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The GST Council approves an increase in the rate of compensation cess on filter and non-filter cigarettes during its nineteenth meeting. The change corrects a tax incidence anomaly that lowers total taxes on cigarettes under the GST regime compared to the pre-GST regime. The revised compensation cess rates take effect prospectively from 12.00 a.m. on 18 July 2017. The council also decides to discuss the minutes of the eighteenth meeting during the twentieth meeting.
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MINUTE BOOK
Minutes of the $19^{\text{th}}$ GST Council Meeting held on $17^{\text{th}}$ July, 2017
The nineteenth Meeting of the GST Council (hereinafter referred to as ‘the Council’) was held on 17 July, 2017 through video conference in Prime Minister's Office, New Delhi, under the Chairpersonship of the Hon'ble Union Finance Minister, Shri Arun Jaitley. The list of the Hon'ble Members of the Council who attended the meeting is at Annexure 1. The list of officers of the Centre, the States, the GST Council and the Goods and Services Tax Network (GSTN) who attended the meeting is at Annexure 2.
Discussion on Agenda Items:
Agenda Item 1: Confirmation of the Minutes of the $18^{\text{th}}$ GST Council Meeting held on 30 June, 2017
4.1. For Agenda Item 1, the Council agreed to take up discussion on the draft Minutes of the $18^{\text{th}}$ Council meeting (held on 30 June, 2017) in its next regular meeting (i.e. the $20^{\text{th}}$ Meeting of the Council).
Agenda Item 2: Change in the rate of Compensation Cess
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Minutes of 19th GST Council Meeting
MINUTE BOOK
regime as VAT was charged on the value inclusive of the Central Excise duty. This had resulted in lowering of the total tax incidence on cigarettes in the GST regime as compared to the total taxes in the pre-GST regime. He observed that effect of this could be a windfall profit for tobacco companies to the tune of about Rs. 5,000 crore per annum. He added that if the reduced incidence of tax was passed on to the customers, it would lead to reduction in price of cigarettes, which was also not desirable for a 'sin' product. He stated that the proposed increase in the rate of compensation cess on cigarettes was meant to address this anomaly and this was likely to yield additional annual revenue to the exchequer of about Rs. 5,000 crore. He stated that keeping this in view, it was proposed to increase the rate of compensation cess for non-filter and filter cigarettes ranging from Rs.485 per thousand to Rs.792 per thousand, and for one category of cigarettes i.e. filter cigarettes of length exceeding 75 mm, to increase the rate of compensation cess by 31% as the specific duty component for this category was already at the scheduled ceiling rate whereas for the ad valorem component, the scheduled ceiling rate was 290%. The Hon'ble Chairperson invited views of the Hon'ble Members on this proposal.
5.1. The Hon'ble Minister from Maharashtra supported the proposal. He observed that if cigarette price got reduced, this would affect the health of the Country's youth and the GST Council should not encourage this. He suggested to further increase the rate of compensation cess on cigarettes. The Hon'ble Ministers from Assam, Bihar, Chhattisgarh, Gujarat, Kerala, Karnataka, Madhya Pradesh, Manipur, Mizoram, Odisha, Punjab, Rajasthan, Tamil Nadu, Telangana, Uttarakhand, Uttar Pradesh and West Bengal supported the proposal to increase the rate of compensation cess on cigarettes contained in the agenda note. The Hon'ble Chief Minister of Puducherry also supported the proposal and sought a clarification as to whether this increase in the rate would come into effect prospectively or retrospectively. The Hon'ble Chairperson clarified that it would come into effect prospectively with effect from 12.00 a.m. that night i.e. from 18 July, 2017.
5.2. The Hon'ble Minister from Jammu & Kashmir supported the proposal. He further suggested to use this opportunity to rationalise the rate structure for cigarettes so as to have only two rates of tax for filter and non-filter cigarettes and to do away with the classification of rates based on the length of cigarettes. The Hon'ble Chairperson stated that this proposal could be considered at a later date but at this juncture, it would be advisable to retain the same description of cigarettes for the rate structure.
5.3. The Hon'ble Minister from Goa expressed his support for increasing the rate of compensation cess on cigarettes. He supported the proposal of the Hon'ble Minister from Jammu & Kashmir to rationalise the rate structure of cigarettes. He also suggested to further increase the rate of compensation cess on cigarettes in order to increase the annual revenue from tobacco by about Rs. 6,000 crore per annum instead of the presently projected increase of Rs. 5,000 crore per annum. The Hon'ble Minister from Madhya Pradesh also suggested that if possible, the rate of compensation cess on cigarettes could be further increased. The Hon'ble Chairperson observed that at this stage, it was important to restore the original structure of tax on cigarettes in order to avoid windfall profit to the tobacco companies. The Hon'ble Minister from Uttarakhand suggested that the rate of tax for tariff item 8703 (applicable to luxury cars like BMW) should also be increased. The Hon'ble Minister from Haryana supported the proposal to increase the rate of compensation cess on cigarettes and suggested that a similar anomaly in respect of the rate of tax on high-end luxury cars also needed to be looked into.
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5.4. The officers representing the States of Andhra Pradesh, Arunachal Pradesh, Delhi, Himachal Pradesh, Jharkhand, Sikkim and Tripura also supported the proposal to increase the rate of compensation cess on cigarettes. The Hon'ble Chairperson thanked the Hon'ble Ministers and officers for their support to the proposal to increase the rate of compensation cess on cigarettes.
