Circulars issued by CBIC pursuant to 53rd GST Council Meeting

Pursuant to the 53^rd Goods and Service Tax Council meeting held on June 22, 2024, Central Board of Indirect Taxes and Customs (CBIC) has released a series of Circulars giving effect to the recommendations and proposals made by the Council.

• The monetary limits for filing appeal/application/special leave petition by the tax authorities have been prescribed as under:

• The Circular has also provided various principles for determining whether a case falls within the aforesaid monetary limit. It has been provided that where the dispute pertain to demand of tax (with or without penalty/interest), the aggregate amount of tax only will be considered; where dispute pertain to only interest or penalty or late fee, such amount of interest/penalty/late fee will be considered; where dispute pertain to demand of interest, penalty and/or late fee (without involving any tax amount), the aggregate of amount of interest, penalty and late fee will be considered and where the dispute pertains to erroneous refund, the amount of refund in dispute will be considered.
• In a common order disposing more than one appeal/demand notice, the monetary limit shall be applicable on the total amount of tax/interest/penalty/late fee and not on the amount involved in individual appeal or demand notice.
• It is further clarified that the aforesaid monetary limit will not be applicable in cases which involve matters relating to valuation, classification, refunds, place of supply, matters involving interpretation issue, where any provision/rules/regulation/order/notification/instruction/circular is held ultra-vires the Constitution of India/GST Acts.

• In pursuance of Notification No. 04/2024- Central Tax dated January 5, 2024, various issues pertaining to the special procedure to be followed by the manufacturers of specified commodities have been addressed.
• The Circular has primarily clarified the details to be provided in Form GST SRM-I which records the particulars qua registration and disposal of packing machines of pan masala and tobacco products. The Circular also clarifies that the procedure mentioned in aforesaid Notification is not applicable to the manufacturing units located in Special Economic Zones (SEZ).

In terms of Section 10(1)(ca) of IGST Act (introduced w.e.f. October 1, 2023), the place of supply (PoS) in case of supply of goods to unregistered persons was stipulated to be the location as per the address of the unregistered recipient recorded in the invoice and where such address is not recorded, the PoS will be the location of supplier.  It is now clarified that in cases where goods are supplied through e-commerce platforms wherein the billing address is different from the delivery address, the PoS will be the address of delivery of goods recorded in the invoice.

• In case of any import of service by a registered person in India from a related person located outside India without consideration, the value of service declared in the self-invoice issued in terms of Section 31(3)(f) of CGST Act, will be deemed to be the Open Market Value (OMV) provided that the registered person in India is eligible to full ITC in terms of second proviso to Rule 28(1) of CGST Rules.
• However, in case where self-invoicing is not undertaken by the registered person, the value of such services may be deemed to be declared as Nil which will be deemed to be the OMV in terms of second proviso to Rule 28(1) of CGST Rules.
• Accordingly, it is clarified that the clarification issued with respect to taxability of services between Head Office (HO) and Branch Office (BO) in Circular No. 199/11/2023-GST dated July 17, 2023 will also be applicable in respect of import of services between related persons.

• In case of supplies received from unregistered person where tax is payable under Reverse Charge Mechanism (RCM) by issuing self-invoice under Section 31(3)(f) of CGST Act, the time limit for availing ITC will be computed from the Financial Year in which such invoice is issued in terms of Section 16(4) of CGST Act.
• However, interest will be payable on delayed payment of tax in cases where the recipient issues the said invoice after the time of supply of the said supply.
• Also, in case of delayed issuance of invoice by the recipient, penalty may also be invoked under Section 122 of CGST Act.

In cases where post supply discounts are offered by suppliers through issuance of Tax Credit Notes (TCN), the said discount is allowed to be excluded from the value of taxable supply in terms of Section 15(3)(b)(ii) of CGST Act subject to the condition that ITC attributable to the said discount is reversed by the recipient. However, as presently there is no facility available to the supplier as well as the officers on common portal to verify whether ITC has been reversed by the recipient or not, it is clarified that:

• Till such functionality is made available on the common portal, CA/ CMA certificate obtained from the recipient certifying that the proportionate ITC in respect of such CN has been reversed will be considered as admissible evidence when produced by the supplier seeking the benefit of excluding post sale discount from the value of taxable supply.
• However, in cases where the amount of tax involved in discount given by the supplier through tax CN in a FY does not exceed INR 5,00,000, then instead of CA/CMA certificate, an undertaking/ certificate from the said recipient can be procured certifying that ITC attributable such discount has been reversed.

