Analysis of 7 GST Circulars issued by CBIC on 06th July 2022

Inter-state supplies

• Correct information, place of supply-wise, of the inter-state supplies made to unregistered persons, composition taxable persons &  UIN  holders are required to be declared in Table  3.2 of FORM GSTR-3B even though the said supplies are already part of Table 3.1 of the said FORM for discharge of the applicable tax. The customer database is to be also corrected to capture the correct Place of supply and consequent correct reporting in GSTR 1 as well as GSTR 3B. The said information is required for the correct sharing of the Revenue based on the Consumption State indicated in such filings.

ITC

• Total ITC (eligible as well as ineligible), except the ineligible ITC on account of limitation (Sec. 16(4)) or Place of supply in other States, shall be reported in different fields of Table 4A of FORM GSTR-3B.
• The registered person will have to report reversal of ITC, which are absolute in nature and are not reclaimable, such as on account of rule 38 (reversal of credit by a banking company or a financial institution), rule 42 & 43 (reversal on account of supply of exempted goods or services) of the CGST Rules and ineligible ITC under section 17(5) of the CGST Act in Table 4 (B)(1).
• The registered person will have to report reversal of ITC, which are not permanent in nature and can be reclaimed in the future subject to fulfilment of specific conditions, such as on account of rule  37 of CGST Rules (non-payment of consideration to the supplier within 180 days), section16(2)(b) and section 16(2)(c) (non-payment of tax by the vendor) of the CGST Act in Table 4(B)(2). Such ITC may be reclaimed in Table 4(A)(5) on fulfilment of necessary conditions. Further, all such reclaimed ITC shall also be shown in Table 4(D)(1). Table 4(B)(2) may also be used by the registered person for reversal of any ITC availed in Table 4(A) in previous tax periods because of some inadvertent mistake.
• Therefore, the net ITC Available will be calculated in Table 4(C) which is as per the formula (4A – [4B(1) + 4B(2)]) and the same will be credited to the ECL of the registered person.
• As the details of ineligible ITC under section 17(5) are being provided in Table 4(B), no further details of such ineligible ITC will be required to be provided in Table 4(D)(1).
• ITC not available on account of the limitation of the time period as delineated in Sec. 16(4) of the CGST Act or where the recipient of an intra-State supply is located in a different State / UT than that of the place of supply, may be reported by the registered person in Table  4D(2). Such details are available in Table 4 of FORM GSTR-2B.
• The Circular also provides an illustration in respect of the manner of disclosure to be made in GSTR 3B.

Circular No. 171/03/2022-GST dt.06.07.2022

Situation 1 – ‘A’ issues an invoice to ‘B’ without any underlying supply (i.e. fake invoice)

• In absence of actual supply, no tax demands can be made from ‘A’. ‘A’ however shall be liable for penalty u/s 112(1)(ii) of the CGST Act, 2017 for committing an offence of issuing the invoice without actual supply.

Situation 2 – ‘A’ issues an invoice to ‘B’ without any underlying supply (i.e. fake invoice). ‘B’ avails the ITC based on such a fake invoice. ‘B’ further issues an invoice with actual supply and utilizes the ITC availed on the fake invoice for payment of legitimate dues on actual supplies.

• ‘B’ shall be liable for demand and recovery of the ITC availed on the fake invoice along with interest and penalty u/s 74 of the CGST Act, 2017. Since penalty has been imposed once, in view of Sec. 75(13) of the said Act, the penalty for the given act cannot again be imposed under any other provisions of law including Sec. 122.

Situation 3 – ‘A’ issues an invoice to ‘B’ without any underlying supply (i.e. fake invoice). ‘B’ also avails the ITC based on such a fake invoice and passes to ‘C’ by issuing an invoice without any underlying supply.

• No demand and recovery of either input tax credit wrongly/fraudulently availed by ‘B’ in such case or tax liability in respect of the said outward transaction by ‘B’ to ‘C’ is required to be made from ‘B’ under the provisions of section 73 or section 74 of CGST Act. However, in such cases, ‘B’ shall be liable for penal action both under section 122(1)((ii)  and section  122(1)(vii) of the CGST Act, for issuing invoices without any actual supply of goods and/or services as also for taking/utilizing input tax credit without actual receipt of goods and/or services.

Other aspects

• The fundamental principles that have been delineated in the above scenarios may be adopted to decide the nature of demand and penal action to be taken against a person for such unscrupulous activity.
• Any person who has retained the benefit of transactions specified under sub-section (1A) of section 122 of CGST Act, and at whose instance such transactions are conducted, shall also be liable for penal action under the provisions of the said sub-section.
• Prosecution provisions u/s 132 can also be invoked in such cases subject to the conditions specified in law as well as the facts and circumstances of the case.

