ANALYSIS OF RECOMMENDATIONS MADE UNDER 48TH GST COUNCIL MEETING

Editorial Team

1. Clarifications regarding applicability of GST rates on certain goods

 Rab (rab-salawat) would fall under CTH 1702 and taxable at 18%

EDITOR’s Comments:
Rab is a juice extracted from the sugarcane and further processing of rab churns out
molasses as a by-product. One State GST authority had issued SCNs to the rab
producers treating rab as molasses. Notably, molasses is taxable under GST at the rate
of 28%1. Now, the GST Council has recommended that clarification would be issued to
provide that rab is classified under CTH 1702 and would be taxable at the rate of 18%.

 Fryums manufactured would be covered under CTH 19059030 and attract 18% GST

EDITOR’s Comments:
The classification of Fryums has been a debatable issue for so long. In several AAR
rulings, it was held2 that fryums would be classified under the heading 2016 9099 and
therefore, would be exigible for GST at the rate of 18%. However, taxpayers are treating
it as ‘pappad’ of different forms/sizes. Notably, ‘pappad’ under the heading 1905 is
exempt3 from GST.

Now, it has been recommended by GST Council to clarify that ‘Fryums’ manufactured
using the extrusion process would be specifically covered under CTH 1905 9030 which
is exigible for GST at the rate of 18%. But there is still some ambiguity where fryums are
not manufactured using the extrusion process would be classified as ‘pappad’ & exempt
under GST.

 Motor vehicles satisfying all four conditions would be treated as SUVs with applicable cess rate
of 22%

EDITOR’s Comments:
Currently, the GST law prescribes a 22% rate of compensation cess on SUVs. There was
ambiguity on what constitutes SUVs. The issue was whether Sedan cars should be
included within this category or not. Further, there was a difference in the interpretation
of ‘SUVs’ by different States. Therefore, it has been recommended by the GST Council
to issue a clarification that 22% cess rate would be applicable only when all the four
conditions are satisfied, which are as under:

1 Sl. No. 1 of Schedule IV of Notification No. 1/2017-CT(Rate), dated 28-06-2017

2 Shree Swaminarayan Foods (P.) Ltd Advance Ruling No. GUJ/GAAR/R/81 OF 2020 (AAR - GUJARAT);
Jayant Food Products Advance Ruling (Appeal) No. GUJ/GAAAR/APPEAL/2021/20 (AAAR-
GUJARAT)/[2022]; Alisha Foods Order No. MP/AAAR/02/2020 (AAAR-Madhya Pradesh)
3 Sl. No. 96 of Notification No. 2/2017-CT(Rate), dated 28-06-2017

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 (a) Motor vehicle is popularly known as SUVs
(b) Engine capacity exceeds 1500 cc
(c) Length of the motor vehicle exceeds 4000 mm
(d) Ground clearance of 170 mm and above

 Rate reduction on inputs pertaining to petroleum operations

Goods imported for petroleum operations falling in the rate category of 5% under the
Customs Tariff would attract a lower rate of 5%. Further, a rate of 12% would be
applicable only where the general rate is more than 12%

EDITOR’s Comments:
Goods imported for specified petroleum operations are taxed at 12% w.e.f. July 18, 20224.
Prior to July 18, 2022, a concessional tax5 rate of 5% was allowed and after the
amendment, there was that whether goods which are falling under lower rate category
of 5% would also be taxable at the rate of 12% as per the amended notification or 5%.

Now, the Council has recommended to clarify that the goods falling under a lower rate
of 5% as per Schedule I of Notification No. 1/2017-CTR would continue to be taxed at
the lower rate and the goods that has a general rate of 12% or more than 12% would be
taxed at 12%.

2. Recommendations for GST rate changes on goods

 Husk of pulses including chilka & concentrates shall be exempt; currently taxable at 5%

Recommendation
Extend the exemption to the husk of pulses including chilka & concentrates including
chuni/churi, khanda and as a relief measure, the Council further decided to regularise
the intervening period starting from the date of issuance of Circular i.e. 03-08-2022 in
respect of GST on ‘husk of pulses including chilka and concentrates including
chuni/churi, khanda’ on ‘as is basis’ on account of genuine doubts

EDITOR’s Comments:
The cattle feed including supplements & husk of pulses, concentrates & additives is
exempted6 from GST. The issue in the case of the husk of pulses was whether by-
products of milling of Dal/ Pulses such as Chilka, Khanda and Churi would be exempt
from GST or not.

