CBIC Clarifications to Implement 52nd GST Council meeting Decisions

GST Council held its 52^nd meeting on 7^th October, 2023 at New Delhi and took wide ranging decisions including recommendations for conditions of appointment of Members and President of GST Appellate Tribunal. Its recommendations inter alia, include 18% tax on corporate guarantees, no GST on Extra Neutral Alcohol (ENA), reduction of tax on molasses and millet based flour, supplies to SEZ, automatic restoration of provisionally attached properties etc. On taxation of ENA, infact, Union of India has decided to cede the right to tax ENA when used for human consumption giving liberty to tax the same in light of Allahabad High Court judgment declaring the levy of UP-VAT on ENA as un-constitutional after 1^st July, 2017.

CBIC has issued various rate notifications (Notification Nos. 12 to 20, all dated 19.10.2023) to implement decisions of 52nd meeting of GST Council held on 7th October, 2023. These inter alia, include exemption to Governmental Authority for supply related to water supply, public health etc; railway services to be covered under forward charge, refund of accumulated credit on construction related services, 5% GST on Molasses and branded millet flour etc. Corresponding Notifications have also been issued under IGST / UTGST. CGST Rules, 2017 were amended vide Notification No. 52 dated 26.10.2023 for fourth time in 2023 to provide for valuation of corporate guarantees and changes in registration related forms. In integrated tax, refund has been allowed on supplies to SEZ developer or SEZ units.

CBIC has also issued Circular Nos. 202 to 206 to clarify on taxability of various issues emerging out of GST Council recommendations.  These mainly include taxability of personal and corporate guarantees, place of supply in case of select services, transportation, imitation zari thread, reimbursement of electricity charges, job work etc.  This article presents the summary of various clarifications issued by CBIC to clarify on various aspects of changes made in GST as a result of recommendations made by GST Council.   

Clarification on export of Services – Foreign Remittances

• CBIC has clarified on export of services under IGST Act, 2017 in relation to admissibility of export remittances received in special INR Vostro Account as per RBI norms.
• Such remittances are for the purpose of consideration of supply of services to qualify as export of services as per the provisions of section 2(6) of the IGST Act, 2017.
• Export of services has been defined under of section 2(6) of IGST Act. 2017. Accordingly, any supply of services needs to fulfill five conditions as stipulated for it to qualify as export of services.
• One of the conditions mentioned in Section 2(6) (iv) of the IGST Act is that the payment for such service has been received by the supplier of service in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India.
• The condition(s) in Section 2(6) (iv) of the IGST Act, 2017, can be considered to be fulfilled when the Indian exporters, undertaking exports of services, are paid the export proceeds in INR from the balances in the designated Special Vostro Account of the correspondent bank of the partner trading country
• It has been clarified that when the Indian exporters, undertaking export of services, are paid the export proceeds in INR from the Special Rupee Vostro Accounts of correspondent bank(s) of the partner trading country, opened by AD banks, the same shall be considered to be fulfilling the conditions of section 2 (6)(iv) of IGST Act, 2017, subject to the conditions/ restrictions mentioned in Foreign Trade Policy, 2023 & extant RBI Circulars

 (Source: Circular No. 202/14/2023-GST dated 27.10.2023) 

CBIC clarifications on various services

CBIC clarifications on place of supply- Goods Transportation

CBIC has clarified on determination of place of supply in case of supply of service of transportation of goods, including through mail and courier [Section 13(2), 13(9) of IGST Act, 2017.

• In cases where location of recipient of services is available, the place of supply of such services shall be the location of recipient of services and in cases where location of recipient of services is not available in the ordinary course of business, the place of supply shall be the location of supplier of services.
• The place of supply in case of service of transportation of goods by mail or courier will continue to be determined by the default rule under section 13(2) of IGST Act i.e. in cases where location of recipient of services is available, the place of supply of such services shall be the location of recipient of services and in cases where location of recipient of services is not available in the ordinary course of business, the place of supply shall be the location of supplier of services.
• Thus, the place of supply of services of transportation of goods, other than through mail and courier, in cases where location of supplier of services or location of recipient of services is outside India, will be determined by the default rule under section 13(2) and not as performance based services under sub-section (3) of section 13 of IGST Act.
• In cases where location of recipient of services is available, the place of supply of such services shall be the location of recipient of services and in cases where location of recipient of services is not available in the ordinary course of business, the place of supply shall be the location of supplier of services. 

