Important decisions taken by GST Council in its 52nd meeting.

Decision 1 – Taxability of corporate guarantee by holding company to its subsidiary company

GST Council has proposed an amendment in GST Valuation Rules to prescribe the taxable value as 1 percent of the amount of guarantee offered by the Holding Company for its Subsidiary Company.

Remarks

·            The amendment will put to rest the question on valuation of services of corporate guarantee. However, for period prior to amendment, corporate guarantee given or renewed can have any value (e.g., ₹ 100) where ITC is fully available to the recipient entity.

·            It is pertinent to note that the levy of GST at the first place is still a question of law. Since, the corporate guarantee for subsidiary is a shareholding function, one may argue that it should not be treated as a provision of services.

Our Insights

·            These days holding companies are also giving ‘letter of comfort’ to banks for their associate enterprises. It is not clear as to whether this 1 percent valuation will apply to ‘letter of comfort’ as well.

Decision 2 – Taxability of personal guarantee by Directors

·            GST Council has recommended that personal guarantee given by Directors to the bank is not chargeable to GST provided that no consideration is directly or indirectly paid to such Director.

Remarks

·            This is welcome recommendation by GST Council.

Our Insights

·            Directors/KMPs are also giving sureties under different laws. For example, under Customs IGCRS Rules, surety is required to claim benefit of concessional duty benefit. If surety is not given, the Rules require submission of Bank Guarantee.

·            Now, practically, directors or KMPs are providing surety under Customs IGCRS Rules on behalf of their entities. In such cases, Department may still argue that GST is payable on sureties given by Directors under RCM or KMPs under forward charge treating Bank Guarantee commission as basis of valuation.

Decision 3 – Amnesty Scheme for filing of appeals against demand orders issued till March 31, 2023

·            GST Council has recommended that for all assessment orders passed on or before March 31, 2023, appeal can be filed upto January 31, 2024.

Remarks

·            This is welcome recommendation by GST Council. Taxpayers whose appeal time limit got lapsed can avail the benefit of the same.

 

Decision 4 – ISD Mechanism will be mandatory

·            GST Council has recommended to make ISD mechanism mandatory to distribute the common Input Tax Credit.

Remarks

·            The taxpayers involved in cross-charging for each and every service including common ones, must prepare to obtain ISD registration and streamline their compliances.

·            A proper segregation/classification of services must be made beforehand so that once the amendment is enforced, there should not be any difficulty in executive the process of distribution of ITC.

Decision 5 – Allowing refund of IGST paid on supplies to SEZ

·            GST Council has recommended that DTA units can supply to SEZ with payment of IGST and claim the refund of such IGST paid.

Remarks

·            In our last update, we mentioned that Government unintendedly missed the benefit to SEZ supplies which is now corrected in this GST Council meeting.

Decision 6 – Consideration for export of services

·            GST Council has recommended that consideration received through special vostro account should be admissible towards qualification of ‘export of services’.