The Goods and Services Tax (GST) was introduced with the promise of simplifying India’s tax system. However, recent decisions by the GST Council highlight the growing complexity of the regime. From input tax credit (ITC) disputes to rate hikes on essential items, the evolving landscape has left taxpayers and businesses grappling with uncertainties.
1. Reversing the Safari Retreats Judgment
The Supreme Court’s Safari Retreats judgment interpreted “plant or machinery” under the CGST Act to allow ITC claims for buildings intended for leasing. However, the GST Council’s retrospective amendment changes the terminology to “plant and machinery,” effectively excluding immovable property from ITC eligibility.
Impact:
- Businesses that relied on the Supreme Court’s interpretation to claim ITC will now face financial setbacks.
- The retrospective nature of the amendment undermines trust in the dispute resolution process.
Industry Perspective:
A Group of Ministers (GoM) must address these blocked credits and ensure fair treatment for taxpayers.
2. Hike in Tax Rates on Used Vehicles
Previously, the sale of used cars, including electric vehicles (EVs), attracted a 12% GST on the margin earned by dealers. The Council has now increased this rate to 18%, bringing it in line with the GST rate for new cars.
Implications:
- The higher rate disproportionately impacts the EV market, where the resale value plays a crucial role in adoption.
- A new EV attracts only 5% GST, raising questions about the rationale behind taxing used EVs at 18%.
3. Popcorn and Classification Issues
The GST on ready-to-eat caramelised popcorn has been increased to 18%, as it now falls under “sugar confectionery” instead of the standard “snacks” category. However, salted popcorn remains taxed at 12%, creating classification dilemmas.
Broader Concerns:
- Ambiguity in classifying similar products adds to compliance challenges.
- A GoM needs to rationalise GST rates across food categories to avoid such disputes.
4. Keeping ATF Out of GST
Despite being a potential candidate for GST inclusion, Aviation Turbine Fuel (ATF) remains outside its ambit. States have resisted including ATF under GST due to revenue concerns, even though its limited use minimizes tax evasion risks.
Why It Matters:
Bringing ATF under GST could streamline the tax structure for the airline industry and reduce cascading taxes. However, the lack of consensus delays much-needed reforms in the petroleum sector.
5. Revised GST Rates for Fortified Rice and CAR-T Cell Therapy
Fortified Rice:
The GST rate for fortified rice has been reduced from 18% to 5%, aligning with rates for government welfare schemes.
CAR-T Cell Therapy:
The Council’s decision to remove the 12% GST on CAR-T cell therapy provides significant relief for blood cancer patients facing high treatment costs.
6. Unresolved Issues Awaiting GoM Reports
Several pressing issues remain unresolved, including:
- Taxation of restaurant supplies via e-commerce operators.
- Tax liability determination for passenger transportation services.
- Addressing inverted duty structures.
What’s Next:
The GoMs must deliver progressive solutions to rationalise rates, resolve classification disputes, and bring clarity to ambiguous tax laws. Reports on real estate taxation and compensation cess are particularly anticipated.
Final Thoughts:
The GST regime’s complexity stems from balancing revenue needs with the goal of a simplified tax structure. Retrospective amendments, classification disputes, and inconsistent rates erode trust and complicate compliance.
Call to Action:
Policymakers must focus on:
- Transparent and forward-looking amendments.
- Collaborative discussions with industry stakeholders.
- Streamlining rates to reduce litigation and enhance compliance.
Taxpayers and businesses must stay vigilant and adapt to these evolving dynamics to ensure compliance and minimize financial impact.