In its 47th meeting, the GST Council had earlier recommended to issue a clarification on
the given issue. Thereafter, CBIC issued a circular to clarify 7 that the by-products of
milling of pulses/dal such as Chilka, Khanda and Churi are used as cattle feed

4 Notification No. 3/2017-Central Tax (Rate), Dated 28-06-2017 as amended by Notification No. 08/2022 – Central
Tax (Rate) Dated 13-07-2022
5 Notification No. 03/2017 – Central Tax (Rate) Dated 19-06-2017
6 S. No. 102 of Notification No. 2/2017-Central Tax (Rate), dated 28-06-2017
7 Circular No. 179/11/2022-GST, Dated 03-08-2022

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 ingredients and are required to go through varying degrees of processing in order to
customize the cattle feed so produced and therefore, classifiable under heading 2302
and attract GST at the rate of 5%.

Now, the GST Council has recommended to provide an exemption to the husk of pulses
including chilka & concentrates including chuni/churi, khanda.

Notably, clarification would also be issued in this regard to regularise the taxability of
the impugned goods on an ‘as is basis’ during the intervening period starting from the
date of issuance of the above circular.

 Ethyl alcohol supplied to refineries for blending with motor spirit (petrol) to be taxable at 5%
from 18%

EDITOR’s Comments:
Currently, ethyl alcohol supplied to oil marketing companies for blending with motor
spirit (petrol) is taxable under GST at a concessional rate of 5%. Although, the
concessional rate is not available when the ethyl alcohol is supplied to standalone
refineries wherein the higher rate of 18% is applicable. Now, the recommendation is
made by GST Council to extend the benefit of a concessional rate in cases where ethyl
alcohol is supplied to refineries for blending with motor spirit (petrol).

3. Remove ambiguity and resolve legal disputes by prescribing detailed procedure for
verification of input tax credit

Recommendation
To prescribe a detailed procedure for verification of input tax credit in cases involving
a difference in input tax credit availed in Form GSTR-3B vis-a-vis that available as per
Form GSTR-2A during FY 2017-18 and FY 2018-19

EDITOR’s Comments:
During the initial phase of the implementation of GST, several discrepancies and gaps
existed in the GST return filing system. Initially, various clarifications 8 were also issued
by the Department providing the manner of filing returns in various circumstances. One
of the clarifications provided that the facility to view Form GSTR-2A is merely a facility
provided to the taxpayers and it does not impact the ability of the taxpayer to avail ITC
on a self-assessment basis. In fact, the Hon’ble Supreme Court9 also focussed on the
option of availing ITC on a self-assessment basis and provided that the common portal
is merely a facilitator.

8 Circular No: 7/7/2017-GST Dated 01-09-2017, Circular No: 26/26/2017-GST Dated 29-12-2017 and Press
Release Dated 18-10-2018
9 Union of India v. Bharti Airtel Ltd. 2021 (54) G.S.T.L. 257 (S.C.)

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 Notably, the provisions10 for restricting ITC as per the details appearing in Form GSTR-
2A were first introduced w.e.f. October 9, 2019. Although, the GST authorities from time
to time have issued intimations and notices to the taxpayers even for the period prior to
the said date.

Now, the GST Council has recommended to issue a clarification providing the
procedure for verification of ITC in cases involving the difference in ITC availed in Form
GSTR-3B vis-a-vis that available as per Form GSTR-2A during FY 2017-18 and FY 2018-
19. It would be interesting to see how the CBIC will resolve the disputes on the given
issue.

4. GST not applicable on residential dwelling used by registered person in his personal
capacity and on his own account

Recommendation
To clarify that no GST would be chargeable where a residential dwelling is rented to a
registered person if it is used in his personal capacity for his own residence and on his
own account and not on account of his business

EDITOR’s Comments:
The services by way of renting residential dwelling for use as the residence has been
exempted11 from GST. However, based on the recommendation of the 47th GST Council
Meeting, with effect from July 18, 2022, an exception has been carved out of the given
exemption entry providing that the exemption would not be available where the
residential dwelling is rented to a registered person. In such cases, the registered person
receiving the services is liable to pay GST on a reverse charge basis12.

The given amendment had put the trade and industry in dilemma as to whether GST
would be leviable even when a registered person has taken a property on rent in his
personal capacity. If this is the case, then the exemption is being denied solely on the
basis that the tenant is registered under the GST law. Notably, this interpretation could
have adversely affected the taxpayers who are doing their business as a proprietary
concern.

Given this, the matter was taken to the Delhi High Court13 wherein the Government in
its affidavit submitted that GST would be chargeable only where a registered person
has taken a residential dwelling on rent in the course or furtherance of business. It was
clarified that the exemption would be available in cases where the GST-registered
proprietor has rented the property in his personal capacity for use as his own residence
on his own account and not on account of the proprietorship firm. Further, such
property is not used in the course or furtherance of the business of his proprietorship

10 Rule 36(4) of the CGST Rules

11 Sl. No. 12 of Notification No. 12/2017-Central Tax (Rate), dated 28-6-2017 and Sl. No. 13 of Notification No.
09/2017-Integrated Tax (Rate), dated 28-06-2017
12 Sl. No. 5AA of Notification No. 13/2017-Central Tax (Rate), dated 28-6-2017
13 Seema Gupta v. Union of India W.P.(C) NO. 10986 OF 2022

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 firm. Similarly, the exemption would be available where the residential dwelling is
rented to the partner in his personal capacity for his own residential use and not
accounted for in the partnership firm's accounts. Further, it was provided that a similar
position would be valid for other forms of business.

