4th MeetingNov 3-4, 2016

GST Council Meeting 4 — IGST Model, Thresholds & Dual Control Debate

The 4th meeting approved the IGST destination-based model, confirmed ₹20 lakh/₹10 lakh thresholds, designed the composition scheme (₹50 lakh), established place of supply principles, and began the contentious dual control debate that would dominate meetings 5-7.

4th

Meeting Number

Nov 3-4, 2016

Date

2 Days

Duration

New Delhi

Venue

₹20 Lakh

Threshold (General)

₹10 Lakh

Threshold (Special)

₹50 Lakh

Composition Limit

Approved

IGST Model

Key Discussions & Decisions

Dual Control Framework

Most contentious issue: which authority (Centre or State) administers GST on whom? Council discussed dual control where both Centre and States can assess any taxpayer. States insisted on exclusive control over taxpayers below ₹1.5 crore turnover. Centre wanted cross-empowerment for intelligence-based enforcement. This issue remained unresolved and carried forward to Meeting 5.

IGST Model — Destination Principle

Approved the Integrated GST (IGST) model for inter-state supplies: tax collected by Centre, apportioned to consuming State. Seller charges IGST (= CGST + SGST combined rate). Importing State receives its SGST share through settlement. This eliminated CST cascading and enabled seamless input tax credit across state borders — a fundamental GST reform.

Registration Threshold Confirmed

Exemption threshold confirmed: ₹20 lakh annual aggregate turnover for general category states. ₹10 lakh for special category states (11 states including NE states, J&K, Himachal, Uttarakhand). Below threshold: no GST registration required, no tax collection, no compliance. Service providers included in same threshold (unlike pre-GST ₹10 lakh for service tax).

Composition Scheme Design

Composition scheme for small taxpayers: turnover up to ₹50 lakh (later raised to ₹1.5 crore). Simplified compliance: quarterly return, no input tax credit, no inter-state supply. Rate: 1% for manufacturers, 2.5% for restaurants, 0.5% for traders. Cannot charge GST to customers. Intended to reduce compliance burden for ~60 lakh small businesses.

Place of Supply Rules

Discussed principles for determining place of supply (critical for IGST vs CGST/SGST determination): goods — location of delivery. Services — location of recipient (B2B) or supplier (B2C). Specific rules for: immovable property (location of property), events (venue), transportation (destination), telecom (registered address). These rules determine which state gets SGST revenue.

Treatment of Existing Exemptions

Debated how to handle existing VAT/Excise exemptions granted to industries in special zones (J&K, NE states, Himachal, Uttarakhand). Options: (1) Continue as budgetary support, (2) Convert to refund mechanism, (3) Phase out. Decision: existing exemptions to be converted to budgetary support — tax collected normally, refund given from budget. This preserved revenue neutrality.

Meeting 4 — Decisions & Outcomes

TopicStatusDetail
IGST model for inter-state supplyApprovedDestination-based taxation, Centre collects and settles
Threshold: ₹20L (general), ₹10L (special)ConfirmedSame for goods and services suppliers
Composition scheme: up to ₹50 lakhApproved1%/2.5%/0.5% rates, quarterly filing
Place of supply principlesDiscussedGoods: delivery location; Services: recipient/supplier
Dual control / cross-empowermentUnresolvedStates want exclusive control below ₹1.5Cr
Existing area-based exemptionsDecidedConvert to budgetary support (refund mechanism)
Alcohol for human consumptionExcludedRemains under State excise, outside GST
Five petroleum productsExcludedPetrol, diesel, ATF, natural gas, crude — future inclusion

Frequently Asked Questions

What was the dual control issue in GST Council Meeting 4?
The biggest dispute: who administers GST — Centre or States? States (led by Kerala, WB) wanted exclusive control over all taxpayers below ₹1.5 crore annual turnover. Centre wanted cross-empowerment allowing either authority to audit/assess any taxpayer based on intelligence. This remained unresolved at Meeting 4 and was finally settled at Meeting 7 with the 90:10 (States:Centre) formula for taxpayers below ₹1.5 crore.
How does the IGST model work?
When goods/services move inter-state, seller charges IGST (equal to CGST+SGST combined rate, e.g., 18% IGST = 9% CGST + 9% SGST). IGST is collected by Centre. The importing state's share (SGST portion) is transferred through the settlement mechanism. This ensures: (1) seamless ITC chain across states, (2) destination-based consumption tax, (3) elimination of CST cascading, (4) no tax barriers at state borders.
What is the GST composition scheme?
A simplified scheme for small businesses (turnover ≤₹50 lakh, later raised to ₹1.5 crore): pay flat rate (1% manufacturers, 2.5% restaurants, 0.5% traders) without maintaining detailed records. Restrictions: cannot claim ITC, cannot make inter-state supplies, cannot supply through e-commerce, must mention 'composition taxable person' on bills. Designed to bring informal sector into tax net with minimal burden.
Why were petroleum products excluded from GST?
Five petroleum products (petrol, diesel, ATF, natural gas, crude oil) were excluded because they constitute 35-40% of state revenue through VAT/cess. Including them in GST would: (1) drastically reduce state revenue control, (2) eliminate states' ability to levy variable cess for road development, (3) require massive compensation. Article 279A(5) allows future inclusion when Council decides unanimously.
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