GST legacy issues can undermine government’s efforts to ease tax structure

The GST rate on extruded/expanded savoury food products has been a subject matter of debate as the industry has been classifying them under CTH 2106 as namkeen and discharging 12 percent GST while tax authorities are of the view that these are classifiable under CTH 1905 attracting 18 percent GST, as indicated in the circular issued in 2023.

Though it has been recommended that such products, though classifiable under CTH 1905 will attract 12 percent GST prospectively, no relief, so far has been granted for the past period, leaving ongoing litigations unsettled. Moreover, if the industry takes a decision to discharge 12 percent GST prospectively under CTH 1905, the possibility of jeopardising the past litigations cannot be ruled out. Thus, is it important that this change is reviewed comprehensively and implemented carefully by tax payers.

A seat is a seat?

Another rate rationalisation attempt, which has left the taxpayers in a perplexed state is the GST rates on car seats being increased to 28 percent. The press release indicates that the said rate is being proposed to bring parity with seats of motorcycles which already attract GST rate of 28 percent. While GST rate of 28 percent on car seats may itself be a cost to the industry or taxpayers ultimately, the bigger concern is the comment made with respect to motorcycle seats stating that it already attracts 28 percent GST.

The GST rate on motorcycle seats is already under litigation since most of players have been discharging 18 percent GST on it. Though the representations filed by industry seeking relief for the past was already on the table of the Council, issuance of the aforementioned clarification has aggravated the situation. Unless intervened by the Council or government in the form of clarification/exemption for the past, getting appropriate relief for motorcycle seats from courts may become an uphill task considering inconsistent clarifications issued with respect to this matter.

Beware unintended consequences

Similarly, the exemption granted to foreign airlines has, yet again, stirred up controversy for other industries, and has sparked doubts as to whether such exemption is warranted in similar cases (other than airlines) of import of services.

Though the Council is gearing towards tackling the concerns of the taxpayers, careful decision making is highly warranted, in absence of which, the benefits meant for the taxpayers may turn into miseries.

The recent clarifications also demonstrate that a thoughtful decision must be made by the taxpayers as to whether to approach the Council in an ongoing litigation or leave such matters to be decided by courts, offering relief and shaping jurisprudence. Moreover, it is the right time for GST council meetings to prioritize issues which are of national importance impacting consumer/public at large such as rate rationalisation, bringing ease in GST compliance etc.

(Shivam Mehta is Executive Partner and Tanya Garg is Principal Associate at Lakshmikumaran & Sridharan, a law firm.)

Views are personal and do not represent the stand of this publication.