Opposition-ruled states demand continuation of GST compensation for 5 years

As the GST Council commenced here on Tuesday, the states have also cited a recent Supreme Court ruling that decisions made by the Council are not binding and states need not stick to them.

Pre-packed and labelled food items like meat, fish, curd, paneer and honey will now attract GST, a tax that will also be levied on the fee that banks charge for the issue of cheques.

This after the GST Council - the highest decision-making body on the levy of goods and services tax - accepted most of the recommendations of a group of ministers from states on withdrawing exemptions with a view to rationalising the levy, officials said.

The panel headed by Union Finance Minister Nirmala Sitharaman and comprising representatives of all states and UTs, on the first day of the two-day meeting accepted the GoM's recommendation for reviewing the exemption from GST that packed and labelled food items currently get.

So pre-packed and labelled meat (except frozen), fish, curd, paneer, honey, dried leguminous vegetables, dried makhana, wheat and other cereals, wheat or meslin flour, jaggery, puffed rice (muri), all goods and organic manure and coir pith compost will not be exempted from GST and will now attract a 5 per cent tax.

Similarly, an 18 per cent GST will be levied on fee charged by banks for the issue of cheques (loose or in book form). Maps and charts including atlases will attract a 12 per cent levy. Goods that are unpacked, unlabelled and unbranded will continue to remain exempt from GST.

Besides, a 12 per cent tax on hotel rooms below Rs 1,000/day will be levied, as against a tax exemption currently.

GST rate rationalisation is important to boost the weighted average GST rate that has fallen to 11.6 per cent, against 14.4 per cent at the time of launch.

The GST Council also recommended a correction in the inverted duty structure for a host of items, including edible oil, coal, LED lamps, printing/drawing ink, finished leather and solar water heater.

The Council is likely to discuss on Wednesday the demand for an extension of compensation paid to states for revenue lost from their taxes such as sales tax (VAT) being subsumed into a national GST, besides a 28 per cent tax on casinos, online gaming and horse racing.

Non-BJP ruled states such as Chhattisgarh want the compensation regime to be extended or the share of states in the GST revenues be increased to 70-80 per cent from the current 50 per cent.

And to drive their point, they cited a recent Supreme Court ruling that decisions made by the Council are not binding on states and any decision not taken unanimously could potentially lead to unraveling of the landmark economic reform.

The report of the state finance ministers on GST systems reforms, which recommended biometric authentication of high risk taxpayers and real-time validation of bank accounts too was cleared by the Council.

As per data on revenue growth collated for the Council meeting, only five out of 31 states/UTs, Arunachal Pradesh, Manipur, Mizoram, Nagaland, and Sikkim, registered a revenue growth higher than the protected revenue rate for states under GST in financial year 2021-22.

With regard to e-way bill on intra-state movement of gold, gold jewellery and precious stones to check evasion, the Council recommended that states can decide on the threshold above which the electronic bill is to be made mandatory.

A panel of state ministers had recommended the threshold to be Rs 2 lakh and above.