In order to remove any scope of ambiguity in availing the exemption benefit, the GST
Council has recommended issuing a clarification on the impugned issue which is
expected to be in line with the above affidavit.

Notably, GST would be payable under reverse charge where rental expenses are
accounted for in the books of accounts of the registered person even though rented in
his personal capacity.

5. Clarification on treatment of statutory dues under GST where proceedings are

finalized under IBC, 2016

Recommendation
To clarify the issue of treatment of statutory dues under GST law in respect of the
taxpayers for whom the proceedings have been finalised under the Insolvency and
Bankruptcy Code, 2016 and amend Rule 161 of CGST Rules and Form GST DRC-25 for
facilitating the same

6. Clarification on issues pertaining to place of supply of transportation of goods

outside India

Recommendation
To clarify the issues pertaining to the place of supply of services of transportation of
goods in terms of the proviso to Section 12(8) of the IGST Act and availability of input
tax credit to the recipient of such supply and omit the proviso to Section 12(8)

EDITOR’s Comments:
Recently, with effect from 01-10-2022, an exemption on transportation services by
aircraft/vessel from India to outside India has been lifted. Therefore, the outbound
international freight would now be taxable under the GST laws. Where the goods are
transported by way of a vessel, GST rate is 5% without availment of ITC on goods used
in supplying these services and where the goods are transported by way of air, the GST
rate is 18% without ITC restriction.

Now, the issue arose where the exporter in India is exporting goods to a foreign party
under a CIF contract and transportation services are availed by such an exporter from a
transporter in India. In these cases, the place of supply is governed by the proviso to
Section 12(8) of the IGST Act wherein it is provided that in case of transportation of
goods to a place outside India, the place of supply (‘POS’) would be the place of
destination of such goods. As per the said provision, the place of supply in the case of
transportation services of export of goods under the CIF contract would be ‘location
outside India’. It is pertinent to note here that the given supplies would not fall within

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 the category of exports of services since the other conditions of the definition of ‘export
of services’ are not getting satisfied. Therefore, the supplier would be liable to charge
IGST on such supplies which would not be charged in the State where the supplier is
located but would be charged under the category ‘other territory’ (code 97).

ITC in the instant scenario would not be available based on the current provisions of the
law, hence, in order to remove any scope of ambiguity in availing ITC and claiming
refunds, the GST Council has recommended issuing a clarification on the impugned
issue. It is also recommended that the governing provision of a place of supply i.e.
proviso to Section 12(8) may be omitted. Since the idea was never to deny the credits on
such transactions, but merely because of an inadvertent error in the said proviso, it
would be interesting to see how the Government would clarify the taxability applicable
during the intervening period. The removal of an anomaly in the provisions of the
proviso to section 12(8) of the IGST Act, 2017 by omitting the same and restoring the
POS as the location of the registered recipient will iron out the issues that arose in
claiming refunds and will help in avoiding working capital blockage of exporters.

7. To prescribe mechanism for reversal of ITC where tax is not paid by the supplier

Recommendation
To insert Rule 37A under the CGST Rules to provide for the mechanism and time limit
of reversal of ITC by the recipient where tax is not paid by the supplier to the
Government and provide the manner of the re-availment of such credit where the tax is
subsequently paid by the supplier

EDITOR’s Comments:
Under the GST law, one of the conditions14 for the availment of the input tax credit is
that the tax on the relevant supplies has actually been paid to the Government subject
to the provisions of Section 41 of the Central Goods and Services Tax Act, 2017 (‘CGST
Act’). Simultaneously, Section 41 provides a condition that where tax has not been paid
by the supplier to the Government, the recipient would be required to reverse the credit
availed on such supplies. However, the law does not provide any mechanism for the
reversal of ITC in such cases.

Hence, the GST Council has recommended that a new Rule 37A should be inserted to
provide the mechanism for the reversal of the ITC where the supplier has not paid the
tax within a specified time. Also, it has been recommended that where the supplier
subsequently pays the tax, the manner of re-claiming the credit would also be provided.

