7th Meeting December 22-23, 2016

7th GST Council Meeting — IGST, Compensation & Anti-Profiteering Bills

Two-day session that approved the IGST Bill, GST Compensation Bill (14% growth guarantee for 5 years), and UTGST Bill. Also discussed the anti-profiteering clause, cross-empowerment formula, transitional credit framework, and e-commerce TCS provisions.

Dec 22-23

Meeting Date

2016

Year

New Delhi

Location

7th

Meeting Number

2 Days

Duration

Approved

IGST Bill

Approved

Compensation Bill

Discussed

Anti-Profiteering

Key Discussions & Approvals

IGST Bill Draft Finalized

The Council approved the draft IGST (Integrated GST) Bill covering inter-state supply taxation. Key provisions: IGST = CGST + SGST rate, place of supply rules for goods and services, apportionment formula for destination state, zero-rating for exports, and treatment of SEZ supplies. The bill established the mechanism for seamless credit across states.

GST Compensation Bill Approved

The Compensation to States Bill was approved, guaranteeing 14% annual revenue growth to states for 5 years (2017-2022). Compensation cess on luxury/sin goods (tobacco, aerated drinks, coal, motor vehicles) to fund the gap. Formula: Protected Revenue = Base Year Revenue × 1.14^n. Bi-monthly disbursement mechanism agreed.

Anti-Profiteering Clause

Council discussed the anti-profiteering mechanism to ensure businesses pass GST rate reductions to consumers. Proposed: National Anti-Profiteering Authority (NAA) with powers to order price reduction, return excess amount with interest, impose penalty, and cancel registration. State-level screening committees to examine complaints first.

Cross-Empowerment Framework

Detailed discussion on dual control — which authority (Centre or State) administers which taxpayers. Proposal: taxpayers with turnover above ₹1.5 crore split 50:50 between Centre and State. Below ₹1.5 crore: 90% State, 10% Centre. IGST assessment: exclusively by Centre. This resolved the long-standing Centre-State administrative jurisdiction dispute.

UTGST Bill Draft

The Union Territory GST Bill for 5 UTs without legislature (Chandigarh, Lakshadweep, Dadra & Nagar Haveli, Daman & Diu, Andaman & Nicobar) was approved. UTGST mirrors SGST provisions — same rates, same rules, but revenue goes to Central Government on behalf of UTs. Delhi and Puducherry (with legislatures) collect SGST.

Transitional Provisions Framework

Council approved transitional provisions framework for migration from old tax regime (VAT/Service Tax/Excise) to GST. Key areas: carry-forward of CENVAT/VAT credits, treatment of stock-in-trade on appointed day, pending refund claims, existing exemption schemes, long-term contracts, and advance payments made pre-GST.

Decisions & Outcomes

TopicDecisionStatus
IGST BillDraft approved for introduction in ParliamentApproved
Compensation Bill14% growth guarantee for 5 years finalizedApproved
UTGST BillSeparate bill for Union Territories without legislatureApproved
Anti-ProfiteeringNAA to be constituted under Section 171 of CGST ActAgreed
Cross-Empowerment>₹1.5Cr: 50:50. <₹1.5Cr: 90% State, 10% CentreIn Principle
Transitional CreditsCENVAT/VAT credits to be carried forward via TRAN-1Approved
E-Commerce TCS1% TCS by e-commerce operators on net valueDiscussed
April 1 RolloutTarget date confirmed but industry readiness concerns notedReaffirmed

Frequently Asked Questions

What was decided in the 7th GST Council Meeting?
The 7th meeting (December 22-23, 2016) approved the IGST Bill, Compensation Bill, and UTGST Bill drafts for Parliament. It also discussed the anti-profiteering mechanism (NAA), cross-empowerment formula for dual control between Centre and States, transitional credit provisions (TRAN-1), and e-commerce TCS at 1%.
What is the GST Compensation mechanism decided here?
States were guaranteed 14% annual revenue growth over a base year (2015-16) for 5 years (July 2017 to June 2022). Any shortfall is compensated from a cess fund collected on luxury and sin goods (tobacco, aerated beverages, coal, motor vehicles). Compensation is disbursed bi-monthly based on provisional revenue data.
What is the anti-profiteering provision in GST?
Section 171 of CGST Act requires businesses to pass on the benefit of tax rate reductions or increased ITC to consumers through commensurate price reduction. The National Anti-Profiteering Authority (NAA) was established to examine complaints, and can order price reduction, return of excess amount with 18% interest, penalty, or registration cancellation.
How was Centre-State administrative control divided?
The cross-empowerment formula divided taxpayers: those above ₹1.5 crore turnover are split 50:50 between Centre and State for audit/assessment purposes. Those below ₹1.5 crore: 90% administered by States, 10% by Centre. IGST assessment remains exclusively with the Centre. This was further refined in later meetings.
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