TaxTMI 
TaxTMI 
Minutes of the 1st GST Council Meeting held on 22nd and 23rd September 2016
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....atesmanship in passing the historic taxation legislation in the Union Parliament and thereafter, the States also played an active role in ratifying it. He also thanked the Empowered Committee of the State Finance Ministers for playing an important role in reaching a broad consensus on GST. He observed that the Council has a very important constitutional responsibility to deal with all important issues relating to GST. 3. Five agenda points were taken up for meeting which are as follows: (i) Draft Rules of Procedures and Conduct of Business in Council (ii) Proposed timetable for the implementation of GST (iii) Thresholds for exemption and composition under GST (iv) Draft Modalities for GST Compensation and draft Compensation Law (v) Provisions for Cross-Empowerment to ensure Single Interface Under GST 4. Before taking up the agenda points, the Chairperson invited the Members of the Council to make general comments, if any. The following issues were highlighted- (i) The Hon'ble Minister from Kerala expressed that given the good experience with the Empowered Committee of State Finance Ministers during the last sixteen years, the institution of Empowered Committee shou....
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.... meeting notice along with agenda points shall be sent at least 7 days prior to the date of the meeting of the Council and the agenda notes would be sent at least 3 working days prior to the date of the meeting. The timelines could be revisited once GST was implemented. (iv) In respect to Rule 3, the desirability of holding meetings via video conferencing was suggested by the Hon'ble Minister from Tamil Nadu and discussed. Some members felt that it was an efficient way of conducting business where the agenda points might be very few whereas some others felt that chemistry of the group was important, especially during the initial stages when important issues were being discussed and this could be achieved only by a physical meeting. The Chairperson observed that the idea of video-conferencing could be explored at a later date, specifically in cases of meetings where the agenda points were few and required just a formal approval. Furthermore, the desirability of postal ballot was also discussed and it was decided that this was not required. (v) Rule 4 - The Hon'ble Minister from Kerala observed that a rule regarding order of seating of the members was not needed. The Chairp....
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....t under the leadership of the Chairperson, a healthy convention should be developed of taking decision by consensus. (xi) In respect of Rule 16, the Hon'ble Ministers from Tamil Nadu and Uttar Pradesh suggested that there should be different weightage of votes for States within the two-third weightage of votes given to the States. The Hon'ble Minister from Tamil Nadu stated that States with a population of 20 crores and 1 crore should not be treated equally in terms of votes. It was pointed out that such an approach was followed for Rajya Sabha membership. Some criteria like population, GDP, revenue collected or Lok Sabha representation could be adopted to assign weighted votes to each State. The Hon'ble Minister from UP also endorsed this suggestion. This suggestion was objected to by several States. The Hon'ble Minister from Meghalaya stated that no inequality should be created between the States. The Hon'ble Minister from Assam also strongly opposed this suggestion and observed that each State played an important role in the Union and that a small State like Arunachal Pradesh contributed to ensuring the security of lndia. The Hon'ble Chief Minister of Pu....
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....hey would be in a position to pass the legislation only by February 2017. The Hon'ble Minister from Jammu and Kashmir stated that they would be able to pass the law only by January 2017. The Chairperson observed that the States that were going for elections would need to make a special provision for passing their SGST Legislation. He also advised the States to meet the deadline and for this, where needed, a one-day special session of the legislature could be convened. The Hon'ble Minister from Tamil Nadu suggested that implementation of GST should be by 1st September 2017 as it was a challenging task and the officers needed to be deployed properly. He also mentioned that inadequate preparations could harm the taxation system. 8. After discussion, it was agreed that the implementation date for GST would be 1st April 2017. The Chairperson observed that between 22nd September 2016 and 22nd November 2016, a lot of work was required to be done and that officers of the State Governments should be spared for the work relating to GST. The Hon'ble Deputy Chief Minister of Arunachal Pradesh pointed to some special difficulties in respect of his State like lack of mult....