Circular No. 172/04/2022-GST dt.06.07.2022

Deemed exports

• ITC restrictions u/s 17 of the CGST Act, 2017 shall not apply to the refunds claimed on deemed exports since such refunds are in the nature of the refund of the tax charged on such supplies. Circular No. 147/03/2021-GST dt. 12.03.2021 mandating claiming of such tax as ITC in the ECL for the purpose of debit along with the refund application is merely a procedural requirement for such refunds and not the claim of actual ITC in law.
• Further such ITC availed by the recipient of deemed export supply for claiming refund of tax paid on supplies regarded as deemed exports is not to be included in the “Net ITC” for computation of refund of unutilised ITC on account of zero-rated supplies under rule 89(4) or on account of the inverted rated structure under rule 89(5) of the CGST Rules, 2017.

Blocked ITC

• The proviso inserted after sub-clause (iii) of clause (b) of sub-section (5) of section 17 of the CGST Act vide CGST (Amendment) Act, 2018 and made applicable from 01.02.2019 providing that ITC in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force shall be applied to the whole of clause (b). Therefore ITC in respect of supplies such as food and beverages, outdoor catering, health services, life insurance and health insurance, etc. shall be available if the provision of such supplies to the employees is obligated on the employer under any law.
• Availment of ITC is not barred u/s 17(5)(b)(i) of the CGST Act in case of leasing, other than leasing of the specified motor vehicles, vessels and aircraft.

Perquisites to employees

• Perquisites provided by the employer to the employee in terms of the contractual agreement entered into between the employer and the employee, will not be subjected to GST when the same is provided in terms of the contract between the employer and employee.

Usage of the balance available in the Electronic credit ledger

• Any payment towards output tax, whether self-assessed in the return or payable as a consequence of any proceeding instituted under the provisions of GST Laws, can be made by utilization of the amount available in the electronic credit ledger of a registered person.
• In our view, the said clarification supports the view that the balance available in the electronic credit ledger can be used in making the payment of statutory pre-deposit in the context of appeals filed against the disputed dues if such disputed dues are in the nature of output tax. It can also be used in making the payment of statutory pre-deposit in the context of appeals filed against the disputed dues if such disputed dues are in the nature of input tax credits if such ITC has not been utilized since the law permits reversal of ITC before utilisation. In other words, the cash payment of the statutory pre-deposit shall be required if the disputed dues are in respect of utilized ITC.
• As output tax does not include tax payable under the reverse charge mechanism, implying thereby that the electronic credit ledger cannot be used for making payment of any tax which is payable under the reverse charge mechanism.
• Balance in the electronic credit ledger cannot be used for making payment of any interest, penalty, fees or any other amount payable under the said acts. Similarly, an electronic credit ledger cannot be used for payment of an erroneous refund sanctioned to the taxpayer, where such refund was sanctioned in cash.

Usage of the balance available in the Electronic cash ledger

• The amount available in the electronic cash ledger may be used for making any payment towards tax, interest, penalty, fees or any other amount payable under the provisions of the GST Laws.

Circular No. 173/05/2022-GST dt.06.07.2022

• Para 3.2 of Circular No. 135/05/2020-GST dated 31.03.2020 clarified that the refund of accumulated ITC u/s 54(3)(ii) of the CGST Act would not be applicable in cases where the input and the output supplies are the same. Hence the refunds were rejected even in the situation where the concerned supplier procures certain goods at the normal rate but supplies the same at the concessional rate (due to partial exemption) at the same point in time.
• Now it has been clarified that in cases where inputs and output goods are the same but the output supplies are made under a concessional notification due to which the rate of tax on output supplies is less than the rate of tax on inputs, the same shall be admissible for refund. This shall not apply to cases where the output supply is either Nil rated or fully exempted or where the supply of such goods or services is not notified by the Government for their exclusion from the refund of accumulated ITC.
• Hence only the case where the input and output are the same, though attracting different tax rates at different points in time, will not get covered. We shall submit that even the said clarification is contrary to the express language of Sec. 54(3)(ii) of the CGST Act, 2017 which does not provide for a one-to-one co-relation.

Circular No. 174/06/2022-GST dt.06.07.2022

In respect of the following categories of refund sanctioned erroneously, re-credit of the amount in the electronic credit ledger can be done through FORM GST PMT-03A, on deposit of such erroneous refund along with interest and penalty, wherever applicable, by the taxpayer:

• Refund of IGST obtained in contravention of sub-rule (10) of rule 96.
• Refund of unutilised ITC on account of export of goods/services without payment of tax.
• Refund of unutilised ITC on account of zero-rated supply of goods/services to SEZ developer/Unit without payment of tax.
• Refund of unutilised ITC due to inverted tax structure.