8. Dept. to issue intimation for differences in Form GSTR-1 & GSTR-3B and restrict
filing of Form GSTR-1 until such differences are paid or reply is furnished

Recommendation
To insert new Rule 88C and Form GST DRC-01B in the CGST Rules for issuing
intimation to the taxpayer for the differences between liability reported in Form GSTR-

14 Section 16(2)(c) of the CGST Act

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 1 and in Form GSTR-3B, where such difference exceeds a specified amount and/ or
percentage

An amendment is also recommended to be made under Rule 59(6) of the CGST Rules to
restrict the furnishing of Form GSTR-1 for the subsequent tax period if the taxpayer has
neither deposited the amount specified in the intimation nor has furnished a reply
explaining the reasons for the amount remaining unpaid

It is further provided by the Council that the above measure would facilitate the
taxpayers to pay/explain the reasons for the difference in such liabilities reported by
them without the intervention of the tax officers

EDITOR’s Comments:
The GST Council, after recommending the manner of reversal of ITC at the recipient’s
end as discussed in the previous para, has simultaneously recommended another
amendment to ensure timely payment of tax by the suppliers.
Notably, the payment of tax is made by the supplier by the filing of Form GSTR-3B
wherein the details of the outward supplies are reported on an aggregate basis. Hence,
there is no track of the supplies in respect of which tax has not been paid by the supplier.
This makes the recipient incapable of determining whether tax has been paid in respect
of the supply made to him and further makes it impossible for the recipient to comply
with the provisions of Section 16(2)(c).

Therefore, currently, there is no mechanism provided under the law through which the
recipient can determine whether the payment of tax has been made by the supplier to
the Government.

To resolve the above issue, a recommendation has been made to insert Rule 88C and
Form GSTR DRC-01B. Now, an intimation would be issued to the supplier where the
differences in the details reported in Form GSTR-1 and Form GSTR-3B exceed a
specified percentage. The supplier would either be required to pay the differential tax
or provide a response explaining the reasons for the differences. Where no action is
taken by the supplier, the filing of Form GSTR-1 for the subsequent tax period would be
restricted. In this regard, suitable amendments would be made in Rule 59(6) of the CGST
Rules by inserting clause (d).

Notably, it is further provided that the given amendment would facilitate taxpayers to
pay/ explain the reason for the differences without the intervention of the tax officers.
Currently, such observations form part of scrutiny notice in Form GSTR ASMT-10 which
is sent to the taxpayer for seeking the reasons for such differences

9. To restrict the filing of GST Returns/statements to maximum period of 3 years

Recommendation
To amend Sections 37, 39, 44 and 52 of the CGST Act to restrict the filing of returns and
statements to the maximum period of 3 years from the due date of filing of the relevant
returns/statements

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 EDITOR’s Comments:
The GST Council has recommended to restrict the filing of Forms GSTR-1, GSTR-3B,
GSTR-4, GSTR-5, GSTR-6, GSTR-7, GSTR-9, GSTR-9C and GSTR-8 to the maximum
period of 3 years from the due date of filing of the relevant returns/statements.
Currently, there is no restriction on a time limit for filing such returns/statements.

The move will push the taxpayers for being self-compliant in a time-bound manner and
reduce the dependency on the officers following them up for the filing of returns. Since
the GST is yet in its evolving state, placing restrictions on the filing of returns after a
certain timeline will help in clearing the backlogs of the taxpayers’ compliances. It can
be observed that for the period from July 2017 to November 2019, the said timeline of 3
years seems to be lapse in case of GSTR-1 and GSTR-3B. Since it is currently in the
recommendation stage and the functionality may not have been implemented by the
GST common portal, it would be prudent for the taxpayers to file the returns on a
priority basis because there is no option to file the return thereafter on the common
portal. The same will also prevent the taxpayers from the utilization of credits blocked
under section 16(4) of the CGST Act to be utilized for payment of output tax and will
significantly reduce the litigation pertaining to Section 16(4). Besides, it will also reduce
the menace of availment of credit based on fake invoicing as an option to file a return
will not be available and hence, set-off with the credits appearing in the electronic credit
ledger will be impossible.

It is important to note that such taxpayers are highly prone to audit by the department
as these cases may be selected for departmental audits. Though there are provisions for
cancellation of registration in case of non-filing of returns yet, it is better to fix an outer
timeline for filing of returns.

Further, the recommended restriction seems to follow the line of the limitation period
of Section 73 of the CGST Act to allow the completion of demand and recovery
proceedings within the specified time limits. Alternatively, where the returns are not
filed within the specified restricted date, the proper officer would have the option to
initiate the best judgement assessment against the taxpayer within 5 years’ time-limit.

10. To increase the threshold limit for prosecution to Rs. 2 Crores

Recommendation
To raise the minimum threshold of tax amount for launching the prosecution under GST
from Rs. 1 Crore to Rs. 2 Crores except for the offence relating to fake invoicing

EDITOR’s Comments:
Section 132 of the CGST Act prescribes the punishment for certain specified offences in
terms of imprisonment and fine. Currently, the minimum threshold of the amount of
tax evaded, ITC wrongly availed or utilized or refund wrongly taken involved for
launching the prosecution against a person who commits or causes to commit and retain
the benefit arising out of such offences is when the said limit exceeds Rs. 1 Crore, where
the term of imprisonment may extend to 1 year along with the fine. Section 69 of the

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 CGST Act provides the power to arrest a person by an order of the commissioner when
he believes that the person has committed any offence under Section 132.