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....b, Telangana, Goa and Bihar also supported a threshold of Rs. 10 lakhs. 12. As regards the Special Category States, the Hon'ble Minister from Meghalaya informed that their present threshold was only Rs. 1 lakh and therefore, exemption for Special Category States should be Rs. 5 lakhs. The Hon'ble Minister from Mizoram also supported a threshold limit of Rs. 5 lakhs. The Hon'ble Minister from Assam supported a threshold of Rs. 10 lakhs. 13. Given the difference in opinions, the issue was deferred for reconsideration to the next day. In the meeting of 23rd September 2016, after further discussion, it was agreed that the threshold exemption shall be Rs. 20 lakhs. The Chairperson also observed that taking note of the concerns expressed by the Hon 'ble Chief Minister of Puducherry, this decision would be reviewed after 5 years (during which compensation for any loss of revenue is guaranteed) and a decision regarding any modification to the exemption threshold would be taken thereafter. 14. As regards the Special Category States enumerated in Article 279A of the Constitution, it was decided that the threshold exemption shall be Rs. 10 lakhs. COMPOSITION (OR COMPOUNDIN....
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....to reduced revenue collection. In relation to release of the compensation, he expressed the view that annual release of compensation based on the CAG's audited figure would put States to difficulty in their cash management. He suggested having a mechanism of drawing advances against prospective compensation which could be reconciled later. This would ensure that the Ways and Means Advances are well managed in the States. He was also of the' view that the suggested model was too simplistic and did not take into consideration many of the variables such as inflation 20. The Hon'ble Minister for Uttar Pradesh desired to know whether the compensation formula would take into account the impact on revenue of the tax holidays provided by the States. The Hon'ble Minister from Telangana explained that his was a new State and therefore only figures for the year 2016-17 would be available. The Hon'ble Minister from Gujarat expressed the view that the base year should be the best 3 years' average of the last 10 years. The Hon'ble Minister from Kerala was not in agreement with the method of ascertaining the projected growth rate of revenue. He also expressed the view....
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....ould be paid on that basis. The projected growth rate should take into account all taxes subsumed under GST. He observed that more detailing was required in the Rule. He also requested for payment of outstanding CST compensation amount. 24. The Hon'ble Minister from Bihar suggested that the formula of compensation used during VAT transition should be used as it was a trusted methodology. He also expressed the view that more clarity was needed on how and when the compensation would be paid. The Hon'ble Minister from Andhra Pradesh supported the view that VAT compensation methodology might be used for paying GST compensation. 25. The officer representing Maharashtra brought to the notice of the Council that Maharashtra had suffered drought during the last 3 years and therefore, for States with such special circumstances, 5 year period should be taken to ascertain the projected rate of growth of revenue. He also submitted that the Octroi collected by local bodies should be compensated under the compensation mechanism. 26. The Hon'ble Minister from Assam brought to the notice of the Council that last year was an election year in Assam and the then Government did not make....
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....tside GST on the calculation of the growth rate. He also suggested that 2016-17 be taken as the base year. 31. The Hon'ble Minister from Haryana brought to the notice of the Council that they had problems similar to that of Punjab as they also had a lot of agricultural produce in the State. The Hon'ble Minister from Telangana brought to the notice of the Council that Telangana would stand to lose Rs. 700 crores of R.D.Cess (Rural Development Cess) and should be compensated. He also desired that full CST compensation be paid and details of methodology for working out CST compensation be spelt out. He suggested that the compensation should be given at least quarterly and there should be accommodation for Ways and Means Advances. 32. The Hon'ble Minister from Odisha desired to know as to when the compensation for years beyond 2013-14 would be released. He suggested that compensation should be paid on a monthly basis. Karnataka was represented by an official and he expressed the view that for payment of compensation, a Fund should be created under the Council as was suggested by the Parliamentary Committee and the Finance Commission. He added that the base year may be tak....
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.... namely 100% for year one, 75% for year two and 50% for year three. Therefore, it might be inappropriate to adopt only part of the formula. 36. The IS. (Rev) clarified that compensation would include all taxes such as CST, Octroi, Purchase Tax, etc which are levied by the State Governments and now proposed to be subsumed in GST including cesses, if any, imposed by the States. The frequency of release could be decided by the Council and could be an interim figure. There was considerable discussion in the Council on various other methods of calculating the compensation figure such as trends of Nominal GDP growth rate, application of buoyancy factor, variation in the GDP estimates, taking taxlGDP ratio as a factor, removing outliers from growth data of 5 years and the need to keep calculations reliable but simple. 37. The Chairperson, after getting the sense of the house summed up the following points relating to payment of compensation and placed before the Council for decision, namely - (i) 2015-16 shall be taken as the base year for compensation (ii) Revenue to be compensated shall consist of all taxes (including cesses) levied by the States and which are now proposed to be s....
