CBIC Circulars issued post 47 Council Meeting

 

 

Certain circulars have been issued by the Ministry of Finance yesterday to provide clarifications on various aspects/ transactions ranging from tax treatment, rate of tax, exemptions etc.

 

Summary of the relevant updates is captured below for your ready reference.

 

1.              Liquidated damages, compensation and penalty due to breach of contract [Circular No 178/10/2022-GST dated 3 August 2022]

 

►              The said circular has been issued keeping in view the ambiguity regarding taxability of an activity or transaction as the supply of service of

o   agreeing to the obligation to refrain from an act or

o   to tolerate an act or a situation, or

o   to do an act.

 

►              It is clarified that there has to be an express or implied agreement; oral or written, to do or abstain from doing something for a taxable supply to exist.

 

►              An agreement to do an act or abstain from doing an act or to tolerate an act or a situation cannot be imagined or presumed to exist just because there is a flow of money from one party to another.

 

►              Further, clarifications have been provided with regard to taxability in the following cases:

 

S No	Particulars	Clarification from Circular 178	GST treatment	Remarks
1	Liquidated damages	►    The amount paid as ‘liquidated damages’ is an amount paid only to compensate for injury, loss or damage suffered by the aggrieved party due to breach of the contract;   ►    There is no agreement, express or implied, by the aggrieved party receiving the damages, to refrain from or tolerate an act or to do anything for the other party (paying the damages);   ►    Liquidated damages are merely a flow of money from one party (who causes breach of the contract) to the other party (who suffers loss or damage due to such breach);   ►    Payment is merely an event in the course of the performance of the agreement – such payment does not represent the ‘object’, as such, of the contract.	Not liable to GST	Examples: Damages for negligence; piracy; unauthorised use of trade name; damages for delay in construction; forfeiture of earnest money by a seller in case of breach of ‘an agreement to sell’ an immovable property by the buyer.
		►    In cases where the activity involves supply of a facility, the said supplies shall be treated as ancillary to the principal supply, and be subjected to GST treatment as that of the principal supply.	Liable to GST (if principal supply is taxable)	Acceptance of late payment, early termination of a lease agreement, pre-payment of loan and of making arrangements for the intended supply by the tour operator
2	Cheque dishonour fine/ penalty	►    The fine or penalty that the supplier or a banker imposes, for dishonour of a cheque, is a penalty imposed not for tolerating the act or situation but a fine, or penalty imposed for not tolerating, penalizing and thereby deterring and discouraging such an act or situation.   ►    Therefore, cheque dishonour fine or penalty is not a consideration for any service and not taxable.	Not liable to GST
3	Penalty imposed for violation of laws	►    Fines and penalties paid for violation of provisions of law (such as penalty imposed for traffic violations, pollution norms, excess mining) are not considerations as no service is received in lieu of payment of such fines and penalties.   ►    Further, there is no agreement between the government and violator specifying that violation will be permitted against payment of penalty/ fine. Accordingly, the same is not subject to GST.	Not liable to GST
4	Forfeiture of salary in the event of premature leaving of employment (typically referred to as ‘notice pay recovery’)	►    Amounts are recovered by the employer not as a consideration for tolerating the act of such premature quitting of employment but as penalties for dissuading the non-serious employees from taking up employment and to discourage and deter such a situation.   ►    Therefore, such amounts recovered by the employer are not taxable as consideration for the service of agreeing to tolerate an act or a situation.	Not liable to GST
5	Late payment surcharge or fee	►    The facility of accepting late payments with interest or late payment fee, fine or penalty is a facility granted by supplier naturally bundled with the main supply   ►    Since, it is ancillary to and naturally bundled with the principal supply such as of electricity, water, telecommunication, cooking gas, insurance etc. it should be assessed at the same rate as the principal supply and accordingly exigible to GST	Liable to GST
6	Fixed Capacity charges for Power	►       The price charged for electricity by the power generating companies from the State Electricity Boards (SEBs)/DISCOMS or by SEBs/DISCOMs from individual customers has two components, namely, a minimum fixed charge (or capacity charge) and variable per unit charge.   ►       The fact that minimum fixed charges remain the same whether electricity is consumed or not, cannot be construed as a charge for tolerating the act of not scheduling or consuming the minimum capacity.   ►       Therefore, both charges are charged for sale of electricity and are thus not taxable as electricity is exempt from GST.	GST exempt
7	Cancellation charges	►       Facilitation supply of allowing cancellation of an intended supply against payment of cancellation fee or retention or forfeiture of a part or whole of the consideration or security deposit should be assessed as the principal supply.	Liable to GST	Examples – Cancellation charges of railway tickets for a class would attract GST at the same rate as applicable to the class (i.e. 5% GST on first class or air-conditioned coach ticket and nil for other classes)

 

2.              Clarifications regarding applicable GST rates and exemption on certain services [Circular No 177/09/2022-GST dated 3 August 2022]

 

