This is to update that Ministry of Finance has recently issued various circulars pursuant to the recommendations/ proposals made in the 53rd GST council meeting.
We have
summarized hereinbelow the clarifications issued vide these circulars for your
quick reference.
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Circulars |
Clarifications
Provided |
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Circular
No. 210/04/2024-GST dated June 26, 2024 |
Clarifications
on valuation of supply of import of services by a related person where
recipient is eligible for full input tax credit (ITC)
► As a background,
Circular No. 199/11/2023-GST dated 17.07.2023 in respect of supplies of
services between distinct persons in cases where full ITC is available to the
recipient was issued to clarify that where no invoice was raised, the value
of supply shall be deemed to be NIL. Representations were received to treat
import of services from related parties on par with supplies between distinct
persons as well.
► The following has
been clarified vide the Circular:
§ As per second
proviso to Rule 28 of the CGST Rules, 2017, when full ITC is available to the
recipient, the value declared in the invoice shall be deemed to be the open
market value. The second proviso to Rule 28, is also applicable to the import
of services by a registered person in India from a related person located
outside India. The tax is required to be paid by the registered person in
India under reverse charge mechanism. In such cases, the registered person in
India is required to issue self-invoice and pay tax under RCM.
§ Accordingly, the
invoice value of such services shall be deemed as their open market value
where full ITC is available to the registered person. Further, in cases where
no invoice is issued for the services supplied by foreign affiliates, the
value can be deemed as nil, considering it as the open market value.
In
this regard, it is clarified that Circular No. 199/11/2023-GST dated
17.07.2023 in respect of supplies of services between distinct persons in
cases where full ITC is available to the recipient, is equally applicable in
respect of import of services between related persons. |
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Circular
No 211/5/2024-GST dated 26 June 2024 |
Clarification
on time limit under section 16(4) in respect of RCM supplies received from
unregistered persons
► According to
Section 16(2)(a) of the CGST Act, a registered person can only claim ITC on
the basis of prescribed documents. For supplies received from
unregistered suppliers on which tax is payable under reverse charge, the
recipient must issue an invoice (‘self-invoice’) and the said invoice shall
be considered as the prescribed document for availing ITC.
► Section 16(4) of
the CGST Act sets the time limit to claim ITC (due date of filing returns for
September or 30th November of the subsequent financial year).
►
The circular clarifies that in case of self-invoice
issued for RCM supplies from unregistered suppliers, the last date to claim
ITC as per Section 16(4) shall be relevant to the financial year in which the
recipient issues the self-invoice as per section 31(3)(f) of the CGST Act and
not the financial year in which the supply is received. If the invoice
is issued after the time of supply, the recipient must pay interest on the
delayed tax payment and may be subject to penalties under Section 122 of the
CGST Act.
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Circular
No 212/6/2024-GST dated 26 June 2024 |
Clarification
of compliance of conditions of section 15(3)(b)(ii) – Reversal of credit by
recipient in respect of post-sale discount
►
One of the conditions laid by Section 15(3)(b) to
reduce the value of discount from the value of outward supply is that the
recipient must reverse the relevant ITC on the discounts given by the
supplier. Due to the lack of system functionality on the common
portal to track such reversals by the recipient, reduction in such value was
disputed by the Authorities.
► Vide the said
Circular, it is clarified that till the time the functionality to track these
reversals are developed, following mechanism may be followed to prove reversal
at recipient’s end:
§ Where the tax
amount attributable to the discount exceeds INR 5 lakhs in a financial year,
suppliers can obtain a certificate from the recipient issued by a Chartered Accountant
(CA) or Cost Accountant (CMA) certifying the proportionate reversal of ITC.
The certificate should include details of the credit notes, relevant
invoices, and the amount of ITC reversed, along with the document through
which the reversal was made. Certificates must contain a Unique Document
Identification Number (UDIN).