The procedure for re-credit shall be as under:

• The taxpayer shall deposit the amount of erroneous refund along with applicable interest and penalty, wherever applicable, through FORM GST DRC-03 by debit of the amount from the electronic cash ledger. While making the payment through FORM GST DRC-03, the taxpayer shall clearly mention the reason for making payment in the text box.
• Till the time an automated functionality for handling such cases is developed on the portal, the taxpayer shall make a written request, in the format enclosed to the said Circular as Annexure-A, to the jurisdictional proper officer to re-credit the amount equivalent to the amount of refund thus paid back through FORM GST DRC-03, to electronic credit ledger.
• The proper officer, on being satisfied that the full amount of erroneous refund along with applicable interest, as per the provisions of section 50 of the CGST Act, and penalty, wherever applicable, has been paid by the said registered person in FORM GST DRC-03 by way of debit in electronic cash ledger, he shall re-credit an amount in electronic credit ledger, equivalent to the amount of erroneous refund so deposited by the registered person, by passing an order in FORM GST PMT-03A, preferably within a period of 30 days from the date of receipt of the request for re-credit of erroneous refund amount so deposited or from the date of payment of the full amount of erroneous refund along with applicable interest, and penalty, wherever applicable, whichever is later.

Circular No. 175/07/2022-GST dt.06.07.2022

The procedure for filing of refund claim of the accumulated ITC pertaining to the export of electricity shall be as under:

• Till the time necessary changes are carried out on the portal, the applicant would be required to apply for a refund under “Any Other” category electronically in FORM GST RFD-01, on the portal. In the remark column of the application, the taxpayer would enter “Export of electricity- without payment of tax (accumulated ITC)”. At this stage, the applicant is not required to make any debit from the electronic credit ledger.
• The applicant would be required to furnish/upload the details contained in Statement 3B (and not in statement 3) of FORM GST RFD-01 (in pdf format), containing the number and date of the export invoices, details of energy exported, tariff per unit for export of electricity as per agreement.
• The applicant will also be required to upload a copy of the statement of scheduled energy for electricity exported by the Generation Plants (in the format attached as Annexure-I) issued as part of the Regional Energy Account by the Regional Power Committee Secretariat (“RPC”) under regulation 2 (1)(nnn) of the CERC (Indian Electricity Grid Code) Regulations, 2010, for the period for which refund has been claimed and the copy of the relevant agreement(s) detailing the tariff per unit for the electricity exported. The applicant will also give details of the calculation of the refund amount in Statement -3A of FORM GST RFD-01 by uploading the same in pdf format along with the refund application in FORM GST RFD-01.

Other aspects

• The relevant date shall be the last date of the month, in which the electricity has been exported as per the monthly Regional Energy Account (REA) issued by the Regional Power Committee Secretariat under regulation 2(1)(nnn) of the CERC (Indian Electricity Grid Code) Regulations, 2010.
• The eligible refund amount shall be determined based on the formula prescribed in Rule 89(4) of the CGST Rules, 2017. Turnover of export of electricity shall be calculated using the lower of the quantum of electricity exported mentioned on the statement of scheduled energy exported and that mentioned on the invoice issued on account of export of electricity.
• The proper officer shall calculate the admissible refund amount as per the formula provided under rule 89(4) and as per the clarification furnished above. Further, upon scrutiny of the application for completeness and eligibility, if the proper officer is satisfied that the whole or any part of the amount claimed is payable as the refund, he shall request the applicant, in writing, if required, to debit the said amount from the electronic credit ledger through FORM GST DRC-03. Once the proof of such debit is received by the proper officer, he shall proceed to issue the refund order in FORM GST RFD-06 and the payment order in FORM GST RFD-05.

Circular No. 176/08/2022-GST dt.06.07.2022

• Since the supplies from Duty-Free Shops (DFS) at the international terminal to outgoing international passengers are treated as exports by DFS and consequential refund benefit is available to them on such supplies under the normal provisions (Sec. 54(3) of the CGST Act, 2017 read with Rule 89(4)), the Rule 95A of the CGST Rules, 2017 that prescribed a special scheme has been omitted vide Notification No. 14/2022– Central Tax dt. 05.07.2022 from the inception of the said scheme (i.e. from 01.07.2019).
• Accordingly Circular No. 106/25/2019-GST dt. 29.06.2019 prescribing the conditions, manner and procedure for filing and processing of refund claims under the special scheme has been omitted retrospectively w.e.f. 01.07.2019.