23 July 2015
EY – GST News Alert
Report of the Select Committee tabled in the Rajya Sabha
Executive summary
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The Constitution (122nd Amendment) Bill, 2014 (Bill) was passed by the Lok
Sabha on 6 May 2015. As demanded by the Opposition, the Union Finance
Minister had referred the Bill for review to the Select Committee of the Rajya
Sabha.
The Committee comprising of 21 members was required to submit its report by
the end of first week of the monsoon session of the Parliament.
The report was adopted by the Select Committee on 20 July 2015 and tabled in
the Rajya Sabha on 22 July 2015. The Note of Dissent prepared by some of the
members also form part of the Report.
The key recommendations / observations of the Select Committee include:
i) 1% additional tax on inter-state movement of goods and services to be
restricted to the supplies made for a ‘consideration’;
ii) Full compensation to states for a period of 5 years for any loss of revenue;
iii) GST rate for Banking industry should be minimum;
iv) Adequate measures should be taken by the States to protect the flow of
revenues to the Local bodies, Panchayats and Municipalities.
With respect to the GST rates, the Select Committee has observed that the
standard rate should be within 20%, while the lower rate should not cross 14%.
Background
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►
The Constitution (One Hundred and
Twenty Second Amendment) Bill, 2014
was passed by Lok Sabha on 6 May 2015.
On demand of the opposition, the said Bill
was referred to the Select Committee of
Rajya Sabha for review.
The Committee chaired by Sh. Bhupender
Yadav, comprised of 21 members.
►
The Bill contains 21 clauses which
propose to amend the Constitution of
India by inserting new Articles with
respect to GST. The Committee was
required to submit a report on the same.
►
The Committee sought written views of
the State Governments. In response, it
received written memorandum from
various State Governments. Committee
heard the views of the Secretaries of
Ministries of Finance and Law & Justice.
►
►
►
Committee also undertook a study visit to
Chennai, Kolkata and Mumbai to interact
with representatives of various State
Governments, Public and Private
Authorities/ organisations/ financial
institutions and others.
After taking into consideration the
suggestion made by State Governments/
experts/ other Stakeholders and the
Department of Revenue, the Committee
has framed the specific and general
recommendations.
The Committee adopted the report in its
meeting held on 20 July 2015 and tabled
it in the Rajya Sabha on 22 July 2015.
Recommendations / Observations
Key Recommendations
►
►
In order to eliminate the cascading of
taxes on account of levy of 1% additional
tax, an explanation should be added to
the relevant clause to define ‘supply’ to
mean “All forms of supply made for a
consideration”.
The Parliament, on recommendation of
the GST Council, may provide for the full
compensation to the States for the loss of
revenue arising due to implementation of
GST, for a period of 5 years.
►
State Governments should take adequate
measures to ensure that revenues flow to
the local bodies, and their resources are
not adversely affected.
►
Voting formula where, in order to take
decision on any issue, 75% votes are
necessary where Centre vote share is
1/3rd and of the State is 2/3rd.
►
As regard to the banking sector:
►
If possible, banking services be kept
outside GST. If this is not possible,
then interest, trading in securities,
foreign currency and services to retail
customers should not be liable to
GST. Also, suitable provisions should
be made to avail CENVAT credit of
input services taken to provide
activities involved in such services.
►
A single registration coupled with
IGST provision should be made
available to enable CENVAT credit for
consumers of banking services.
►
GST rate for banking industry should
be minimum.
►
In connection with the floor rates with
bands proposed under GST, the word
‘band’ needs to be defined in the GST
laws.
►
Non-Government shareholding in GST
Network should be limited to either public
sector banks or public sector financial
institutions.
Clauses adopted by the Committee without
recommending any changes – based on the
views of various stakeholders
►
Imposition of GST on the supplies of
goods and services in the course of interState trade, since it does not lead to
cascading of taxes.
►
Concurrence with the Department of
Revenue regarding inclusion of petroleum
products into GST. Further such inclusion
to be done only on the recommendation
of GST Council which could happen only
with the consent of both the Centre and
the States.
►
The word “supply” not required to be
defined under the relevant clause as it
would be defined in various GST laws
relating to CGST and SGST.
►
No change required in the definition of
‘Services’ as it has wide amplitude and
potentially covers all supplies within its
ambit.
►
GST Compensation Fund to be kept out of
the purview of the Bill since it is
temporary for only 5 years.
Other Recommendations / observations
►
►
►
Re-introduction of Dispute Settlement
Authority through Article 279B is not
warranted. Provision in Article 279A
empowers the GST Council to decide
about the modalities to resolve disputes
arising out of its recommendations.
Entry 92C empowers the Union to impose
Service tax on certain services read with
Article 268A of the Constitution. These
provisions should be omitted to prevent
any future doubts about GST.
All-out effort should be made to improve
IT preparedness of the States and also
prerequisites like IT infrastructure and
unified tax credit clearing mechanism
should be put in place.
Note of Dissent
Various members prepared a Note of Dissent
due to the Select Committee’s failure to take
their points into consideration.
Key points of dissent are as follows:
►
The rate of GST be capped at 18%.
►
The proposal to levy an additional 1% tax
is market distorting.
►
Compensation to be given by the Centre
to the State should be deposited in a GST
Compensation Fund, under the
administrative control of the GST Council.
►
Tobacco and tobacco products, alcohol
for human consumption and electricity to
be included in GST within a period of 5
years.
►
Share of the States in voting in the GST
Council must be enhanced to 75% and the
share of the Centre brought down to 25%.
Further, the weightage of each State's
vote should be in proportion to the
representation of each State in the
Council of the States.
►
Incorporating a GST Dispute Settlement
Authority to deal with the disputes arising
amongst council members.
►
Special consideration must be given to
States like Goa and Puducherry, whose
population is less than 20 lakhs.
►
The existing mechanism of Empowered
Committee of State Ministers is adequate.
No statutory GST Council is required.
►
Petroleum and petroleum products
should be totally kept outside GST.
►
States should be empowered to levy
higher taxes on tobacco and tobacco
products over and above State GST
►
States should be permitted to retain 4%
of Central GST element in the IGST on all
inter-State supply of goods and services.
Comments
The recommendation to confine 1%
additional tax to only the inter-state
movement of goods which are made
for a consideration would
substantially reduce the cascading
effect of the tax, though not
completely eliminate it.
Observation of the Committee on
GST standard rate to be within 20%
and its suggestion on compensating
the States fully for a period of 5
years would partially address the
concerns raised during the
discussion of the Bill.
For the reform to move ahead, it is
of paramount importance that an
amicable consensus is reached on
the issues raised in Dissent Notes.
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