With the growing clamour from the States for additional money to manage Covid-relief efforts, the GST Council is likely to take a decision on the matter during its 43rd meeting on May 28. The Council is also expected to consider the request for amendments in the Finance Act, compensation mechanisms for States and modifying the inverted duty structure.
The meeting comes after a long hiatus. The Council last met in October 2020.
Key issues
A senior Government official told
Earlier this month, Punjab’s Finance Minister Manpreet Singh Badal wrote to Finance Minister Nirmala Sitharaman, who also is the Chair of the Council, and sought an ‘urgent discussion’ on several issues. Several States have been pushing for GST exemption on items essential in the battle against Covid such as hand sanitisers, face masks, oximeters, ventilators and PPE Kits. Other demands include the lowering of interest rates under GST law and some sops for severely crippled sectors such as MSME, aviation, retail, hospitality and entertainment.
“Do we need to make an amendment to law to allow donations of goods for Covid without denying tax credits on inputs used in their manufacture or purchase. Also, is an amnesty scheme needed to condone delays in payment of taxes during Covid period,” queried Badal in his letter. Similar demands came from States such as Chhattisgarh and West Bengal. India Inc is seeking GST exemption for imported relief material it was distributing for free.
GST compensation
The official further said that one of the key agenda items would be compensation. Last week, Finance Minister of West Bengal, in a letter to Sitharaman used Centre’s projection to say that GST compensation shortfall is expected to be to the tune of ₹1,56,164 crore during current fiscal. According to him, this is without taking into consideration the impact of the second wave of Covid. Last year, the Centre borrowed over ₹1-lakh crore and passed it on to States as back-to-back loans with repayment guaranteed through money collected from compensation cess.
Another important item for discussion would be the amendment to GST law through Finance Act, 2017. There are a total of 15 amendments. “Normally, these amendments come into effect from January 1 with corresponding amendments in State laws. Our effort would be same,” the official said. Some of these amendments include retrospective amendment on levy of GST on clubs, associations and societies, additional condition for entitlement of input tax credit (ITC), recovery without issuing show cause notice on liability declared in GSTR-1, widened scope of provisional attachment and provision related with zero-rated supply
On the subject of inverted duty structures, the official said that this anomaly has been remedied for mobile handsets. The council could look at similar corrections for items such as textiles.