S No	Particulars	Clarification from Circular 177	GST treatment	Remarks
1	Supply of ice cream by ice cream parlors	►    Supply of ice cream by ice cream parlors to attract GST at the rate of 18% with effect from 6 October 2021.   ►    Owing to prevailing doubts on the rate of tax applicable on these supplies, many suppliers were discharging GST at the rate of 5% without ITC. It is now clarified that discharging of 5% GST without ITC upto 5 October 2021 would be treated as fully compliant in order to avoid unnecessary litigations.   ►    It is also clarified that no refund would be provided where GST was discharged at 18% upto 5 October 2021.	GST at 18%	Ambiguity with regard to taxability of ice creams sold by parlors has been removed vide this clarification
2	Fees charged by educational institutions for issuance of certificates	►    It is clarified that different types of fee collected by the educational institutions from its students (past/ current/ prospective) for issuance of various certificates is covered under the exemption notification and is hence an exempt supply.	Not liable to GST
3	Storage or warehousing of cotton in baled or ginned form	►    The exemption for the services provided by way of storage or warehousing of raw vegetable fibres such as cotton, flax, juice etc. was withdrawn with effect from 18 July 2022   ►    However, it is clarified that the services by way of storage or warehousing of cotton in ginned and or baled form was covered under the above entry and hence exemption is available for the period before withdrawal.	Liable to GST (from 18 July 2022 onwards)
4	GST on transit cargo both to and from Nepal and Bhutan	►    Transit of cargo both to and from Nepal and Bhutan is covered under exemption notification provided transit/ transhipment regulations are met.   ►    It is now clarified that the movement of empty containers from Nepal and Bhutan, after delivery of goods there, is a service associated with the transit cargo to Nepal and Bhutan and is therefore covered by the exemption.	Not liable to GST	Movement of empty containers from Nepal and Bhutan is also exempt from GST
5	Selling of space for advertisement in souvenirs	►    The definition of print media includes souvenir books and hence, it is clarified that the sale of space for advertisement in souvenir book attracts GST @ 5%	GST at 5%
6	Preferential location charges (PLC)	►    It is mentioned in the circular that allowing a choice of location of plot is an integral part of supply of long term lease of the plot and hence such charges forms part of the consideration charged as upfront lease premium.   ►    Therefore, it is thus clarified that upfront PLC paid in addition to the upfront lease premium for long term lease of plot is subject to same tax treatment and is thus exempt.	Not liable to GST
7	Honorarium paid to the Guest Anchors	►    It is clarified that GST would be applicable on honorarium received by the guest anchors where aggregate turnover of the anchor in a financial year exceeds Rs 20 lakhs (Rs 10 lakhs in case of special category states).	Liable to GST	Benefit of threshold is still available to them
8	Additional toll fees	►    It is clarified that the additional amount collected from the users of the road not having a functional Fastag is in the nature of Toll Charges and should be treated as additional toll charges.   ►    Such additional toll charges are collected in lieu of access to roads or bridges and hence are exempt.	Not liable to GST
9	Assisted Reproductive Technology (ART) procedures such as In vitro fertilization (IVF)	►    ART procedure is used in the treatment of disease/abnormality/ ailment of infertility.   ►    Hence, it is clarified that the services by way of IVF are also covered under the definition of health care services for the purpose of exemption notification.	Not liable to GST
10	Sale of land after levelling, laying down of drainage lines	►    It is clarified that sale of such developed land is also sale of land and is covered by Sr. No. 5 of Schedule III of the Central Goods and Services Tax Act, 2017 and accordingly does not attract GST.   ►    However, it may be noted that any service provided for development of land, like levelling, laying of drainage lines (as may be received by developers) shall attract GST at applicable rate for such services.	Not liable to GST	Sale of developed land is also treated at par with sale of land thereby not leviable to GST
11	RCM on renting of motor vehicles designed to carry passengers	►    The circular clarified the applicability of reverse charge in case of renting of motor vehicle designed to carry passengers (HSN 9966). It provided the distinction between services of transportation of passengers vis-à-vis renting of motor vehicle to carry passengers   ►    Where a body corporate hires the motor vehicle for transport of employees etc. for a period of time, during which the motor vehicle shall be at the disposal of the body corporate, it is clarified that the body corporate shall be liable to pay GST on the same under RCM.   ►    On the other hand, where the body corporate avails the passenger transport service for specific journeys or voyages and does not take vehicle on rent, the body corporate shall not be liable to pay GST on the same under RCM.	-	GST under RCM is applicable only on renting of motor vehicles and not on services of passenger transportation
12	Hiring of vehicles by firms for transportation of their employees	►    Passenger transportation services by non-air conditioned contract carriages where the transportation takes place over pre-determined route on a pre-determined schedule is exempt.   ►    It is hence clarified that the said exemption shall not be applicable where contract carriage is hired for a period of time, during which the contract carriage is at the disposal of the service recipient and the recipient is free to decide the manner of usage (route and schedule).	Predetermined route and schedule- Exempt   Discretion regarding route and schedule- Liable to GST
13	Works contract services for construction, supply, installation and commissioning of dairy plant on turn-key basis	►    It is clarified that the contract of the nature described in this case for the construction, installation and commissioning of a dairy plant constitutes supply of works contract since it results in an immovable property.   ►    Such services are eligible for concessional rate of 12% prior to 18 July 2022 and are leviable to 18% thereafter.	GST at 18% (from 18 July 2022 onwards)
14	Tickets of private ferry used for passenger transportation	►    Tickets purchased for transportation from one point to another irrespective of whether the ferry is owned or operated by a private sector enterprise or by a PSU/government is exempt.   ►    It is further clarified that the public transport means that it should be open to public and the ownership is not a criteria.	Not liable to GST
15	Transport of minerals from mining pit head	►    Renting of trucks and other freight vehicles with driver for a period of time is not service of transportation of goods by road.   ►    On such rental services of goods carriages where the cost of fuel is in included in the consideration charged from the recipient of service, GST rate has been reduced from 18% to 12% with effect from 18 July 2022.   ►    Prior to 18 July 2022, it attracted GST at the rate of 18%.	GST at 12% (from 18 July 2022 onwards)
16	Sanitation and conservancy services supplied to Army and other Central and State Government departments	►    Services procured Indian Army or any other Government, Ministry, Department which does not perform any functions listed in the 11th and 12th Schedule of the constitution are not treated as exempt services.	Liable to GST