§ Further, for
discounts involving tax amounts not exceeding INR 5 lakhs in a financial
year, suppliers may accept an undertaking or certificate from the recipient instead
of a CA/CMA certificate.
►
The aforesaid documents would be considered sufficient
evidence for compliance with section 15(3)(b)(ii) of the CGST Act and must be
produced during tax proceedings if required.
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Circular
No 213/7/2024-GST dated 26 June 2024 |
Taxability
of ESOP/ESPP/RSU provided by a company to its employees through its overseas
holding company
► An Indian company
may offer ESOP/ ESPP to its employees as per terms of employment and the
foreign holding company of such Indian Company may issue such shares listed on
foreign stock exchange to the employees of the Indian subsidiary Company. The
Indian subsidiary Company reimburses the cost of such shares to the foreign
holding Company on cost-to-cost basis through an actual remittance or through
an equity transfer as prescribed by the relevant Indian Accounting Standard.
► GST authorities in
certain jurisdictions have demanded tax to be paid under reverse charge
mechanism by treating such reimbursement costs incurred by Indian Company as
import of services.
► The Circular hereby
clarifies that since shares/ securities under the GST law are considered
neither goods nor services in terms of definitions of definition of “goods” under
clause (52) of section 2 of CGST Act and in terms of definition of “services”
under clause (102) of the said section, purchase and sale of securities/
shares in itself is neither a supply of goods nor supply of services and
hence is not liable to GST under the Act.
► Further, the
transaction can be said to be falling within the scope of consideration paid
by an employer to the employee in the course of employment and hence, cannot be
treated as supply of goods or services as per Schedule III to CGST Act
► However, it may be
noted that if the foreign holding Company charges any additional amount over
and above the cost of securities/shares is charged by the foreign holding
company from the domestic subsidiary company, by whatever name called, GST
would be leviable on such additional amount charged as consideration for the
supply of services of facilitating/ arranging the transaction in securities/
shares and GST shall be payable by the Indian company on reverse charge basis
for import of services.
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Circular
No 216/10/2024-GST dated 26 June 2024 |
Clarification
in respect of GST liability and input tax credit (ITC) availability in cases
involving warranty/ extended warranty, in furtherance to Circular No.
195/07/2023- GST dated 17.07.2023
► As background,
Circular No. 195/07/2023-GST dated 17.07.2023 clarified GST liability as well
as liability to reverse ITC, only in cases involving replacement of 'parts' and
not if goods as such are replaced under warranty. Accordingly,
representations were made to also issue a clarification in respect of cases
where the goods as such are replaced under warranty.
► Accordingly, the
instant Circular No 216/10/2024-GST dated 26 June 2024 is issued to clarify
the following:
1.
In respect of cases where goods as such or parts are
replaced under warranty without any consideration from the customer,
following are the clarifications provided:
§ Whether GST
would be payable on such replacement of parts or supply of repair services as
part of warranty? – No. The value of original supply of goods includes the
likely cost of replacement or repair services, on which tax would have been
already paid. However, if any additional consideration is charged by the
manufacturer from the customer, either for replacement of any part or for any
service, then GST will be payable on such supply with respect to such
additional consideration.
§ Whether
manufacturer is required to reverse the ITC? – No. The value of
original supply of goods includes the likely cost of replacement or repair
services and hence, the same cannot be considered as exempt supply.
Effectively, this
circular modifies the earlier circular to the extent wherever, ‘any part,’
‘parts’ and ‘part(s)’ has been mentioned in Para 2 of Circular No.
195/07/2023-GST dated 17.07.2023, the same may be read as ‘goods or its
parts, as the case may be’
2.
In respect of cases where the distributor replaces the
parts/ goods to the customer as part of warranty out of his own stock on
behalf of the manufacturer and subsequently gets replenishment of the said
parts/ goods from the manufacturer; No GST is due on such replenishments
neither any ITC reversal is required.
3.
