GST Circulars | Recommendations of 50th GST council meeting

 Ministry of Finance has recently issued various circulars pursuant to the recommendations/ proposals made in the 50^th GST council meeting.

 

We have summarized hereinbelow the clarifications issued vide these circulars for your quick reference.

 

Circulars	Clarifications Provided
Circular No 192/04/2023-GST dated 17 July 2023	Clarifications on interest payable in case of wrong availment of IGST credits   The clarification is being sought as to whether the wrongly availed IGST credit would be considered as utilized for the purpose of charging of interest under section 50(3) of the CGST Act, 2017 along with rule 88B of the CGST Rules, 2017, in case where the Input Tax Credit (ITC) in IGST ledger is less than the amount wrongly availed, however the total ITC under the heads CGST, SGST & IGST together remains more than such wrongly availed IGST credit.   The CBIC has clarified the issues as under:   ►    In case where IGST credit has been wrongly availed, no interest liability under section 50(3) of CGST Act, 2017 would be levied,  if the balance of ITC in the electronic credit ledger, under the heads IGST, CGST and SGST taken together, has not fallen below the amount of such wrongly availed ITC.   ►    However, when the balance of ITC taken together under all the three heads falls below such wrongly availed ITC, the interest as per section 50(3) of CGST Act will be applicable.   ►    Further, the credit of compensation cess available in electronic credit ledger cannot be taken into consideration for the purpose of calculation of interest under sub- rule (3) of rule 88B of CGST Rules in respect of wrongly availed and utilized IGST, CGST or SGST credit.
Circular No 193/05/2023-GST dated 17 July 2023	Clarification in cases of difference between ITC availed in FORM GSTR-3Bs and FORM GSTR-2As for the period April 2019 to December 2021   ►    It is clarified that for the period 1 April 2019 to 8 October 2019, the process and guidelines provided by Circular No. 183/15/2022-GST dated 27th December 2022 shall be applicable As a background, the said Circular was issued for dealing with the difference between ITC availed in FORM GSTR-3B as compared to FORM GSTR-2A for FY 2017-18 and 2018-19 Vide the said circular, it was clarified that the officer shall be required to verify the fulfilment of credit eligibility conditions (i.e. availability of valid tax invoice/ debit note, receipt of goods/ services by the recipient and status of payment being made to the supplier, in terms of section 16 of the CGST Act, 2017) along with furnishing certificate from supplier or from CA/ Cost Accountant (as applicable)   ►    Further, for the period 9 October 2019 to 31 December 2021 where rule 36(4) of the CGST Rules, 2017 allowed additional credit availment to the tune of: 20% of the eligible credit for the period 9 October 2019 to 31 December 2019; 10% of the eligible credit for the period 1 January 2020 to 31 December 2020; and 5% of the eligible credit for the period 1 January 2021 to 31 December 2021, the following clarifications have been issued:   ►       The guidelines and procedures for verification of ITC, as provided by Circular No. 183/15/2022-GST (supra) shall be applicable for the aforementioned period(s) as well.   ►       The above verification/ procedures shall be applicable only to the extent of amount covered under the permitted percentage (20%/10%/5%), as was allowed under Rule 36(4) of the CGST Rules.  For reference, below illustration has been provided:   ITC available as per Form GSTR-2A ...(a) 3,00,000 ITC availed as per Form GSTR 3B ...(b) 5,00,000 Eligible credit as per Rule 36(4)...(c) = (a)*1.20 3,60,000 Excess ITC availed in GSTR 3B...(b-c) 1,40,000 ITC to be allowed subject to verification as per procedures prescribed as per Circular 183 (i.e. only upto 20%* of the credit available in GSTR 2A) 60,000 Excess ITC availed - not admissible 1,40,000 * - Percentage only for illustration purpose. The same shall change basis the period mentioned hereinabove   ►    It is further clarified that consequent to amendment of rule 36(4) of CGST Rules w.e.f. 1 January 2022, no excess ITC shall be allowed on or after the said period in respect of a supply which does not appear in recipient’s FORM GSTR-2B.   The said procedure for verification can be applied only to the ongoing scrutiny/ audit/ investigation (in respect of the said period) or cases where adjudication or appeal is pending. It cannot be applied for the completed proceedings.