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.... a need to have any vertical threshold of a particular turnover to divide the roles of the State and the Centre. 40. After these introductory remarks, Shri Vivek Johri, Principal Commissioner, Customs, CBEC made a presentation outlining the broad features of the proposed cross-empowerment model. This model essentially provided for a protocol on the basis of which scrutiny of returns of taxpayers and their audit would take place. It was proposed that an overall cap might be agreed upon on the number of interventions (of scrutiny of returns and audit) to be done by the Central and State authorities taken together. Within this cap, on an annual basis, the list of taxpayers to be subjected to detailed scrutiny of returns and audit would be drawn by the Union and State Government officers in each State on the basis of certain risk parameters. Based on these lists, allocation of taxpayers to the Central and State tax administrations would be done on the basis of certain predefined criteria. The consequential actions like raising demand, adjudication, appeal, etc. shall be done by the administration that conducted scrutiny of returns/audit and it would cover both the CGST and the SGST. F....
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....or taxpayers above the threshold of Rs. 1.5 crores but suggested that administration of taxpayers below Rs. 1.5 crores should rest with the States. 44. The Hon'ble Chief Minister of Puducherry stated that there was a need to move away from 'Inspector Raj' and the consensus arrived earlier in the Kolkata meeting of the Empowered Committee in July 2016 needed to be respected. The Hon'ble Minister from Uttar Pradesh stated that as 91% of revenue came from taxpayers with a turnover of more than Rs. 1.5 crores, it was advisable that the Central tax authorities focused on the big taxpayers and the small taxpayers should be left to the administration of the State tax authorities. 45. The Hon'ble Minister from Kerala observed that the proposal being discussed in this meeting had never come up for discussion earlier. He stated that the protocol appeared unworkable and very complicated. It was not clear how the CGST administration would draw the priority list. He also observed that changing the tax jurisdiction of dealers every two years was inefficient. He also suggested that Central Government staff should be deputed to work in States. 46. The Hon'ble Minister fr....
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....ill also get jurisdiction along with the Centre over those service providers who get registered under GST in future and a protocol in this regard could be devised. Specific arrangements for the training of State Government officers in assessment of Service Tax assesseesbe made. v. The percentage of audit in all cases would be restricted to 5% of total assessees. vi. Information-based enforcement powers can be exercised by the Central Government or State Government in all cases irrespective of division. 48. In his concluding remarks, the Chairperson stated that the next meeting would be held on 30th September 2016 and expressed his happiness at the progress made in this meeting.The Secretary to the Council stated that the issues to be taken up at the next meeting would be the rate structure and the tax exemption schemes of the Centre and the States. The Chairperson also mentioned that the subsequent meeting of the Council would be held from 17th to 19th October 2016 in New Delhi, in which the discussion about rate structure for GST would be undertaken. 49. The meeting ended with a vote of thanks to the Chair. (Arun Jaitely) Chairperson, GST Council ============= Document 1 ....
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.... Department Secretary(Revenue) and Secretary to Chief Economic Advisor Chairman(CBEC) Member(GST), CBEC Additional Secretary(Revenue) Joint Secretary(Revenue) Principal Commissioner, CBEC Commissioner(GST Policy Cell) Deputy Secretary (Revenue) Commissioner, GST Secretariat Sl.No Officer Present Territory 1 Centre Shri Hasmukh Adhia the GST Council 2 Centre Shri Arvind Subramanian 3 Centre Shri Najib Shah 4 Centre Shri Ram Tirath 5 Centre Shri B.N.Sharma 6 Centre 7 Centre 8 Centre 9 Centre 10 GST Council 11 GST Council 12 GST Council 13 GST Council 14 GST Council 15 Andhra Pradesh 16 17 Assam Arunachal Pradesh 18 Bihar 19 Chhattisgarh 20 Chandigarh 21 Goa 22 Gujarat 23 Haryana 24 24 25 25 Himachal Pradesh Jammu and Kashmir Shri Manish Kumar Sinha Ms Himani Bhayana Shri Santosh Kumar Mishra Shri Rohan Shri J.S. Rao Dr.B.M. Mishra Shri Anurag Goel Shri Ravi Kota Ms. Sujata Chaturvedi Shri Arun Kr. Mishra Shri Amit Agrawal Shri D.P.Reddy Shri Dipak Banderkar Ms. Mona Khandhar Shri P.D.Vaghela Shri Anil Mukim Shri R.P.Raval Shri Hanuman Singh Shri Sanjeev Kaushal Shri Shyamal Misra Shri Pushpen....