The given threshold limit is recommended to be increased to Rs. 2 Crores, however,

looking at the humongous fraud taking place, especially by way of fake invoicing and
to place stringent checks on such fake invoicing, the limit has not been increased in
respect of the offence where any invoice or bill is issued without the supply of goods or
services or both. The intent is to provide comfort to small businesses because the
launching of prosecution may not be a good idea for small businesses. The proposal will
help businesses with an opportunity to settle the offences made through compounding.
Needless to say, the relevant amendments need to be carried out in the CGST Act which
can be done by placing the same in the upcoming Union Budget.

11. Decriminalization of certain specified offences

Recommendation
To decriminalize certain offences under clauses (g), (j) and (k) of Section 132(1) of the
CGST Act i.e. obstruction or preventing any officer in the discharge of his duties;
deliberate tempering of material evidence; failure to supply the information

EDITOR’s Comments:
The GST Council has recommended to decriminalize certain offences provided under
clauses (g), (j) and (k) of Section 132(1) which are as follows:

(g) Where a person obstructs or prevents any officer in the discharge of his duties
under the GST law
(j) Where a person tampers with or destroys any material evidence or documents
(k) Where a person fails to supply any information which he is required to supply
under the GST law (unless with a reasonable belief, the burden of proving which
shall be upon him, that the information supplied by him is true) supplies false
information

For the offences committed under clause (g) and clause (j) above, the law prescribes the
term of imprisonment of upto 6 months or a fine or both. Notably, sufficient penal
provisions are already incorporated under the GST law to safeguard revenue leakages
as a precautionary measure. The decriminalization of the aforesaid offences is a
welcome move as it will boost confidence in conducting the business operations
smoothly and being free from criminal penalties like imprisonment and fine which is
awarded by the Criminal Court following a prosecution.

12. To reduce the compounding amount

Recommendation
To reduce the compounding amount from the present range of 50% to 150% of the tax
amount to the range of 25% to 100%

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 EDITOR’s Comments:
Another recommendation made by the GST Council is to reduce the amount payable by
the taxpayers in case of compounding of offences. Section 138 prescribes the minimum
and the maximum amount payable at the time of compounding of offences. The
minimum and maximum limit of compounding amount is 50% and 150% of the tax
amount involved respectively. The given limit is recommended to be reduced to 25%
and 100% respectively.

The reduction in compounding fees will serve as an attractive alternative to reduce

litigations and will simultaneously serve the ease of doing business.

13. To allow unregistered persons to claim refund in case of cancelled service contracts

Recommendation
To prescribe the procedure for filing the application of refund by the unregistered
buyers in cases where the contract/agreement for the supply of services is cancelled and
the time period of issuance of credit note by the concerned supplier is over and issue a
circular to clarify the same

EDITOR’s Comments:
Under the GST law, tax is payable in respect of the supply of services on receipt of
advance or issuance of the invoice, whichever is earlier. In the service contract like the
supply of construction services for flats/houses or long-term insurance policies,
generally, the customer is required to pay an amount well in advance to the supplier on
which GST is charged from such customers.

In the event of cancellation of the contract/agreement at a later stage, a scenario may

arise that the time limit to issue the credit notes has already lapsed and the GST paid on
the advance cannot be paid back to the customer as per the provisions of the GST law
and merely a financial/commercial credit note has to be issued.

Therefore, where a flat booked by the customer is cancelled at a later stage, the indirect
tax cost would be borne by such a customer himself.

Now the GST Council has recommended to amend the CGST Rules to prescribe a
procedure for filing the application for refund by the unregistered persons. This is a
welcome move as it would allow the refund of GST paid in genuine cases where undue
tax is borne by unregistered persons.

Notably, the given provision would be governed by Section 54(1) read with Section
54(8)(f) of the CGST Act and in this regard, relevant notifications may follow.