 

 

3.              Clarifications regarding GST rates and classification of goods [Circular No 179/11/2022-GST dated 3 August 2022]

 

S No	Particulars	Clarification from Circular 179	GST treatment	Remarks
1	Electric vehicles whether or not fitted with a battery pack	►    The Circular mentions that fitting of batteries cannot be considered as a concomitant factor for defining a vehicle as an electrically operated electric vehicle.   ►    Accordingly, it is clarified that electrically operated vehicle is to be classified under HSN 8703 even if the battery is not fitted to such vehicle at the time of supply and thereby attract GST at the rate of 5%	GST at 5%	Electric vehicles whether or not fitted with a battery pack would attract GST rate of 5%
2	GST on Mangoes	►    It is clarified that mangoes, fresh falling under heading 0804 are exempt; Mangoes, sliced and dried, falling under 0804 are chargeable to a concessional rate of 5%; while all other forms of dried mango, including Mango pulp, attract GST at the rate of 12%   ►    To bring absolute clarity, the relevant entry at S. No. 16 of Schedule-II of notification no. 1/2017-Central Tax (Rate) dated 28 June 2017, has been amended vide notification No. 6/2022-Central Tax (Rate) dated 13 July 2022	Fresh mango- not liable to GST   Sliced & dried- GST at 5%   All other forms- GST at 12%	-
3	GST on treated sewage water	►    It is clarified that supply of treated sewage water, falling under heading 2201, is exempt under GST.   ►    Further, to clarify the issue, it is mentioned that the word 'purified' has been omitted from the above-mentioned entry vide notification No. 7/2022-Central Tax (Rate), dated 13 July 2022.	Not liable to GST
4	GST  on Nicotine Polacrilex Gum	►    The WCO 2022 HS Codes has inter alia introduced a new entry 2404 91 00 comprising of products for oral application containing nicotine and intended to assist tobacco use cessation with effect from 1 January 2022.   ►    Nicotine Polacrilex Gum which is commonly applied orally and is intended to assist tobacco use cessation attracts GST at the rate of 18%.	GST at 18%
5	Fly ash bricks and aggregate	►    It is clarified that the condition of 90 per cent or more fly ash content applied only to Fly Ash Aggregates and not to fly ash bricks and fly ash blocks.   ►    With effect from 18 July 2022, the condition of 90% of fly ash is omitted from the description.	GST at 12%	Requirement of 90% or more fly ash content in Fly Ash Aggregates has been removed. Further, such 90% requirement was not applicable to bricks and blocks
6	GST on by-products of milling of Dal/ Pulses such as Chilka, Khanda and Churi	►    The by-products of milling of pulses/ dal such as Chilka, Khanda and Churi are appropriately classifiable under heading 2302 that consists of goods having description as “bran, sharps and other residues, whether or not in the form of pellets, derived from the sifting, milling or other working of cereals or of leguminous plants”.   ►    These are preferred as cattle feed by dairy industry for better palatability and higher nutritive value. The mentioned by-products are required to go through varying degrees of processing in order to customize the color, size, aroma, nutrition, purity, etc., of the cattle feed so produced, depending upon the dietary and nutritional requirement of the cattle and the budget availability of the customer(s).   ►    As per the Indian Standards 2052:2009 -Compounded Feeds for Cattle - Specification, issued by the Bureau of Indian Standards, Ministry of Consumer Affairs, Food & Public Distribution, Government of India, grain by-products have been categorized as one of the ingredients of the compounded cattle feed.   ►    It has been clarified that the subject goods which inter alia is used as cattle feed ingredient are appropriately classifiable under heading 2302 and attract GST at the rate of 5%.	GST at 5%