• Employee Stock Purchase Plan (ESPP) or Employee Stock Option Plan (ESOP) or Restricted Stock Unit (RSU) are benefits provided to employees as a mode of incentivization. Such benefits are in the nature of allocation of shares/securities as a part of the employment package.
• Transfer and allotment of ESPP/ ESOP/ RSU by the foreign holding company to the employees of domestic subsidiary are done in various manners. In this regard, it has been clarified that, GST will not be leviable on these transaction on account of the following reasons:

– As securities are not covered under the definition of goods or services provided under CGST Act, purchase or sale of shares/ securities will neither be considered as supply of goods nor supply of services.

– ESOP/ESPP/RSU is a part of remuneration of the employee and hence, in terms of Entry 1 to Schedule III of the CGST Act, the services will neither be treated as supply of goods nor as supply of services.

– Reimbursement of securities/shares by the Indian subsidiary on a cost-to-cost basis will neither be considered as goods nor as services.

• However, if any additional fee, markup or commission is charged, GST will be leviable under RCM treating such fee/ markup/commission as consideration towards supply of facilitating/ arranging transaction in securities/ share services.

• Clarifications were sought on the issue pertaining to the amount of insurance premium not includible in taxable value as per Rule 32(4) of the CGST Rules and whether such amount will be required to be treated as exempt supply/ non-taxable supply and whether ITC availed in respect of such amount will be required to be reversed.
• In this regard, it has been clarified that life insurance services are neither nil rated nor exempted. Hence, the portion of premium which is not included in taxable value as per provisions of Rule 32(4) of CGST Rules will not be considered as nil rated, exempted or non-taxable supply and thereby, ITC will not be required to be reversed in terms of Rule 42 or Rule 43 of CGST Rules.

• Clarifications were sought on whether GST is payable by insurance companies on salvage/wreckage value earmarked in the claim assessment of the damage caused to the motor vehicle. In this regard, it has been clarified that if the insurance claim is settled by deducting value of salvage/wreckage as per the terms of insurance contract, GST will not be applicable as there is no supply involved between the insurance company(ies) and the insured party.
• However, if claims are settled on full Insured Declared Value (“IDV”) without any deduction of wreckage/salvage, it is clarified that in such a scenario, insurance companies would be liable to GST on disposal/sale of the salvage.

Where goods ‘as such’ are replaced under Warranty

It was earlier clarified (vide the Circular No. 195/05/2023-GST dated, July 17, 2023) that no reversal of ITC is required in cases where manufacturer replaces parts or supply repair services as part of warranty considering the value of original supply of goods by the manufacturer to the customer included the likely cost of replacement of parts and/ or repair services to be incurred during the warranty period. It is now clarified that no reversal of ITC is required where goods “as such” are replaced under the warranty period.

Where the distributor replaces the parts/ goods under warranty out of his own stock and subsequently gets those replenished from the manufacturer, without charging any separate consideration

It has been clarified that no GST is payable on such replenishment of goods or parts. Further, no reversal of ITC is required to be made by the manufacturer in respect of goods or parts so replenished to the distributor wherein, the manufacturer provides the replaced goods or parts to the distributor through a “delivery challan”, without charging any separate consideration.

Nature of supply of Extended Warranty at the time or after the original supply of goods

Supply of extended warranty by different person at the time of original supply of goods

In the event, goods are supplied by dealer and extended warranty is supplied by an Original Equipment Manufacturer (OEM) or any third-party, the supply of such extended warranty and supply of goods will not be treated as “composite supply”. In such cases, the supply of an extended warranty will be treated as a separate supply of service distinct from the original supply of goods.

Supply of extended warranty after the original supply of goods

Supply of extended warranty will be treated as supply of services distinct from the original supply of goods.

• Under the reimbursement mode of settlement of claims, the field formations have been raising objections on availment of ITC by insurance companies in respect of repair invoices issued by non-network garages by contending that supply of repair service is made by the said garages to the insured and not to the insurance companies.
• In this regard, it has been clarified that irrespective of the fact that the payment of repair services to the garage is first made by the insured party, which is then reimbursed by the insurance company(ies) to the insured party, the ultimate liability to pay the approved claim cost of repair lies with the insurance company(ies) and thus, insurance company(ies) will be covered under the definition of “recipient”, and accordingly ITC will be available to such insurance companies.

Where invoice(s) issued by non-network garage includes an amount in excess of the approved claim cost

• Where separate invoices are issued – In the event, the garage issues two separate invoices i.e., first to the insurance company for approved claim cost and second to the customer for amount of repair expenses in excess of the approved claim cost, ITC will be available to the insurance company(ies) only on the first invoice subject to reimbursement of the said amount by insurance company(ies) to the customer.
• Where consolidated single invoice is issued – In the event, invoice for full amount of repair services is issued to the insurance company then, ITC will be restricted only to the extent of reimbursement of the approved claim cost by the insurance company(ies) to the insured party and not on the full invoice value.