14. No requirement of mandatory registration for micro-enterprises making sales

through ECO from 01-10-2023

Recommendation

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 GST Council approved the amendments in the GST law to enable the unregistered
suppliers to make the intra-state supply of goods through E-Commerce Operators
(‘ECOs’) based on the recommendations of the 47th GST Council meeting by providing
a waiver from mandatory registration subject to certain conditions. Likewise, in-
principal approval has been given to the composition taxpayers to make intra-state
supply through ECOs subject to certain conditions

Considering the time required for the development of the requisite functionality on the
portal as well as for providing sufficient time for preparedness by the ECOs, the Council
has recommended that the scheme may be implemented w.e.f. 01.10.2023

EDITOR’s Comments:
The GST law provides for mandatory registration in the case where supply is effected
through E-Commerce Operators (‘ECO’). However, supply of the goods through ECOs
has become a common practice as per the current market scenarios. Hence, the condition
of mandatory registration under GST in case where supply is effected through ECOs is
creating an unnecessary compliance burden on micro-enterprises. Keeping this in view,
the GST Council in its 47th meeting recommended that the persons supplying goods
through E-Commerce Operators (‘ECO’) would not be required to take mandatory
registration15 under GST, subject to satisfaction of the conditions specified below:

 The aggregate turnover on all India basis does not exceed the threshold limit16 of
turnover
 The person is not making inter-state taxable supply

The Council also recommended to allow the suppliers opting for the composition
scheme to supply their goods through the ECO. Currently, the law bars these suppliers
to effect supply through ECO. The given recommendation would benefit the small
dealers making grocery supplies, medicine supplies, etc. locally through ECO.

Now, in the 48th GST Council meeting, the relevant amendments under the CGST Act
and CGST Rules have been approved along with the relevant notifications.

15. To amend Rule 37 for proportionate ITC reversal on part payment by recipient

Recommendation
To retrospectively amend Rule 37(1) of the CGST Rules w.e.f. 01-10-2022 to provide for
the reversal of input tax credit only proportionate to the amount not paid to the supplier
vis-a-vis the value of the supply, including tax payable

EDITOR’s Comments:
Vide CGST (Second Amendment) Rules, 2022, Rule 37 of the CGST Rules was redrafted
with effect from 01-10-2022 to provide the manner of reversal of ITC through Form

15 Under Section 24(ix) of the CGST Act read with Notification No. 65/2017-Central Tax, Dated 15-11-2017
16 Under Section 22(1) of the CGST Act

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 GSTR-3B instead of GSTR 2 and GSTR 3 as envisaged earlier in the case of non-payment
of consideration to the supplier within 180 days as per the second proviso to Section
16(2) of the CGST Act.

Notably, the said provision was redrafted in a way that it required the registered person
to reverse the input tax credit availed ‘in respect of such supply’ along with applicable
interest under Section 50 and the word proportionate was removed. Notably, prior to
01-10-2022, the rule provided for the reversal of ITC proportionate to the amount not
paid. It may be interpreted from the redrafted provision that the said registered person
would be required to reverse the full ITC availed on the said supplies even where he
has made a partial payment to the supplier in respect of the said supplies.

Therefore, in order to provide for only proportionate reversal of ITC in the above cases,
the Council has recommended to amend Rule 37 with the retrospective effect from 01-
10-2022 to remove any scope of ambiguity. This would also help the taxpayers to assess
the correct amount of interest liability in terms of Section 50 which should also be
apportioned based on the amount not paid.

16. To remove ambiguity on taxability of Merchant trading transactions, In-bond sales

and High Sea sales for the period of July 17 to January 2019

Recommendation
Merchant trading, In bond sales and high sea sales that were covered under Schedule
III w.e.f. February 01, 2019, are now recommended to be covered under Schedule III w.e.f.
July 1, 2017, so as to remove the ambiguity for the intervening period

It has also been recommended that no refund of tax paid shall be available in cases
where any tax has already been paid in respect of such transactions/ activities during
the period 01-07-2017 to 31-01-2019

EDITOR’s Comments:
IGST is levied on the inter-state supply of goods or services or both. A supply is
considered to be an inter-state supply where the location of the supplier and the place
of supply are in two different States or Union Territories or States or Union Territories.
Hence, this created confusion regarding the transactions of the merchant trading and
high sales where the goods are imported from outside India but have not passed the
customs frontier.

Further, in the case of in bond sales or the sale of warehoused goods, till March 31, 2018,
there existed confusion as to the payment of CGST and SGST or IGST. It was then
clarified that IGST is payable17 on these sales w.e.f. April 01, 2018, and those who had
already paid CGST and SGST were not required to pay IGST on the same.

Though, w.e.f. February 01, 2019, all the above categories of sales were included in
Schedule III18. Now, there exists an ambiguity for the transactions pertaining to the

17 Circular No. 46/2017-Custom dated 24-11-2017 superseded by Circular No. 3/1/2018-IGST dated 25-5-18
18 Central Goods and Services Tax (Amendment) Act, 2018, w.e.f. February 01, 2019

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 period July 01, 2017, to January 31, 2019. The CBIC has recommended making these
paras effective from July 01, 2017. This would end such ambiguity for the said period.

Further, in order to avoid unnecessary litigations for the intervening period, it has also
been recommended that where the tax has already been paid, refunds for such
transactions would not be allowed. However, it may be noted that where such sales are
intended not to be considered as supply since the inception of the GST law, refund
should be allowed to the persons who have paid the tax in such cases.