Circular No 194/06/2023-GST dated 17 July 2023	Clarifications on TCS liability under section 52 of the CGST Act, 2017 in case of multiple E-commerce Operators (ECOs) in one transaction   ►    Where the supplier side ECO is not the actual supplier in the said supply (Buyer à Buyer-side ECO à Seller-side ECO à Seller)   The compliance is to be done by the supplier-side ECO who finally releases the payment to the supplier for a particular supply made by the said supplier through it   ►    Where the supplier-side ECO is the supplier of the said supply (Buyer à Buyer-side ECO à Seller)   The compliance is to be done by the Buyer-side ECO while making payment to the supplier for the particular supply made through it
Circular No 195/07/2023-GST dated 17 July 2023	Clarification on availability of ITC in respect of warranty replacement of parts and repair services during warranty period   Clarification on following issues/ transactions have been issued   ►    Whether GST would be payable on replacement of parts or supply of repair services, without any consideration being charged from the customer, as part of warranty?   It has been clarified that, where a manufacturer provides replacement of parts and/ or repair services to the customer, without charging separate consideration, GST shall not be payable on such replacement of parts and/ or repair service provided – as, value of original supply by manufacturer to customer includes cost towards replacement of parts and / or repair services.   If additional consideration is charged by manufacturer for aforesaid replacement/services, GST shall be payable on such additional consideration.   ►    Whether manufacturer (in above case) is required to reverse ITC in respect of such replacement of parts or repair services for which no additional consideration is charged?   It has been clarified that manufacturer shall not be required to reverse ITC in respect of the parts replaced and/or repair services provided – as the value of original supply already includes these costs   Further, replacement of parts and/ or repair service provided to the customer (without consideration) shall not be considered as exempt supply   ►    Whether GST would be payable on replacement of parts and/ or repair services provided by a distributor without any consideration from the customer, as part of warranty on behalf of the manufacturer?   Since no consideration is being charged by the distributor from the customer, no GST would be payable for providing replacement of parts and/ or repair services to the customer. However, if additional consideration is charged by distributor for aforesaid replacement/services, GST shall be payable on such additional consideration.   ►    In the above case, whether any supply is involved between the distributor and the manufacturer, and whether distributor would be required to reverse ITC in respect of such replacement of parts?   Scenario -1: Distributor replaces part(s) by using his stock or purchases from third party, and charges manufacturer for the same by issuing a tax invoice: Distributor is liable to pay GST on supply made to manufacturer, and Manufacturer is entitled to avail ITC on the same Distributor is not required to reverse ITC in this respect   Scenario -2: Distributor raises a requisition to the manufacturer for the part(s) to be replaced and manufacturer provides the said part(s) GST is not payable by manufacturer, for replacement to be undertaken during warranty period, without charging any separate consideration from customer Further, reversal of ITC is not required in the hands of the manufacturer in respect of part(s) replaced by distributor under warranty.   Scenario-3: Distributor replaces part(s) out of the supply already received by him from the manufacturer and manufacturer issues a credit note in respect of such replaced parts Where manufacturer issues a credit note in respect of replaced parts, subject to Section 34(2) of CGST Act (time limit to issue a GST credit note), tax liability may be adjusted by the manufacturer – subject to the condition that the distributor has reversed the ITC availed against the parts so replaced.   ►    Where distributor provides repair services in addition to replacement of part(s), on behalf of manufacturer, and charges manufacturer for such repair, either by way of issuing a tax invoice or debit note   GST shall be payable by distributor on supply made to manufacturer; ITC shall be available to manufacturer in respect of such supply   ►    Implications on cases where Extended Warranty is offered by Manufacturer   Customer enters in to an agreement of extended warranty with the manufacturer at the time of original supply Consideration for the extend warranty becomes part of the value of composite supply (principal supply being supply of goods) and GST would be payable on the same   Customer enters into an agreement of extended warranty at any time after the original supply  This would be treated as a separate contract and GST would be payable by the service provider (either manufacturer or the distributor or any third party) depending on the nature of the contract (i.e. whether the extended warranty is only for goods or for services or for composite supply involving goods and services)
Circular No 196/08/2023-GST dated 17 July 2023	Clarifications regarding taxability of share capital held in subsidiary Company by the parent Company   ►    Securities are neither considered as goods nor services in terms of definition of goods and services under CGST Act.     ►    Further, securities include ‘shares’ as per definition of securities under Securities Contracts (Regulation) Act, 1956.   ►    For a transaction/activity to be treated as supply of services, there must be a supply as defined under section 7 under CGST Act.   ►    Solely on the basis that there is exists an entry in SAC schedule, it cannot be said that a service is being provided unless there is a supply of services by the holding company to the subsidiary company.   Accordingly, it has been clarified that the activity of holding of shares of subsidiary company by the holding company per se cannot be treated as a supply of services by a holding company to the said subsidiary company, and cannot be taxed under GST.
Circular No 197/09/2023-GST dated 17 July 2023	►    Refund of accumulated ITC to be allowed basis details available in Form GSTR 2B   Considering that ITC availment has been linked with Form GSTR 2B w.e.f. 1 January 2022, it has been clarified that refund of accumulated ITC u/s 54(3) shall be restricted to invoices reflecting in GSTR 2B (as against GSTR 2A presently) of the applicant for the said tax period or any previous tax periods on which ITC is available. Relevant paras in the previous circulars relating to refund also stands modified to this extent.   This clarification shall be applicable for the refund claims for the tax period of January 2022 onwards, and in case where refunds have been granted prior to issuance of this circular and basis extant guidelines, such cases shall not be re-opened
	►    Modification in the undertaking required at the time of refund application and submission of other documents   Reference of compliance to Section 42(2) of the CGST Act (concept of matching of credits), mentioned in the current undertaking format (furnished electronically by the applicant), in relation to paying back the refund amount along with interest on account of non-compliance to the said provision, has been updated to include compliance with requirement mentioned in provision of Section 16(2)(c)   Further, requirement to additionally upload copy of GSTR 2A and self-certified copies of invoices not available in GSTR-2A, along with refund application, has also been dispensed off
	►    Clarification in respect of calculation of ‘Adjusted Total Turnover’   It has been clarified that the “value of export goods”, to be included while calculating “adjusted total turnover” in the formula prescribed under rule 89(4) of the CGST Rules, 2017, shall be calculated as lower of FOB value or value declared in tax invoice (i.e., same as being determined as per the Explanation inserted in the said sub-rule)   The above clarification is issued in order to align the computation of adjusted total turnover, in light of the above explanation
