Recent Decisions of the GST Council

The Goods and Services Tax (GST) Council recently made decisions that have stirred debate among stakeholders. These decisions involve tax rate changes and amendments to existing laws. The rationale behind these changes aims to clarify the eligibility for input tax credits and adjust tax rates on various goods and services. However, some decisions have raised concerns about fairness and transparency in the tax system.

GST Council’s Recent Amendments

The GST Council proposed an amendment to the definition of ‘plant and machinery’ in the CGST Act. This change aims to align with the Supreme Court’s ruling regarding input tax credit eligibility. The amendment seeks to exclude immovable property from this definition. Critics argue that this move could undermine industry trust in the GST framework.

Impact on Input Tax Credit

The proposed change affects businesses that intended to claim input tax credits on construction costs. Many taxpayers relied on the Supreme Court’s interpretation that classified certain buildings as ‘plant’. The retrospective amendment could block these claims, raising concerns about the predictability of tax law.

Changes in Tax Rates for Used Vehicles

The GST Council has increased the tax rate on the sale of used vehicles, including electric vehicles (EVs), from 12% to 18%. This decision applies only to the margin of the sale. However, it may impact the EV market, where a concessional rate of 5% applies to new EVs.

Classification Issues with Popcorn

A notable decision involved raising the GST rate on caramelised popcorn to 18%. This change categorises it as sugar confectionery. Other popcorn variants will retain a 12% rate. The classification raises questions about consistency in tax treatment across similar products, denoting the need for clearer guidelines.

Exclusion of Aviation Turbine Fuel

The GST Council decided to keep Aviation Turbine Fuel (ATF) outside the GST framework. This decision has drawn criticism, as ATF could have been a starting point for extending GST to the oil sector. The reluctance to address this issue may delay comprehensive tax reforms in petroleum.

Adjustments in GST for Fortified Rice and Gene Therapy

The GST rate for fortified rice has been reduced to 5%, regardless of its end-use. This move supports government initiatives for nutrition. Additionally, the GST rate for CAR-T cell therapy has been lowered from 12% to nil, providing relief for blood cancer patients facing high treatment costs.

Unresolved Issues and Future Directions

Several decisions were deferred for further discussion. These include tax liabilities for e-commerce delivery services and classification disputes in various sectors. The GST Council awaits reports from Groups of Ministers (GoMs) to address these issues. Stakeholders hope for progressive solutions to enhance the GST framework.

Questions for UPSC:

1. Discuss the implications of the retrospective amendment to the definition of ‘plant and machinery’ in the CGST Act.
2. Critically examine the impact of increased GST rates on used vehicles on the electric vehicle market.
3. Explain the classification challenges faced by food products under the GST framework.
4. With suitable examples, discuss the potential benefits of including Aviation Turbine Fuel in the GST system.

Answer Hints:

1. Discuss the implications of the retrospective amendment to the definition of ‘plant and machinery’ in the CGST Act.

1. Retrospective amendments can undermine taxpayer trust in the legal framework.
2. The change seeks to align with the Supreme Court’s ruling on input tax credit eligibility.
3. Excluding immovable property from ‘plant and machinery’ may block claims for construction costs.
4. Businesses may face unpredictability in tax law, affecting investment decisions.
5. A Group of Ministers (GoM) is needed to reconsider blocked credits and restore confidence.

2. Critically examine the impact of increased GST rates on used vehicles on the electric vehicle market.

1. The GST rate on used vehicles, including EVs, increased from 12% to 18%, impacting resale prices.
2. This higher rate applies only to the profit margin, but may deter potential buyers.
3. New EVs attract a concessional rate of 5%, creating a disparity in tax treatment.
4. The increased cost of used EVs may discourage adoption, countering sustainability goals.
5. Industry stakeholders are concerned about the long-term effects on the EV market’s growth.

3. Explain the classification challenges faced by food products under the GST framework.

1. Classification determines applicable tax rates, impacting pricing and consumer choice.
2. The GST Council raised the rate on caramelised popcorn to 18%, categorizing it as sugar confectionery.
3. Different variants of popcorn face inconsistent tax treatments, leading to confusion.
4. Similar classification issues affect many food products, necessitating clearer guidelines.
5. Proper rate rationalisation is essential for fair competition and consumer transparency.

4. With suitable examples, discuss the potential benefits of including Aviation Turbine Fuel in the GST system.

1. Inclusion could streamline the tax structure, reducing compliance burdens for airlines.
2. ATF is cost for airlines; GST could lower prices through uniform taxation.
3. It may enhance revenue for states by broadening the tax base in the oil sector.
4. Including ATF could prevent tax leakage, as it is used exclusively in the airline industry.
5. Successful inclusion may serve as a precedent for extending GST to other petroleum products.