. Authorities, on the other hand, are alleging the aggregators to be delivery service providers and are demanding tax on the same.
There was a hope for some clarification on the above issue in the last council meeting, however, much to the disappointment, the matter was left for the fitment committee to resolve. The industry looks to the upcoming budget for clarity on this matter.
Self invoicing- Simplification or Added Complexity?
The recently introduced Rule 47A in the CGST Rules providing for issuance of self-invoice by the recipient within a period of 30 days from the date of receipt of the supply of goods or services has sparked another debate amongst taxpayers. With no clarity on the meaning of receipt of goods and particularly services, the taxpayers are struggling to keep up with this rule. A definite clarification on the same is warranted, failing which the taxpayers will be left hanging in uncertainty.
Rate Rationalization: A Marathon, Not a Sprint
The crucial issues such as rate rationalisation, reduction of tax rates in insurance sectors, even after the constitution of the Group of Ministers (GOM) have been put on hold for re-consideration and deliberation for different reasons in the last few meetings. With compensation cess going to end in March 2026, it is crucial that the decisions regarding the rate rationalisation are taken in a phased and a regularised manner to avoid any burden on the end consumers. However, the areas in which relief would be granted will unfold, only with time.
ISD vs Cross Charge: A Blurred Distinction
Though the ISD Mechanism has been made mandatory w.e.f. 01.04.2025, a clear distinction between the ITC to be distributed via ISD Mechanism and distribution via cross-charge mechanism is still unsettled. One may hope that the upcoming budget sheds some light on the same which will help businesses to comply with GST regulations efficiently without facing undue compliance burdens.
Amnesty Scheme: More of a Dilemma than benefit
The Amnesty Scheme, intended to bring relief, is turning out to be a nightmare with the taxpayers struggling with uncountable practical challenges such as non-availability of schemes with multiple tax periods, multiple demands and other issues. To make the Scheme truly effective, it is crucial to address these issues promptly, ensuring that taxpayers can reap the benefits of the scheme without obstacles.
To sum up, though the clarity on above issues is awaited, how far the concerns of the taxpayers will be addressed can be ultimately revealed only after the budget is announced.
(Shivam Mehta is Executive Partner; and Tanya Garg is Principal Associate at Lakshmikumaran & Sridharan Attorneys.)
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