	►    Refund of tax and interest (on subsequent export) voluntarily paid due to failure to export goods or realise proceeds within the prescribed time limits   It may be recalled that the exporter is liable to pay tax and applicable interest within 15 days from timelines stipulated in Rule 96A, in case where: o    Goods have not been exported out of India within three months from the date of invoice (or such time as may be extended by Commissioner); o    Payment in foreign currency has not been realised within one year (or such time as may be extended by Commissioner) from the date of invoice, in case of export of services.   Vide the current circular, it has been clarified that, on subsequent compliance to the aforesaid requirement (i.e. where the goods have been exported or payment against export of services has been realised), the exporter is entitled to claim refund of such tax paid in addition to refund of unutilized ITC on account of exports effected by it.  However, refund of interest paid shall not be permitted.   Currently, refund application in such scenario may be filed under “Any other” category, till time the facility to claim such refund under the category “Excess payment of tax” is made available on the portal.
Circular No 198/10/2023-GST dated 17 July 2023	Applicability of E- Invoice for supplies made by registered person to Government Departments or establishments/ Government agencies/ local authorities/ PSUs registered solely for deduction of tax at source as per section 51 of the CGST Act, 2017   ►    Government Departments or establishments/ Government agencies/ local authorities/ PSUs, which are required to deduct tax at source as per section 51 of the CGST/SGST Acts, are liable for compulsory registration as per section 24(vi) of the CGST Act, 2017   ►    It has been clarified that the registered person, whose turnover exceeds the prescribed threshold for generation of e-invoicing, is required to generate IRN and comply with e-invoices rules, for supplies made to such Government Departments or establishments/ Government agencies/ local authorities/ PSUs, etc under rule 48(4) of the CGST Rules 2017
Circular No 199/11/2023-GST dated 17 July 2023	Clarification regarding taxability of services between distinct persons (offices of the same entity)   1.       In respect of common input services procured by Head Office (HO) but attributable to HO and/ or Branch Office(s) (BOs), following are the clarifications provided   ►   Whether HO can avail ITC in respect of such common services? – Yes. HOs can avail the full ITC with an option to distribute the ITC by following Input Service Distribution (ISD) mechanism.   ►   Whether is it mandatory for HO to follow ISD mechanism for distribution of ITC? – No. As per the present provisions of the GST law, the ISD is not mandatory. However, if opted, HO is mandatorily required to get an ISD registration.   ►   Whether HO can issue tax invoice to BOs? – Yes. HO can also issue tax invoices to BOs in respect of such common input services   ►   Whether BOs can then avail ITC? – Yes. BOs can avail ITC on the said invoices issued by HO subject to the relevant conditions/ restrictions for availing the ITC   The distribution of ITC through ISD/ the issuance of tax invoice from HO to BOs can only be made if the said input services are attributable to the said BO(s) or have actually been provided to the said BO(s).   2.       In respect of other services provided by HO on their own to branch offices, following are the clarifications provided   The value of supplies between distinct persons shall be the Open Market Value (OMV). However, the value declared in the invoice shall be deemed to be the OMV if recipient is eligible for full ITC.   ►   Whether HO is mandatorily required to issue invoice to BOs? – No. It is not mandatory to issue the invoice   ►   Treatment in case the HO is not issuing tax invoices where full ITC is available to BOs - The value may be deemed to be declared as Nil by HO and the same shall be deemed as OMV   ►   If HO issues tax invoice to BOs, whether the cost of all components including salary cost of HO employees involved in providing the said services has to be included in the computation of value of services – The value declared in the invoice shall be deemed to be the OMV irrespective of the fact of inclusion/ non-inclusion of certain costs   ►   Where full ITC is not available to BOs, whether the cost of salary of employees of the HO involved in providing said services to the BOs is mandatorily required to be included while computing the taxable value of the said supply? – No. It is not mandatory to include the salary costs of HO employees while computing the taxable value even in these cases

