The Goods and Services Tax (GST) Council has a packed agenda when it convenes here on Friday, with well over a dozen weighty issues for its consideration, including the extension of tax relief granted for COVID-19 related essentials and initiating talks on bringing petroleum products under the GST regime.
The Council, which will hold its first physical meeting since the onset of the pandemic, is also likely to consider levying GST on food delivery apps and take up a proposed rejig of tax rates on items such as footwear and textiles that has been kept on hold for over a year.
The demand of some States, including the host State Uttar Pradesh, to introduce a new tax system for industries like brick kilns, gutkha and pan masala, and sand mining, based on production capacity instead of actual output, may also be taken up at least for one or two of these sectors. Instances of tax evasion in these sectors have been quite rampant.
Revenue constraints
Some States, including Kerala, are expected to seek an extension of the five-year compensation period for implementing GST that expires next June and raise concerns about their revenue constraints since the tax was introduced in 2017.
Finance Minister Nirmala Sitharaman had earlier promised States that a separate meeting of the Council will be held to just discuss compensation-related issues. While such a meeting may still be on the cards later, Friday’s agenda item on compensation will kick off the parley between the Centre and the States, informed sources said.
Sikkim’s plea
The Council is also likely to take a call on Sikkim’s request to be permitted to levy a small cess on power generation and pharmaceutical products to raise about ₹300 crore and cope with COVID-induced fiscal stress.
A ministerial group of the Council had examined the State’s request and urged the Centre to grant some additional funds to the small State. Kerala Finance Minister K.N. Balagopal, who was part of the group, however submitted a dissent note, highlighting that this reflects the transfer of taxation powers to the Centre and other States may face similar crises in the future.
Input tax credit
The recent Supreme Court verdict disallowing input tax credit for services used in making products with an inverted duty structure may also come up for discussion, though a resolution of the issue is unlikely. The apex court had noted that there is an ‘anomaly’ in the system that the GST Council should review.
“While it may be too early to act upon this, the GST Council ought to address the inverted duty structure burden, based on the several representations already made by affected industries,” said Saket Patawari, executive director, indirect tax, at Nexdigm.
Deloitte India senior director M.S. Mani also said it is essential to overcome the challenges arising from the inverted duty structure on certain products, in addition to extending relief for pharma products required for treatment of COVID patients.
At its last meeting on June 12, the Council had waived the indirect tax levied on two critical drugs, Tocilizumab and Amphotericin B, and reset the tax rate to 5% on 14 COVID-19 essentials. The revised rates are applicable till September 30.
