Fitment committee rejects demands to reduce GST rate on over 200 items

The Council unlikely to decide on crypto assets in next week's meeting

Ahead of the crucial Goods and Services Tax (GST) Council meeting next week, a committee of officials has proposed a change in GST rate for a host of items, including tetra-packs, even as it rejected demands for a reduction in levy over 200 goods and services to ease the inflationary burden on consumers. 

The all-powerful Council is set to meet on June 28 and June 29, but it is unlikely to decide on taxing virtual digital assets (VDA) or crypto assets in its upcoming meeting and may ask two states -- Haryana and Karnataka -- to study the nature and taxability of various activities in the crypto ecosystem.

During the meeting, it is likely to consider the recommendations made by the fitment committee, which also proposes an increase in the GST rate for tetra packs to 18 per cent, from 12 per cent at present. 

The Council's fitment committee, which comprises revenue officials from both Centre and states, recommended increasing GST rate on tetra-packs to bring uniformity in tax structure with respect to other substitutes, such as cartons, plastic bottles, sachets and pouches, and plastic cups. “Recycling of tetra-pack cartons is not economical and not linear (recycling allows some amount of inputs to be extracted, but not tetra-pack itself),” the committee argued.

The committee also recommended the GST Council clarify that electric vehicles, whether fitted with batteries or not, will attract 5 per cent GST. The committee recommended that specified defence items imported by private entities when the end-user is defence forces should be exempt from IGST. “Allowing exemption to imports by the private sector, if the end-user is the defence forces, may ease the availability of critical defence-related items. This exemption is subject to certification of imports by the Ministry of Defence and is available for a limited period up to June 30, 2024,” the committee said. 

Citing tight revenue conditions, the panel rejected demands for a cut in the tax rate on major consumer goods, such as ready-to-eat food, air-conditioners, electronic devices (mobile/laptops), perishable fruits and vegetables, pickles and chutney, branded snacks, dairy products (ghee and butter), ethanol/biodiesel, tobacco products, and handlooms, because any reduction may have significant revenue implications. 

Some of these items are in higher brackets attracting 18 per cent and 28 per cent GST, which shall remain unchanged, according to the fitment panel. 

Notably, some items in the list are under consideration of the ministerial panel, which is expected to submit its interim report to the Council. 

While deciding not to tinker with the present GST structure on air-conditioners, the fitment panel noted inputs, such as metals, used in the making of heating, ventilation, and air-conditioning machines already attract 18 per cent GST. So, lowering the GST rate on these machines may result in significant adverse revenue implications.

Electronic devices, such as mobile and laptops, are value-added products meant for consumption and, hence, are correctly rated, the panel viewed while proposing that the existing rate of 18 per cent should continue.

Rejecting a rate cut on ready-to-eat food, branded food, instant food mixes, etc, the panel took a view that they entail higher value addition. It is a conscious decision of the Council to keep branded packaged food items, such as chips, at a higher rate than unbranded food.

Similarly, for desi ghee, butter, and flavoured milk, the rate reduction proposal has been turndown as most of the other similar value-added processed items attract 12 per cent GST.

On Ethanol (E100), the panel said that currently it is taxed at 18 per cent and Biodiesel (B100) at 12 per cent – lower than the excise duty on petrol and diesel. Thus, these products are already at a concessional rate of GST and a further reduction shall have a huge revenue implication.

About the demand for reducing the GST rate on tractors, it observed that such a move may only deepen the GST rate inversion. At present, it attracts a concessional GST of 12 per cent, while specified parts of tractors attract GST at a rate of 18 per cent. Parts used in tractors other than such specified parts attract 28 per cent GST.

Reduction in GST on services 

In the case of services, the panel turndown demand of rate cut for at least 100 related items/segments, including software products, rent paid by hospitals, capital markets, online media, commercial projects, brokerage services on property, onshore work contract, removal of levy on life and health insurance, term insurance premium, electric vehicle charging and battery, air cargo, and participation at a trade fair. 

The Committee also rejected the proposal to reduce the GST rate for telecom services from the present 18 per cent to 12 per cent, sources said.

The panel, however, suggested changes and clarity on at least 20 services, such as ice-cream parlour, the applicability of GST on payments in case of liquidated damages, arising out of breach of contract, sale of developed plots, ropeway travel, taxability of transactions between lead-insurer and co-insurer, and aircraft leasing in GIFT City. 

GST on Crypto assets 

The Council is unlikely to decide on taxing virtual digital assets (VDA) or crypto assets in its upcoming meeting and may ask two states -- Haryana and Karnataka to study the nature and taxability of various activities in the crypto ecosystem. The states have been tasked to study and identify all relevant supplies associated with crypto-ecosystem which are under the ambit of GST, sources said

Besides, the Council may consider allowing tour operators a “margin scheme”— an alternative option under which the operators may pay GST on fair competitive margins without availing input tax credit on any services.