Nature of supply of extended warranty, at the time of
original supply of goods, as a separate supply from supply of goods, if the supply
of extended warranty is made by a person different from the supplier of the
goods; supply of extended warranty will be treated as a separate
supply from the original supply of goods and will be taxable as supply of
services.
4.
Nature of supply of extended warranty, made after
original supply of goods would be considered as a supply of service separate
from the original supply of goods and the supplier shall be liable to discharge
GST liability on such supply of services
5.
If a customer enters into an agreement of extended
warranty with the supplier of the goods at the time of original supply,
then the consideration for such extended warranty becomes part of the value
of the composite supply, the principal supply being the supply of goods, and
GST would be payable accordingly |
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Circular
No 218/6/2024-GST dated 26 June 2024 |
Clarification
regarding taxability of the transaction of providing loan by an overseas
affiliate to its Indian affiliate or by a person to a related person
► The Circular
clarifies that services by way of extending deposits, loans, or advances
where the consideration is only in the form of interest or discount
(excluding credit card interest) provided by one related party to another
(whether overseas or domestic related parties) are exempt from GST as per
Notification No. 12/2017-Central Tax (Rate). This means that if the
consideration for granting loans, credit, or advances is in the form of
interest or discount, such services are not taxable under GST.
► However, wherever
any fee in the nature of processing fee/ administrative charges/ service
fee/loan granting charges etc. is charged, in addition to the consideration by
way of interest or discount, the same may be considered to be the
consideration for the supply of services of processing/ facilitating/
administering of the loan, which will be liable to GST as supply of services
by the lender to the related person availing the loan.
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Circular
No 209/3/2024-GST dated 26 June 2024 |
Clarification
on the provisions of clause (ca) of Section 10(1) of the Integrated Goods and
Service Tax Act, 2017 relating to place of supply of goods to unregistered persons
► Section 10(1)(ca)
of IGST Act is a non-obstante clause which provides that here the supply of
goods is made to an unregistered person, the place of supply would be: § The location as per
the address of the said person recorded in the invoice; or § The location of the
supplier where the address of the said person is not recorded in the invoice.
► Clarifications were
sought to determine the place of supply in case of supply of goods made to an
unregistered person where billing address is different from the address of
delivery of goods, especially in the context of supply being made through
e-commerce platforms
► The Circular
clarifies that in such cases the place of supply of goods in accordance with
the provisions of clause (ca) of sub-section (1) of section 10 of IGST Act, shall
be the address of delivery of goods recorded on the invoice. Also, in
such cases involving supply of goods to an unregistered person, where the
billing address and delivery address are different, the supplier may record
the delivery address as the address of the recipient on the invoice for the
purpose of determination of place of supply of the said supply of goods.
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Circular
No. 207/1/2024 – GST dated 26 June 2024 |
Clarifications
on fixing monetary limits for filing appeals or applications by the
department before GSTAT, High Courts and Supreme Court
► The circular aims
to minimize government litigation and optimize the use of judicial resources.
It sets forth new monetary thresholds for filing appeals in revenue matters.
It
discourages filing appeals in cases where established precedents from
Tribunals and High Courts have settled the matter and have not been contested
in the Supreme Court.
► According to the
circular, central tax officers are advised not to file appeals in cases where
the monetary amount involved is below Rs. 20 lakhs before the Goods and
Service Tax Appellate Tribunal (GSTAT), Rs. 1 crore for High Courts, and Rs.
2 crores for the Supreme Court. While determining whether a case falls within
the said monetary limits or not, the following principles are to be
considered:
► It is important to
note that there are exceptions to these limits, such as cases involving
constitutional validity, significant matters of interpretation, or instances where
the Board deems it necessary to pursue for the sake of justice or revenue
interests.
► The circular also
clarifies that the decision of not to file an appeal based on these monetary
limits does not imply acceptance of the judgment in similar cases. Tax
officers are instructed to communicate this principle effectively and to mark
cases not pursued due to these thresholds to indicate non-acceptance,
ensuring that such non-filing does not set a precedent. |
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