Highlights from the 50th GST Council Meeting

● 28% GST on full face value for online gaming, casinos and horse racing to be
implemented after a GST law amendment.
● GST rates are regularised for five items: Trauma Panthera Implantation and raw
as well as kala cotton, for instance, are items clarified as taxable by
regularisation for the past periods. It means those who have not paid GST in the
past for these items may not be recovered for the shortfall.
● GST rate reduced on the following goods: Uncooked/unfried food pallets from
18% to 5%, fish and soluble paste from 18% to 5%, Imitation zari threads from
12% to 5% and LD slag from 18% to 5%.
● Bulk sales of chewing tobacco will be taxed under the pre-RSP structure.
● Exemptions are provided for cancer-related drugs, medicines for rare diseases
and food products that have special medical purposes.
● GoM recommended establishing GST appellate tribunals in various locations of
states/UT.
● Compensation has been released for States that have submitted the AG
certifications. A few states which have not submitted will get the pending
compensation once they submit the same.
● The GST law will be aligned with the New trade policy by the Commerce Ministry

Bombay HC relied upon foreign country tax documents.

  

The decision of Bombay High Court in the case of Commissioner of Income-tax (IT)-2 v. Citicorp Investment Bank (Singapore) Ltd. [2023] 151 taxmann.com 501 (Bombay)

TCS W.E.F 01.10.2023.

 

Note on Amendment to TCS Provision vide Circular No 10/2023 dated 30-Jun-2023

The Central Board of Direct Taxes(“CBDT”) has issued Circular No. 10/2023 dated 30-Jun-2023 in order to remove difficulty in implementation of changes relating to Tax Collection at Source (TCS) on Liberalized Remittance Scheme (“LRS”) and on purchase of overseas tour program package(“OTPP”) has provided the following clarification and relief:

Direct TAX CASE LAW - JULY 2023

 

§  Bangalore ITAT in the recent judgement held that Compulsorily Convertible Debentures are not in the nature of Equity and hence, interest till the date of conversion should be allowed as deduction.  

CESTAT upholds levy of service tax on payments to employees seconded from foreign affiliates

 This Tax Alert summarizes a recent ruling of the Customs, Excise and Service Tax Appellate Tribunal, Chennai (CESTAT). The issue involved was whether the salary and other benefits paid to the employees seconded from the foreign affiliate can be considered towards receipt of “manpower recruitment or supply agency” services by the assessee.

The key observations of the CESTAT in this regard are as follows:

Advisory on Online Compliance Pertaining to Liability / Difference Appearing in R1 – R3B (DRC-01B)

 Government has issued advisory in relation to online compliance pertaining to liability / difference appearing in GSTR 1 vis-à-vis GSTR 3B.

 

Ø  GSTN has developed a functionality where system will verify the variance in liability declared in GSTR 1 and the liability paid in GSTR 3B for each return period.

 

Ø  In case liability declared in GSTR 1 exceeds liability paid in GSTR 3B by a predefined limit, an intimation will be sent to tax payer in form DRC-01B Part A through email and SMS.

 

Ø  On receipt of intimation in form DRC-01B Part A, the tax payer needs to file online reply in form DRC-01B Part B.

 

Ø  If the tax payer does not file reply to for form DRC-01B Part A for previous tax period, then the tax payer will not be able to file GSTR 1 for subsequent tax period.

 

Ø  Tax payer can also check the intimation on GST portal - Services > Returns > Return Compliance > Liability Mismatch DRC-01B.

AAR holds ITC reversal not required on commercial credit note received towards post-sale discount

 This Tax Alert summarizes a recent ruling ^[1] of the Andhra Pradesh Authority for Advance Ruling (AAR). The issue involved was whether a recipient is required to proportionately reverse the input tax credit (ITC) to the extent of commercial credit note issued by the supplier towards post-sale discount.

Capital gain Taxation.

 Period of Holding / Classification of capital Asset:

	Short Term Capital Asset	Long term Capital Asset
General Criteria	An asset held for a period of 36 months or less is a short-term capital asset.	An asset held for a period of 36 months or less is a short-term capital asset.
Immovable Property : Land, Building and House property, Unlisted shares of a company	An asset held for a period of 24 months or less is a short-term capital asset.	An asset held for a period of 24 months or more is a short-term capital asset.
Listed Equity or preference shares	An asset held for a period of 12 months or less is a short-term capital asset.	An asset held for a period of 12 months or more is a short-term capital asset.
Listed Securities (like debentures, bonds, govt securities etc.)	An asset held for a period of 12 months or less is a short-term capital asset.	An asset held for a period of 12 months or more is a short-term capital asset.
Units of UTI, whether quoted or not	An asset held for a period of 12 months or less is a short-term capital asset.	An asset held for a period of 12 months or more is a short-term capital asset.
Units of equity oriented mutual fund, whether quoted or not	An asset held for a period of 12 months or less is a short-term capital asset.	An asset held for a period of 12 months or more is a short-term capital asset.
Zero coupon bonds, whether quoted or not	An asset held for a period of 12 months or less is a short-term capital asset.	An asset held for a period of 12 months or more is a short-term capital asset.
Specified mutual funds	Acquired April 1, 2023 after irrespective of holding period  is short term	NA
Market Linked debentures(MLD)	Irrespective of holding period  is short term	NA

   

Understand TCS on foreign remittances.

