Key decisions in 52nd GST Council Meeting and its impact

The 52^nd GST Council Meeting was held on 7 October 2023 with several important issues discussed and decisions recommended for the taxpayers. Below is a summary of key decisions taken by the GST Council for the taxpayers for easing the tax burden, removing difficulties in interpretation of law and provide amnesty scheme for past issues –

1. Amnesty Scheme for filing of appeals against demand orders where appeal could not be filed within the allowable time period: 

a. To allow filing of appeal against demand order created on or before 31^st March 2023 under Section 73 or Section 74 of the Central Goods and Services Tax Act, 2023 (‘GST Act’) wherein it could not be filed within time limit specified under Section 107 (Appeal section).

b. To also cover orders wherein appeal was rejected on the grounds of non-filing of appeal within the permissible time limit.

c. Time limit to file appeal will be till 31^st January 2024 subject to payment of 12.5% of the disputed tax amount as pre-deposit out of which atleast 2.5% of the disputed tax amount shall be paid through electronic cash ledger. 

Issue with the above amnesty – What about appeal cases which were disposed off due to time barred issue and recovery has already been made by the jurisdictional GST authorities? Will they be allowed to file appeal and the challenge the recovery already done?

Other point for consideration – As per amendment in GST Act, the Rule 108 of Central Goods and Services Tax Rules, 2017 (‘CGST Rules’) has been amended to allow for physical filing of appeal wherein the order copy (against which appeal is filed) is not available on GSTN portal. Hence, the taxpayers must not wait for upload of order copy on GSTN portal and ensure that appeal is filed within the time limit.

2. Taxability of personal guarantee by director to bank against credit / loan sanctioned to Company:

If no consideration, directly or indirectly, paid by Company to director for personal guarantee to bank, the open market value shall be treated as NIL and hence, no tax payable in respect of such supplies.

Point for consideration – This will put to rest the litigations around demand created by GST authorities in the past for levy of GST on such personal guarantee offered by banks. However, the question to be answered is what about taxpayers who have already discharged GST on such service.

3. Taxability of corporate guarantee by holding company to subsidiary companies:

a. Corporate guarantee by holding company to subsidiary companies to be made taxable under GST law.

b. New rule 28(2) to be inserted in CGST Rules for valuation of corporate guarantee as 1% of amount of guarantee offered or actual consideration, whichever is higher.

c. The 2^nd proviso to Rule 28 of the CGST Rules which provides that if the recipient is eligible for full ITC, any value declared on invoice shall be treated as open market value will not be applicable to corporate guarantee.

Points for consideration –

a. Whether the amendment be done to the Rules prospectively or retrospectively?

b. If done prospectively, whether GST is applicable on corporate guarantee offered before the amendment?

c. Before the insertion of this new valuation rule, whether the taxpayer can draw reference to 2^nd proviso to Rule 28 for valuation of corporate guarantee for the pre-amendment period?

d. Whether corporate guarantee can be still challenged as actionable claim and thus covered under Schedule III of the CGST Act?

4. Mandatory Input Service Distributor (‘ISD’) registration under GST:

ISD registration to be made mandatory prospectively under the GST law for distribution of ITC in respect of input services procured by Head Office from a third party for all branches or for certain branches.

Point for consideration – As a result of this amendment, even a company having only 2 GST registrations and procuring common third-party services will have to obtain GST registration. This will result in addition compliance burden on the taxpayers especially MSME taxpayers.

The Companies may ask the vendors to directly bill the services to respective GST registrations instead of the Head office. However, since the service has been rendered to the Company and not any specific location, distribution of billing between different GSTIN by the vendors will be a valuation challenge.

5. Other important changes recommended by GST Council:

a. Receipt of consideration in Special INR Vostro account (permitted by RBI) to be admissible as inward remittance in foreign currency for the purpose of definition of export of services.

b. Clarification on place of supply provisions with respect to advertising services and co-location services.

c. With effect from 1 January 2022, E-commerce operators shall be liable for payment of GST under Section 9(5) of the CGST Act in respect of bus transportation services rendered through their platform.

However, bus operators operating as companies shall be kept outside the purview of Section 9(5).

d. Recommendation to exempt supply of services of water supply, public health, sanitation conservancy, solid waste management and slum improvement and upgradation supplied to Governmental Authorities.

e. Extra Neutral Alcohol (ENA) used for manufacture of alcoholic liquor for human consumption will be kept outside GST.

f. Amendment in Rule 159(2) of CGST Rules to allow automatic restoration of provisionally attached property after expiry of 1 year from the date of order of attachment.

g. Reduce GST on molasses from 28% to 5%.

Conclusion: The 52nd GST Council Meeting introduced a series of significant changes with far-reaching implications for taxpayers and the GST framework. These decisions aim to simplify processes, reduce litigation, and enhance clarity. However, they also raise important questions about the retrospective application of amendments and their impact on prior transactions. Taxpayers should stay informed and adapt to these changes to ensure compliance and optimize their tax strategies.

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Disclaimer: The above article is based on the author’s understanding and view of the tax laws, tax rules, the relevant circulars, and notifications. Please refer to the latest law and consult the author before forming any opinion based on the information provided above as tax laws are subject to frequent changes. The author is not responsible for any issues arising because of opinion based on the above article without consultation. In any manner whatsoever, the views expressed in this article should not be construed as the views of the firm that the author is associated with. The author can be contacted at gauravmittal756@gmail.com.