CBIC clarifications on place of supply in Advertising

CBIC has clarified on determination of place of supply in case of supply of services in respect of advertising sector.

• For supply / sale of space / right to use space on hoarding or structure belonging to vendor for display of advertisement
  • To be treated as immovable property as it is embedded to earth.
  • To be governed by section 12(3)(a) of IGST Act.
  • Place of supply of service provided by way of supply of sale of space on hoarding/ structure for advertising or for grant of rights to use the hoarding/ structure for advertising would be the location where such hoarding/ structure is located.
• For advertising company availing services of vendors at specified locations where vendor is responsible for arranging hoardings and display
• Not to be governed by section 13(3)(a) of IGST Act.
• Vendor is in fact providing advertisement services by providing visibility to an advertising company’s advertisement for a specific period of time on his structure possessed/taken on rent by him at the specified location.
• Such services provided by the Vendor to advertising company are purely in the nature of advertisement services in respect of which Place of Supply shall be determined in terms of Section 12(2) of IGST Act.

CBIC clarifications on place of supply of Co-location services 

CBIC has clarified on determination of Place of supply in case of supply of the “co-location services”. Accordingly,

• Co-location is a data center facility in which a business/company can rent space for its own servers and other computing hardware along with various other bundled services related to Hosting and information technology (IT) infrastructure.
• Co-location services are in the nature of “Hosting and information technology (IT) infrastructure provisioning services. (S. No. 3 of Explanatory notes of SAC-998315).
• Supply of co-location services cannot be considered as the service of renting immovable property.
• The place of supply of the co-location services shall not be determined by the provisions of section 12(3)(a) of the IGST Act but shall be determined by the default provision under section 12(2) of the IGST Act i.e., location of recipient of co-location service.
• Where the agreement between the supplier and the recipient is restricted to providing physical space on rent along with basic infrastructure, without components of Hosting and IT Infrastructure Provisioning services and the further responsibility of upkeep, running, monitoring and surveillance, etc. of the servers and related hardware is of recipient of services only, then the said supply of services shall be considered as the supply of the service of renting of immovable property. In such case, place of supply will be determined as per section 12(3)(a) of IGST Act, 2017, i.e., location where immovable property is located.

(Source: Circular No. 203/15/2023-GST dated 27.10.2023)

CBIC clarification on taxability of Guarantees

• CBIC has clarified on taxability of personal guarantee and corporate guarantee and corporate guarantee on GST, i.e., personal guarantee and valuation of the activity of providing corporate guarantee by a related person to banks/financial institutions for another related person, as well as by a holding company in order to secure credit facilities for its subsidiary company.
• Such activities shall be treated as supply of services even when made without consideration. In terms of rule 28 of the CGST Rules, the taxable value of such supply of service shall be the open market value of such supply.
• When no consideration can be paid for the said transaction by the company to the director in any form, directly or indirectly, as per RBI mandate, there is no question of such supply/ transaction having any open market value. The open market value of the said transaction/ supply may be treated as zero and therefore, the taxable value of such supply may be treated as zero. In such a case, no tax is payable on such supply of service by the director to the company.
• Where director who had provided guarantee is no longer connected with management but his guarantee continues and is offered remuneration, the taxable value of such supply of service shall be the remuneration/ consideration provided to such a person/ guarantor by  the  company, directly or indirectly.
• In case of corporate guarantee to related persons, providing corporate guarantee by a holding company to the bank/financial institutions for securing credit facilities for its subsidiary company, even when made without any consideration, is also to be treated as a supply of service by holding company to the subsidiary company, being a related person.
• Taxable value will be determined as per rule 28(2) of CGST Rules but Rule 28(2) shall not apply in respect of the activity of providing personal guarantee by the Director to the  banks/ financial institutions for securing credit facilities for their companies  and  the same shall be valued in the manner provided in S. No. (a) above.                          

(Source: Circular No. 204/16/2023-GST dated 27.10.2023)

CBIC clarification on GST rate on Zari thread

• CBIC has issued a clarification on GST rate on imitation zari thread or yarn based on the recommendation of the GST Council in its 52nd meeting held on 7th October, 2023.
• Based on Council’s recommendation to reduce GST rate to 5% on imitation zari thread or yarn, S.No. 218AA had been inserted in Schedule I of Notification No. 1/2017- Central Tax (Rate) dated 28.6.2017.
• Imitation zari thread or yarn made from metallised polyester film/ plastic film falling under HS 5605 are covered by S.No. 218AA of Schedule I attracting 5% GST.
• However, no refund will be permitted on polyester film (metallised)/plastic film on account of inversion of tax rate and changes have been made in notification no. 5/2017- Central Tax (Rate) vide Notification no 20/223-Central Tax (Rate) dated 19.10.2023.

