Group of Ministers · GST Council Secretariat (Minutes of the 49th GST Council meeting) · 2023-02-18

Report of the Group of Ministers on Capacity Based Taxation and Special Composition Scheme - 49th GST Council

This GoM, convened by Odisha, was set up after the 42nd Council meeting. It examined whether GST could be levied on the production capacity of units, or through special composition schemes, in sectors prone to evasion such as pan masala, gutkha, brick kilns and sand mining. It met three times between July 2021 and July 2022. It accepted that evasion in tobacco products is widespread. But it rejected capacity-based levy as unconstitutional and unworkable, and proposed stronger compliance tools instead.

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Key findings and recommendations

  • GST is a destination-based tax on supply, and the Constitution gives no authority to levy it on production capacity.
  • The GoM found capacity-based taxation complex, harmful to competition and small producers, and open to collusion between officers and producers.
  • It recommended registering each packing machine with its make, capacity and number of tracks, and filing a special monthly return on machine-wise production.
  • It suggested certifying production capacity through a Chartered Engineer and moving toward track-and-trace for tobacco products.

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