1)    TCS on foreign remittances is applicable only when foreign exchange is remitted abroad under the LRS scheme. 

RECENT JUDGEMENTS –IN DIRECT TAX

q  In the tax regime, generally, the tax department rejected the unutilized credit on the ground the same has not been reflected in the return. Means the Department has allowed the credit only when the credit has been reflected in the return. Credit reflected in the books of account has no more relevance in the eyes of department. Henceforth, to overcome this situation, the Hon'ble CESTAT Mumbai Bench in the case of Wardurg Pincus pronounced the wonderful judgment wherein the court has allowed the refund of unutilized cenvat credit which has not been reflected in the return. Meaning thereby, books of account has to be maintained properly in terms of the provision of law so that the unutilized credit has to be claimed

RECENT JUDGEMENTS –DIRECT TAX

 DIRECT TAX

q  ITAT Bangalore Holds Expenditure Incurred By Flipkart Towards ESOP Is Eligible For Deduction Under S. 37 Of ITA. Further, Mumbai ITAT in the case of Uniliver India Exports Limited deleted the additions made towards ESOP

TAX NEWS

 

DIRECT TAX

q  Form 10-IEA to be fill before filing of return of income when assesee opting for old tax regime and no form to be fill in case assesee opted for new tax regime.

CBIC issues guidelines for processing of applications for registration under GST

 This Tax Alert summarizes the recent Instruction issued by Central Board of Indirect Taxes and Customs (CBIC) prescribing guidelines for processing of applications for registration under Goods and Services Tax (GST).

 It was observed that fake registrations under GST were obtained in certain cases to defraud the Government exchequer. Vide Instruction No. 01/2023–GST, CBIC had issued guidelines for field verifications of the place of business in the form of a Special All-India Drive against fake registrations.   

In view of the above, CBIC has now issued guidelines to strengthen the process of scrutiny and verification of applications for registration. The procedure inter alia includes:

• Close scrutiny of details of the places of business and the corresponding documents uploaded to verify completeness and correctness of such address.
• Special attention to be provided to the cases where “High” risk rating has been assigned to an application by Directorate General of Analytics and Risk Management based on data analytics and risk parameters.
• Where the applicant has either failed to undergo authentication of Aadhaar number or has not opted for the same, the proper officer shall initiate the process for physical verification of the place of business.
• The proper officer must ensure that the entire process relating to registration is completed within the prescribed timeline and no application is approved on deemed basis for want of timely action on the part of tax officers.
• In case registration is granted in specified cases without physical verification of the place of business, the jurisdictional Commissionerate shall conduct such verification of the place within 15 days of registration.

Comments

• CBIC has provided a clear and comprehensive framework for verification of applications for GST registration.

• Persons seeking new registration under GST may need to ensure that all the parameters laid down by CBIC in terms of proper documentation and other related compliance, particularly, relating to the place of business, are fulfilled.  

Budget 2023 refresher.

 Budget 2023 refresher.

The budget 2023 has been announced on February 1, 2023, and below is the summary of important amendments to refresh your knowledge.

GST@6

The Goods and Services Tax (GST) has been in effect for almost six years. The original concept of input credit, which involved matching invoices, has been largely replaced by Form 2B. This has created a significant burden for taxpayers, who must now reconcile their records and follow up with non-compliant vendors. Additionally, taxpayers are constantly being surprised by new notifications and circulars. While there have been some positive developments, such as the introduction of e-invoicing, there are still a number of unresolved issues. A summary of some of these issues, along with suggestions for how they could be addressed, is provided below.