(Source: Circular No. 205/17/2023-GST dated 31.10.2023) 

CBIC clarification on GST on various services

 CBIC has clarified regarding applicability of GST on following services : 

(A) Whether ‘same line of business’ in case of passenger transport service and renting of motor vehicles includes leasing of motor vehicles without operators.

• Input services in the same line of business include transport of passengers (SAC 9964) or renting of motor vehicle with operator (SAC 9966) and not leasing of motor vehicles without operator (SAC 9973) which attracts GST and/or compensation cess at the same rate as supply of motor vehicles by way of sale. 

(B) Whether GST is applicable on reimbursement of electricity charges received by real estate companies, malls, airport operators etc. from their lessees/occupants.

• Whenever electricity is being supplied bundled with renting of immovable property and/or maintenance of premises, as the case may be, it forms a part of composite supply and shall be taxed accordingly.
• The principal supply is renting of immovable property and/or maintenance of premise, as the case may be, and the supply of electricity is an ancillary supply as the case may be.
• Even if electricity is billed separately, the supplies will constitute a composite supply and therefore, the rate of the principal supply i.e., GST rate on renting of immovable property and/or maintenance of premise, as the case may be, would be applicable.
• Where the electricity is supplied by the Real Estate Owners, Resident Welfare Associations (RWAs), Real Estate Developers etc., as a pure agent, it will not form part of value of their supply.
• Where they charge for electricity on actual basis that is, they charge the same amount for electricity from their lessees or occupants as charged by the State Electricity Boards or DISCOMs from them, they will be deemed to be acting as pure agent for this supply. 

(C) Whether job work for processing of “Barley” into “Malted Barley” attracts GST @ 5% as applicable to “job work in relation to food and food products” or 18% as applicable on “job work in relation to manufacture of alcoholic liquor for human consumption”.

• Irrespective of end-use, conversion of barley into malt amounts to job work in relation to food products.
• Job work services in relation to manufacture of malt are covered by the entry at S.No. 26 (i) (f) which covers “job work in relation to all food and food products falling under Chapters 1 to 22 of the customs tariff” irrespective of the end use of that malt and attracts 5% GST. 

(D) Whether District Mineral Foundations Trusts (DMFTs) set up by the State Governments are Governmental Authorities and thus eligible for the same exemptions from GST as available to any other Governmental Authority.

• DMFTs provide services related to drinking water supply, environment protection, health care facilities, education, welfare of women and children, supply of medical equipment etc.
• The services/supplies out of DMF fund are provided free of charge and no consideration is realized from the beneficiaries by DMF against such services.
• DMFT set up by the State Governments are Governmental Authorities and thus eligible for the same exemptions from GST as available to any other Governmental Authority.

(E) Whether supply of pure services and composite supplies by way of horticulture/horticulture works (where the value of goods constitutes not more than 25 per cent of the total value of supply) made to CPWD are eligible for exemption from GST under  No. 3 and 3A of Notification no 12/2017-CTR dated 28.06.2017.

• Maintenance of community assets, urban forestry, protection of the environment and promotion of ecological aspects are functions entrusted to Panchayats and Municipalities under Article 243Gand 243W read with S.No. 29 of 11th Schedule and S.No. 8 of 12th Schedule of the constitution.
• Supply of pure services and composite supplies by way of horticulture/horticulture works (where the value of goods constitutes not more than 25 per cent of the total value of supply) made to CPWD are eligible for exemption from GST under S.No. 3 and 3A of Notification no 12/2017-CTR dated 28.06.2017.

  (Source: Circular No. 206/18/2023-GST dated 31.10.2023)

Conclusion:

The CBIC’s clarifications and notifications play a vital role in ensuring that the decisions made by the GST Council are effectively implemented and understood. These clarifications address various aspects of GST, including valuation, place of supply, and taxability of different services. It is essential for businesses and taxpayers to stay informed about these changes to remain compliant with the evolving GST landscape. Consulting with tax professionals and experts can further aid in navigating these complex tax regulations.