GST Council may discuss levying cess on pan masala, bricks at manufacturing stage in next meeting

The GST Council may consider at the next meet levying cess on commodities like pan masala and bricks at the manufacturing stage itself, a move aimed at checking tax evasion and shoring up revenues. During the 40th GST Council meeting held on Friday, Uttar Pradesh raised the issue of discussion on brick klins and pan masala related matters.

"They have been asking for rates for these items... The minister from Uttar Pradesh felt strongly about it because he wanted to have revenue for his state and wanted the council to take a quick call on it. So I have assured him in the next regular council meeting we will take it up,? Finance Minister Nirmala Sitharaman told reporters here.

Sources said Uttar Pradesh has demanded levying the cess at the manufacturing stage based on production capacity as against the current practice of imposing it on supplies made by the manufacturer.

Currently, GST at the rate of 28 per cent, and a 60 per cent cess, is levied on pan masala. Pan masala containing gutkha attracts 204 per cent cess.

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Commodities like pan masala are prone to tax evasion as they are available in small sachets and are bought mostly in cash and hence tracking their final supplies is difficult for tax authorities.

GST rate for bricks is in the range of 5 to 18 per cent depending upon the nature of the bricks.

Building bricks and bricks of fossil meals attract 5 per cent GST. On the other hand, multicellular or foam glass in blocks, panels, plates, shells or similar forms attract a 18 per cent GST.

AMRG & Associates Senior Partner Rajat Mohan said pan masala and bricks are currently charged on ad-valorem basis under GST regime, whereas in the erstwhile regime majority of states used to tax these items on machine capacity basis to arrest the tax evasion.

"Now with COVID in play revenue deficit is widening and state authorities need bigger pool of taxes from sin goods, one way of which could be taxation on machine capacity rather than actual supplies," Mohan added.

If the change is brought about, sources said a new section is likely to be inserted in the GST (Compensation to States) Act as an "enabling provision" giving power under the law to levy and collect cess on "specified goods" based on the capacity of manufacture or production.