– By Charanya Lakshmikumaran and Tanya Garg
The recent 54th GST Council Meeting was convened after a short span of 2 months after the last meeting. However, the decisions demonstrate the Government’s endeavour to ease taxpayer’s concerns with a time sensitive approach.
The Council’s attempt to attend to the representations of the industry is quite evident, but its success will only become clear over time. The authors, through this article, aim to address the major hits and misses of the outcomes of the recent GST Council Meeting.
Clarity on Online Gaming – A Game too far?
It is apparent that the clarifications and the solutions in the sphere of online gaming taxation are eagerly awaited by the industry. But, as indicated in the past two press conferences, the issue appears to have been put on a back burner by the Government.
The recent data, as announced in the press release shows that the tax collections from online gaming have upscaled by 412% over a span of 6 months. Thus, the forecast for future relief looks uncertain. Since the recent council meetings were silent on the fate of online gaming, the industry’s expectation for the future relief remains unanswered, as of now.
For the past period, the matter is likely to obtain clarity once the issues are settled in court.
Insurance Sectors- Relief on Cards?
While the insurance sector was awaiting some rate reduction in this council meeting, their hopes have not been entirely lost since a Group of Ministers (GOM) has been constituted to look into the rate issues. The cut off date of October end meant to submit the report shows the intent of the Government to resolve the taxpayer’s issues in a timely manner. However, the areas in which relief would be granted will unfold, only with time.
Exemption to Grants- A big win
The proposal to exempt supply of research and development services by specified entities using government or private grants is intended to address the representations of the industry regarding the notices issued to institutions such as IIT-Delhi, lately. This decision is a win for industry since it not only settles the past demands but offers future relief, as well.
Rate Rationalisation: Clearly not a hit!
The decisions taken for rate rationalisation, though, were aimed at easing the burden of taxpayers seem to have introduced more challenges.
Not only this council meeting, the Government’s attempt to clarify the issues in the past also have resulted in more complexities. One such issue was exemption granted to annuity paid for receipt of service by way of access to a road or a bridge. The circular clarifying that the entry does not cover annuity paid as deferred payment for construction of roads/highways in its ambit, was quashed by Karnataka High Court subsequently. As a consequence, the Government revoked the exemption granted to annuity, as a whole leaving taxpayers in a tough spot.
Unfortunately, the trend seems to have been continued, in this council meeting as well.
Savoury foods vs Namkeen: Clarifications Sparks Confusion
The debate surrounding the distinction between extruded/expanded savoury foods (CTH 1905-18%) and namkeen (CTH 2106-12%) has been persisting over a long period. Since there appears to be a fine line between them, 12% GST was being discharged by the industry on both as the products were marketed as namkeen and not savoury products. As per the authorities, savoury goods are classifiable under CTH 1905, attracting 18% GST rate, as indicated in Circular issued in 2023. To put an end to such debate, the Council has now recommended a 12% GST rate, prospectively on the products classifiable under CTH 1905. Since no relief has been granted for the past period, the ongoing litigations remain unsettled.
The question as to whether or not, the industry will be able to reap the benefit of rate reduction to 12% on the goods classifiable under CTH 1905 in future or it will further aggravate the past litigations will be answered in due course only.
GST Rate on Motorcycle Seats- A set back?
The increase in GST rates on car seats to 28% may put the industry in two minds as to whether the Council should be approached in the matters with ongoing litigations, or such matters should be left to be decided by courts. To give a background, the press release clarifies that the increase in rate on car seats is being proposed to bring parity with the seats of motorcycles which already attract a GST rate of 28%. This indicates that the authorities are of the view that motorcycle seats were always subject to 28% GST which has given rise to a greater concern, since most players were discharging 18% GST on it.
Though the industry was hoping for a relief for the past period, the decision has come as an utter shock to the industry. Unless any intervention is done by the Council or Government in the form of clarification/exemption for the past, the matter is likely to see the dawn in courts only.
Relief to Foreign Airlines: Cause of Concern for others?
The exemption with respect to import of services, without consideration from a related person or an establishment has been carved out, specifically for the airlines industry. It has stirred up the controversy for the other industries, and has sparked doubts as to whether such exemption is warranted in similar cases (other than airlines) of import of services.
The resort to Circular 210/4/2024 dated 26th June 2024 seems to be a viable option for other industries, in absence of any clarification. However, neither the circular, nor the above exemption has dealt with the transactions wherein the consideration is involved between the parties/ distinct persons and the case is not covered under Schedule I. The said aspect needs more clarity, otherwise, the disputes raised by the authorities will warrant Court intervention.
All in all, without a doubt, many favourable and public centric decisions were taken in this meeting. However, some decisions as highlighted in this article, also hints towards the unintended consequences the decisions may have on the ongoing litigations, if not undertaken cautiously. It is crucial that the decisions are aligned with both, past and future, failing which, the benefits may not reach the intended taxpayers.
(Charanya Lakshmikumaran is the Executive Partner; and Tanya Garg is the Principal Associate at Lakshmikumaran and Sridharan.)
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