17. Timely processing of appeals & ease of compliance burden

Recommendation
To amend Rule 108 and Rule 109 of the CGST Rules to provide clarity on the
requirement of submission of the certified copy of the order appealed against and the
issuance of final acknowledgement by the appellate authority

This would facilitate the timely processing of appeals and ease the compliance burden
for the appellants

EDITOR’s Comments:
Rule 108 of the CGST Rules provides for the manner of filing an appeal before the
Appellate authority. It is provided that the appeal is required to be filed in Form GST
APL-01 on the GST common portal. Further, the certified copy of the decision/order,
against which the appeal is being filed, is needed to be submitted within 7 days of filing
the appeal on the GST common portal. The Appellate Authority upon verifying the
completeness of the documents submitted issues the final acknowledgement. Notably,
in the case where the certified copy of the decision/ order is submitted after 7 days from
the date of filing Form GST APL-01, the date of submission of such copy would be
treated as the date of filing of the appeal. Further, Rule 109 provides the manner of filing
the application by the Department before the appellate authority.

It may be noted that the guidelines issued on the GSTN Portal provide that the physical
copy of supporting documents along with appeal application, duly signed and verified,
to be submitted in triplicate to the Appellate Authority along with all the supporting
documents.

Since there is no clarity as to what documents are required to be submitted manually

and whether all the documents are required to be certified, an undue amount of time is
spent communicating at the appellate authority level and processing the application for
appeal which often leads to unwanted delay. Further, in some cases, the authorities were
neither issuing the final acknowledgement nor rejecting the appeal application and only
the requirement of documents was being communicated to the appellant back and forth.

In order to tackle the difficulties faced by the appellant, the Council has recommended
to amend Rule 108 and Rule 109 to provide clarity on the issue.

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18. Allow withdrawal of appeal application

Recommendation
To insert new Rule 109C and new Form GST APL-01/03W to provide the facility for
withdrawal of an application of appeal up to a certain specified stage and this would
help in reducing litigations at the level of appellate authorities

EDITOR’s Comments:
Currently, there is no option under the GST law to withdraw an appeal application. The
GST Council has recommended to provide the facility for withdrawal of an application
of appeal up to a certain specified stage. For such purpose, a new Rule 109C and Form
GST APL-01/03W would be inserted in the CGST Rules.

The given amendment would be helpful in cases where the issue under appeal is taken
up by another decision/order by the higher authority or where clarification is issued by
the CBIC on the issue under appeal, etc. Therefore, the new provision would
significantly reduce the litigation burden both at the level of appellate authorities and
the appellant.

19. Amend definition of ‘OIDAR’ and ‘Non-taxable online recipient’

Recommendation
To amend the definition of ‘non-taxable online recipient’ under Section 2(16) of the IGST
Act and the definition of ‘Online Information and Database Access or Retrieval Services
(OIDAR)’ under Section 2(17) of IGST Act to reduce the interpretation issues and
litigation on taxation of OIDAR Services

EDITOR’s Comments:
As per the GST law, a person engaged in supplying the OIDAR services from a place
outside India to a non-taxable online recipient in India is mandatorily required to obtain
the registration under GST irrespective of their turnover and is liable to pay integrated
tax on such supply of services19.

Notably, reading with the definition of ‘non-resident taxable person’, it can be said that
the overseas supplier of OIDAR services is liable to pay IGST on those supplies only
when both of the following conditions are satisfied:

(a) Where the recipient is Government, local authority, Governmental authority, an

individual or any other person not registered under the GST law and
(b) He is receiving such services in relation to any purpose other than commerce,
industry or any other business or profession.

Where any of these conditions is not satisfied, GST would be payable by the recipient
under the reverse charge, considering it as an import of services. Further, the Karnataka

19 Section 14(1) of the IGST Act

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 AAR held20 that the burden to prove that the unregistered person located in the taxable
territory has received OIDAR services for purposes other than for business, commerce,
industry or profession lies on the overseas supplier providing the OIDAR services.

Ensuring compliance with the above requirement puts a lot of burden on the overseas
OIDAR supplier. Although it is not yet clear what amendment would be made in the
respective definitions, it would be interesting to see if this issue is addressed by the
Council through the said amendment as it would promote ease of doing business for
overseas establishments.

Further, as far as the definition of the term OIDAR is concerned, it is an inclusive

definition and the scope of the definition is wide enough to cover any services whose
delivery is mediated by information technology over the internet. Notably, due to this,
there are multiple transactions which are being litigated to be covered within the scope
of the said entry.

Clarity as to what services are covered under the scope of said definition would put a
pause on the ongoing litigation around various disputed services.