Where invoice for repair expenses is not issued in the name of insurance company(ies)

• It is clarified that ITC on such invoice will not be available to insurance company(ies) since the conditions stipulated under Section 16 (a) and (aa) of CGST Act will not be fulfilled.

• On the issue whether there is any taxable supply involved in the activity of providing loans by an overseas affiliate to its Indian affiliate or between related persons in India, where the consideration is only by way of interest or discount and does not involve any processing fee/ administrative charges/ loan granting charges, etc, it has been clarified that supply of services of granting loans/ credit/ advances, in so far as the consideration is represented by way of interest or discount, is fully exempt under GST.
• Further, in cases of loans provided between related persons, the activity of “processing” such loan may not be required, and further no administrative cost per se be incurred in granting such a loan. Taking this into consideration, it is clarified that the concept of deemed supply of services between related persons as per Section 7(1)(c) of the CGST Act read with Entry 2 and 4 of Schedule I of CGST Act cannot be applied in such cases.
• However, in cases where any fees in the nature of processing fees/ administrative charges/ service fees/ loan granting charges, etc. are charged, over and above the interest or discount then, the same will be treated as consideration for supply of services of processing/ facilitating/ administering of the loan, which will be liable to GST.

It is clarified that ducts and manholes used in optical fiber cables (OFCs) network are covered under the definition of “plant and machinery” as they are used as part of the OFC network for making outward supply of transmission of telecommunication signals from one point to another. Also, ducts and manholes used in network of OFC have not been specifically excluded from the definition of “plant and machinery” in the Explanation to section 17 of CGST Act. Accordingly, it is clarified that ITC would be available qua GST paid on ducts and manholes used in network of OFC.

• Banks provide custodial services to Foreign Portfolio Investors (“FPIs”) wherein banks, as a custodian, primarily maintain account of the securities held by such FPIs. In this context, ambiguities were raised with respect to applicability of Section 13(8)(a) of the IGST Act for determination of PoS which deals with PoS for services provided by banks, financial institutions to its account holders.
• In this regard, it is clarified that custodial services provided by banks/financial institutions to FPIs will not be treated as services provided to the “account holder”. Therefore, said services will not be covered under Section 13(8)(a) of the IGST Act and accordingly, PoS for such services will be determined under Section 13(2) of the IGST Act.

• Hybrid Annuity Model (HAM) of concession agreements consists of construction of new highways as well as the Operation and Maintenance (O&M) of such highways. Accordingly, the payment terms for the construction portion as well as the O&M portion of the contract are provided in the agreement between National Highways Authority of India (NHAI) and the concessionaire. In this regard, doubts were raised with respect to determination of time of supply qua such agreement.
• In this regard, it is clarified that GST liability on the concessionaire under the HAM contract would be determined as per Section 13(2) and 31(5) of the CGST Act – which is as under:

– Invoices are issued on or before the specified date or the date of completion of the event specified in the contract – at the time of issuance of invoice, or receipt of payments, whichever is earlier

– Invoices are not issued on or before the specified date or the date of completion of the event specified in the contract – on the date of provision of the said service (i.e., the due date of payment as per the contract), or the date of receipt of the payment, whichever is earlier.

• It is also clarified that interest component payable by NHAI to the concessionaire along with instalments/annuity shall also be includible in the taxable value for the purpose of payment of GST on the said annuity/instalment as per Section 15(2)(d) of the CGST Act.

• Under the spectrum allocation model followed by Department of Telecommunication (DoT) under – Government of India (GoI), the bidder (i.e. the telecom operator) bids for securing the right to use spectrum offered by the GoI. Accordingly, the service provider is the GoI and service recipient is the bidder/ telecom operator. Consequently, GST is to be discharged on the supply of spectrum allocation services by the recipient of services on the value of licence fee and spectrum usage charges under RCM. This Circular clarifies the time of supply in respect of such payments made to the GoI in instalments.
• Section 31(5)(a) read with Section 2(33) of the CGST Act provides for the time of supply in case of continuous supply of services. In this regard, the Circular has clarified that, as the date of payment to be made by the telecom operator to DoT is ascertainable from the documents i.e., Notice Inviting Applications (NIA) and Frequency Assignment Letter (“FAL”), tax invoice will be required to be issued on or before such due date of payment and consequently, GST will be payable as and when the payments are due or made – whichever is earlier.
• It has also been clarified that the similar treatment regarding time of supply may apply in other cases also where natural resources are being allocated by GoI to the successful bidder for the right to use the said natural resource.

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