GST Council Clears Big Procedural Overhaul, Keeps Rates Largely Unchanged

(MENAFN- Live Mint) New Delhi: The Goods and Services Tax (GST) Council, chaired by Union finance minister Nirmala Sitharaman, on Thursday cleared one of the biggest procedural overhauls of the indirect tax regime since its rollout in 2017, while leaving tax rates unchanged to provide greater stability.

The apex decision-making body sought to expand and expedite refunds to unlock working capital for businesses, curb the power of officers to arrest people suspected of evasion, shift verification from discretionary checks by officers to system-led risk rules, and restore certainty to day-to-day compliance, among other measures.

The decisions, which have been debated for months, come at a time when India needs sustained private investment growth to supplement public capex, exporters are facing the impact of the West Asia war and a more uncertain global environment, and supply chains are being realigned worldwide.

The moves, coming a year after a broad range of GST rates were mostly cut and slabs rationalised, are aimed at reducing costs, easing liquidity pressures and simplifying compliance for businesses. For a country seeking to bolster manufacturing while strengthening the principle of 'one nation, one market', these are crucial second-order reforms whose benefits could compound over the years.

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The council has decided to set up an officers' committee to deliberate on the issue of allowing honest buyers to have credit in cases where suppliers have defaulted, Sitharaman said, while briefing the media about the decisions taken. So far, input tax credit was available only when the tax charged to a buyer had actually reached the government. This effectively meant that a buyer's credit depended on the supplier and, in a long chain, on entities with which the buyer had no direct dealings.

While the Centre was in support of the proposal to protect the honest buyers against faults of others, some states requested deliberations on the issue, which the Union government accepted, the minister said.

The committee is expected to submit its report in three months and any decision in this regard is planned to be implemented from April next year.

The council has also decided on a new principle aimed at widening the refund mechanism. Refunds will now extend to GST paid not only on input goods but also on input services, such as factory rent, consultancy fees and logistics, where a business claims a refund because of an inverted duty structure.

Refunds will also be extended to tax paid on plant and machinery, spread over five years, against a declaration that the equipment remains in the business.

Every GST refund claim will now have to be acknowledged within 10 days (against the current average of 15 days), failing which it will be deemed to have been acknowledged. For exporters and inverted-duty cases, which account for two-thirds of all refund claims, 90% of the claims will be released automatically within three days after a risk check, with the balance released after verification.

Key changes

The council has suggested curbing the power of GST officers to arrest merely on suspicion of tax evasion. The prosecution threshold for duty evasion, too, will be raised to ₹5 crore from ₹1 crore and general penalty will be cut to ₹10,000 from ₹25,000. It recommended common standards for GST notices and proceedings across the country.

For smoother movement of goods, checks will now usually be done only in the state of origin or destination, doing away with the practice of multiple checks at multiple points. Only intelligence-based and authorised interception of goods will be allowed.

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The council has relaxed certain conditions that had effectively restricted export benefits. Indian firms billing or receiving payment through their own overseas branch will now qualify as exports. The condition that the supplier and recipient should not be establishments of the same person has been removed, making it clear that what matters is whether the customer is abroad.

Job work in India on foreign-owned goods, such as repair, testing, storage and processing, will have the customer's location as the place of supply, rather than the location where the work is done. It will qualify as an export even if the goods remain in India.

Quick registration

GST registration through the automatic route under Rule 14A is proposed to be completed in just three working days, from more than three weeks now, without officer intervention. This will apply to applicants who do not wish to pass on monthly input tax credit of more than ₹2.5 lakh. The route now covers 61% of registrations.

Similarly, the process of deregistration will be streamlined by scrapping the requirement for a GST officer's visit if the applicant has paid the taxes and is not facing a probe.

On litigation, a ₹10,000 minimum threshold will apply to show-cause notices under Sections 73, 74 and 74A, including pending cases. Since 2017, about 11.3 lakh notices at or below this level-about a fifth of all cases by number but involving a negligible amount of tax-have been issued.

Bipin Sapra, Partner and Indirect Tax Policy Leader, EY India, said:“These are among the most significant trade facilitation reforms since GST was introduced. By extending refunds of accumulated input tax credit to input services and capital goods, and rationalising blocked credits, the Council is restoring GST's founding promise of seamless credit.”

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Jharkhand finance minister Radha Krishna Kishore proposed keeping coal outside the GST regime and allowing states to levy VAT on it. He also proposed a complementary Resource-Origin and Ecological Equalisation Framework to recognise states that supply exhaustible minerals to the national economy, without disturbing the destination principle.

“Jharkhand contributes substantially to national energy integration and economic development, while the depletion of resources and the long-term environmental and social burden remain within the state. Since GST on coal is passed on to consuming states under the destination principle, Jharkhand is deprived of the revenue needed to address these costs,” Kishore said.

"Punjab supports the direction of reform. Our request is that facilitation should be accompanied by smarter enforcement. Punjab proposes that the Government of India, GSTN and the States jointly develop a common AI-based, data-driven enforcement architecture, supported by a national repository integrating tax, vehicle and movement data and providing actionable risk intelligence to both Central and State officers. Punjab would be happy to take the initiative in piloting this model. The objective should be simple: maximum facilitation for honest taxpayers, minimum physical intervention, and maximum precision against fraud and tax evasion," said Punjab finance minister Harpal Singh Cheema.

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