20. Taxability of incentive paid to banks by Government for promoting RuPay Debit
Card and BHIM-UPI transactions

Recommendation
No GST on incentives paid by the Central Government to the banks under the scheme
to promote RuPay Debit cards and low-value BHIM-UPI transactions being in the
nature of subsidy

EDITOR’s Comments:
The Government in order to build a robust digital payment ecosystem and promote
RuPay Debit card and BHIM-UPI digital transactions, across all sectors and segments of
the population and further deepening of digital payments in the country, has provided
a scheme, wherein, it pays a certain percentage of the value of the transactions done
through RuPay Debit cards and low-value BHIM-UPI modes of payments to the banks.

This incentive would lead to better accessibility of the digital mode of payments to the
unbanked and marginalized population.

In this regard, it has been recommended by the CBIC that such incentive should be
treated as a subsidy paid by the Central Government to the banks and hence not
chargeable to GST.

21. Allowing deduction of No Claim Bonus for valuation of insurance services

Recommendation

Spring Nature Customer Service Centre Advance Ruling No. KAR ADRG 70/2019 (AAR –
20

Karnataka)

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 No claim bonus offered by the insurance company is to be allowed as an admissible
deduction for the valuation of the insurance services under GST

EDITOR’s Comments:
In case of an insurance policy, when there is a claim-free year for a policyholder, the
benefit of a ‘no claim bonus’ is provided by the insurance company to the policyholder.
The ‘no claim bonus’ can be provided in two ways viz cumulative bonus and discount-
on-premium.

Under ‘cumulative bonus’, the benefit for a year is provided by increasing the coverage
amount or sum insured by a certain percentage for the following year. Under ‘discount-
on-premium’, the premium payable for the following year is reduced by a certain
percentage for the policyholder when he doesn’t make any claim in the preceding year.

There prevails confusion in the industry regarding the admissibility of discount-on-

premium in case of no claim bonus. Looking at the provisions in respect of such
transactions under GST, the law provides21 for certain deductions that are allowed for
the valuation of goods and services under GST. The GST Council has recommended to
clarify that the no-claim bonus should be allowed as an admissible deduction from the
valuation of the insurance services.

22. Allow cancellation of registration facility to tax collector and tax deductor under GST

Recommendation
To amend Rule 12(3) of the CGST Rules to provide the facility for cancellation of
registration to the registered persons required to collect tax at source under section 52
or deduct tax at source under section 51 of CGST Act

EDITOR’s Comments:
As per the existing provision of the GST law, the registration of a tax collector or tax
deductor can only be cancelled suo-moto by the proper officers22. There is no option
available for such registered persons to apply for cancellation themselves. Now, the
facility to apply for cancellation of the registration would be made available for these
registered persons also.

23. Use of PAN-linked mobile number & e-mail ID for GST registration and OTP
verification

Recommendation
To provide that PAN-linked mobile number and e-mail address (fetched from CBDT
database) to be captured and recorded for registration application in Form GST REG-01

Further, OTP-based verification is to be conducted at the time of registration on such

PAN-linked mobile number and email address to restrict misuse of PAN of a person by
unscrupulous elements without knowledge of the said PAN-holder

21 Section 15 of the GST Act, 2017

22 Rule 12(3) of the CGST Rules

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 EDITOR’s Comments:
For obtaining registration under GST, the mobile number and e-mail ID of the relevant
stakeholders and authorized signatories are required to be furnished. OTP verification
is also done using the same mobile number and e-mail ID. Currently, any mobile
number can be furnished for such purposes. However, this may lead to the
unscrupulous use of the PAN.

Hence, GST Council has recommended that PAN-linked mobile number and e-mail
address would only be captured and recorded for such purposes. Further, OTP
verification of the mobile number and email address that are linked with the PAN of the
PAN holder would also be done so that misuse of the PAN can be curbed.

24. Separate reporting for supplies made through ECOs in Form GSTR-1

Recommendation
Form GSTR-1 to be amended to provide for reporting of details of supplies made
through ECOs under section 52 and section 9(5) of CGST Act by the supplier, along with
separate reporting by ECOs in respect of supplies made under section 9(5) of CGST Act

EDITOR’s Comments:
In the 47th GST Council meeting, a separate reporting requirement for the supplies made
through ECOs was introduced wherein a separate table in Form GSTR-3B was provided
for reporting the details of the supplies made through ECO by the supplier under
section 52 of the CGST Act and, for the ECOs to provide for reporting the supplies made
under section 9(5). Now, the GST Council has recommended a similar separate
reporting requirement in Form GSTR-1.

25. Other Miscellaneous Recommendations

 Clarifying the manner of re-determination of demand in terms of section 75(2) of the

CGST Act

 Clarification in respect of applicability of e-invoicing with respect to an entity

 Pilot test of Biometric-based Aadhaar authentication and risk-based physical

verification of registration applicants in Gujarat State

 Supply of Mentha arvensis to be included under reverse charge mechanism as has been
done for Mentha Oil earlier

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