GST Council approves all GST laws

by Ranjeet Mahtani and Sweta Rajan

The 12th GST Council meeting on March 16, 2017, proved to be monumental with the Council approving the State GST and Union Territory GST laws. With this, all GST legislations viz. the Central GST, Integrated GST, State GST, Union Territory GST and the GST Compensation laws have been approved by the GST Council. After the Cabinet takes up these laws (except the State GST draft), the next step is the passage of the laws by the Parliament (Central GST law, Integrated GST law, Union Territory GST law and the GST Compensation law) and the respective States (State GST law) and Union Territories (viz. Delhi and Pondicherry). 

Prior to transition to GST – a game changer of a reform - the GST Council has two more crucial responsibilities, viz. approval of rules and regulations regarding: a) composition scheme, transition, input tax credit and valuation, and b) classification of goods and services across the agreed 5-slab rate structure (this is popularly known as fitment). At the next meeting of the GST Council on March 31, 2017, the rules on these topics are expected to be approved besides minor tweaks to the rules previously released (the GST Council had previously discussed and approved the procedural rules for registration, payment, refunds, invoices and returns). Thereafter, a meeting dedicated to classification across rate-slabs will be convened.  

Some other developments during the 12th meeting of the GST Council are: 

• A 12% cess will be imposed on demerit goods (tobacco, luxury cars, pan masala and aerated drinks). The scope of ‘luxury cars’ is not clear yet. The GST Council has provided a headroom of 3% to potentially increase the cess (up to 15%) if need be. This cess is in addition to the GST applicable. It has also been indicated that the effective tax incidence on these sin goods would not be lower than the existing tax rates.
• Cess on coal and lignite has been capped at Rs. 400 per tonne.
• All supplies to SEZs to be exempted. There was a concern that the exemption would operate by way of upfront payment and subsequent refund. The Council has however heeded to the request of the Ministry of Commerce and allowed an ab initio 

Concerns have been raised about the future of area-based exemptions in various States. It has been pointed out that the exemptions cannot continue since they break the value chain although such opposition will be contrary to the legitimate expectation of the assesses, who made investments based on the promises of the concerned Government.  

The Governments (Central and States) have moved at an impressive pace towards ushering in the GST regime later this year. The tentative date for the rollout of GST is July 1, 2017, and now seems real and do-able. On the other side, the GSTN has also declared its readiness to go live on July 1, 2017.  

Now, while the various Governments may be ready to transition into GST on July 1, 2017, industry preparedness is key. A critical step towards preparing the industry for a smooth transition to GST will be to release the draft laws as approved by the GST Council as soon as possible. There is, of course, no need to emphasise the steps and measures that industry and trade must now adopt to ensure preparedness and effective transition to GST regime.