GST Council meet: No compensation for States after June; fuel kept out of ambit

Shishir Sinha Lucknow | Updated on September 17, 2021

Finance Minister Nirmala Sitharaman chairs the 45th GST Council meeting in Lucknow, on Friday   -  PTI

Food delivery apps made responsible for tax payment

The GST Council on Friday decided to use the compensation cess to be collected between July 1, 2022 and March 31, 2026 for servicing of the debts raised to meet the revenue shortfall, thus indicating that no compensation will be paid to States after June 2022.

“The GST law prescribes compensation pay out for five years. Now, the Council has agreed for using the collection from the compensation cess to pay interest and repay the principal. The cess will continue to be levied till March 2026,” Finance Minister Nirmala Sitharaman told media persons after a day-long council meeting here.

On what will happen to compensation payout beyond five years, she made it clear that it will be used only for debt servicing.

The Centre borrowed ₹1.10-lakh crore in 2020-21 and ₹75,000 crore (out of ₹ 1.59-lakh crore) so far in 2021-22 to meet the revenue shortfall during these years.

States have been seeking extension of compensation by another five years. Kerala Finance Minister KN Balagopal told BusinessLine that the Goods and Services Tax Council discussed the issue of extending compensation. “The revenue loss of States is a serious issue. We raised the issue at the meeting,” Balagopal said.

The Council also decided to form two Groups of Ministers (GoMs). One will recommend on rate rationalisation in case of inverted duty structure. Sitharaman clarified that it has nothing to do with the rate slabs rejig.

The second GoM has been assigned to look into e-way bill, fastags, etc. Both will give their recommendations within two months.

On petrol, diesel

On bringing petrol and diesel under GST, Sitharaman said that issue was included in the agenda purely because of an order of the Kerala High Court. The Council discussed and decided to report to the court that “it is not the right time to bring petrol and diesel under GST.”

This issue has been under discussion for a long time specially keeping in mind the higher taxes by the Centre and the States. Not bringing these two products under the GST will mean that companies will not get input tax credit on account of these two products.

Revision in rates

The Council decided to continue with a lower 5 per cent rate on drugs for Covid till December 31, 2021. It agreed to exempting some costly drugs such as Zolgensma for spinal muscular atrophy, and Viltepso for Duchenne muscular dystrophy. These drugs cost a few crore rupees. Other medicines used in treatment of muscular atrophy will also be exempted from GST. Medicine Keytruda for treatment of cancer will attract GST at 5 per cent as against 12 per cent.

5% on food delivery apps

The Finance Minister said that e-commerce operators (ECOs) dealing with food delivery such as Swiggy and Zomato will now be responsible for paying GSt. At present, it is the restaurant that pays. Revenue Secretary Tarun Bajaj clarified that this is not a new tax and that there will be no implication on customers as the tax rate will continue to be 5 per cent.

A similar mechanism will be followed on ECOs that provide services for transport of passengers, by any type of motor vehicle. These rules will come into effect from January 1.

The Council decided to change the inverted duty structure on footwear and textile from January 1. Inverted duty structure means higher duty on inputs and lower duty on the output resulting in refund by the government. It also blocks revenues for companies.


Published on September 17, 2021

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