Certain circulars have been issued by CBIC today on 03.08.2022 clarifying certain matters, some of which were discussed in the 47th GST Council Meeting held in Chandigarh. A brief summary of them all is as follows:

A. Circular No. 177/09/2022-TRU: Clarifications regarding applicable GST rates & exemptions on certain services–reg.

  • Rate of GST applicable on supply of ice-cream by ice-cream parlors during the period from 01.07.2017 to 05.10.2021 

It is clarified that past cases of payment of GST on supply of ice-cream by ice-cream parlors @ 5% without ITC shall be treated as fully GST paid to avoid unnecessary litigation. Since the decision is only to regularize the past practice, no refund of GST shall be allowed, if already paid at 18%.

  • Applicability of GST on application fee charged for entrance or the fee charged for issuance of eligibility certificate for admission or for issuance of migration certificate by educational institutions 

It is clarified that the amount or fee charged from prospective students for entrance or admission, or for issuance of eligibility certificate to them in the process of their entrance/admission as well as the fee charged for issuance of migration certificates by educational institutions to the leaving or ex-students is covered by exemption under Sl. No. 66 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. 

It is clarified that service by way of storage or warehousing of cotton in ginned and or baled form was covered under the above-mentioned entry and hence exempt.

It is clarified that exemption under Sl. No. 9B of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.  covers services associated with transit cargo both to and from Nepal and Bhutan.

  • Applicability of GST on sanitation and conservancy services supplied to Army and other Central and State Government departments 

It is clarified that if the above-mentioned services are procured by Indian Army or any other Government Ministry/Department which does not perform any functions listed in the 11th and 12th Schedule to the Constitution, in the manner as a local authority does for the general public, the same are not eligible for exemption.

  • Whether the activity of selling of space for advertisement in souvenirs is eligible for concessional rate of 5%. 

It is clarified sale of space for advertisement in souvenir book is covered under serial number (i) of entry 21 of Notification No. 11/2017-Central Tax (Rate) and attracts GST @ 5% as ‘book’ has been defined in the Press and Registration of Books Act, 1867 in an inclusive manner with a wide ambit which would cover souvenir book also.

  • Taxability and applicable rate of GST on transport of minerals from mining pit head to railway siding, beneficiation plant etc., by vehicles deployed with driver for a specific duration of time. 

Such services are nothing but “rental services of transport vehicles with operator” which fall under heading 9966 and attract GST @ 18% under Sr. No. 10 part (iii) of Notification No. 11/2017-Central Tax (Rate) It is clarified that such renting of trucks and other freight vehicles with driver for a period of time is a service of renting of transport vehicles with operator falling under Heading 9966 and not service of transportation of goods by road. This being so, it is not eligible for exemption under Sl. No. 18 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 On such rental services of goods carriages where the cost of fuel is in included in the consideration charged from the recipient of service, GST rate has been reduced from 18% to 12% with effect from 18.07.2022.

  • Whether location charges or preferential location charges (PLC) collected in addition to the lease premium for long term lease of land constitute part of the lease premium or of upfront amount charged for long term lease of land and are eligible for the same tax treatment. 

It is clarified that location charges or preferential location charges (PLC) paid upfront in addition to the lease premium for long term lease of land constitute part of upfront amount charged for long term lease of land and are eligible for the same tax treatment, and thus eligible for exemption.

  • Applicability of GST on payment of honorarium to the Guest Anchors

It is clarified that supply of all goods & services are taxable unless exempt or declared as ‘neither a supply of goods nor a supply of service’. Services provided by the guest anchors in lieu of honorarium attract GST liability subject to registration requirement as per the provisions of the law.

  • Whether the additional toll fees collected in the form of higher toll charges from vehicles not having fastag is exempt from GST 

It is clarified that additional fee collected in the form of higher toll charges from vehicles not having Fastag is essentially payment of toll for allowing access to roads or bridges to such vehicles and may be given the same treatment as given to toll charges.

 

  • Applicability of GST on services in form of Assisted Reproductive Technology (ART)/ In vitro fertilization (IVF)

It is clarified that services by way of IVF are also covered under the definition of health care services and thus exempt.

  • Whether sale of land after levelling, laying down of drainage lines etc., is taxable under GST 

Land may be sold either as it is or after some development such as levelling, laying down of drainage lines, water lines, electricity lines, etc. It is clarified that sale of such developed land is also sale of land and accordingly does not attract GST.

  • Situations in which corporate recipients are liable to pay GST on renting of motor vehicles designed to carry passengers

It is clarified that where the body corporate hires the motor vehicle (for transport of employees etc.) for a period of time, during which the motor vehicle shall be at the disposal of the body corporate, the service would fall under Heading 9966, and the body corporate shall be liable to pay GST on the same under RCM.

However, where the body corporate avails the passenger transport service for specific journeys or voyages and does not take vehicle on rent for any particular period of time, the service would fall under Heading 9964 and the body corporate shall not be liable to pay GST on the same under RCM.

It is clarified that the said exemption would apply to passenger transportation services by non-air conditioned contract carriages falling under Heading 9964 where according to explanatory notes, transportation takes place over pre-determined route on a pre-determined schedule. The exemption shall not be applicable where contract carriage is hired for a period of time, during which the contract carriage is at the disposal of the service recipient and the recipient is thus free to decide the manner of usage (route and schedule) subject to conditions of agreement entered into with the service provider.

  • Whether supply of service of construction, supply, installation and commissioning of dairy plant on turn-key basis constitutes a composite supply of works contract service and is eligible for concessional rate of GST prior to 18.07.2022.

It is clarified that a contract of the nature described here for construction, installation and commissioning of a dairy plant constitutes supply of works contract and was eligible for concessional rate of GST. 

  • Applicability of GST on tickets of private ferry used for passenger transportation. 

“Transportation of passengers by public transport, other than predominantly for tourism purpose, in a vessel between places located in India” is exempted. It is clarified that this exemption would apply to tickets purchased for transportation from one point to another irrespective of whether the ferry is owned or operated by a private sector enterprise or by a PSU/government.

Summary of GST Circulars issued by CBIC on 03rd August 2022

B. Circular No. 178/10/2022-GST: GST applicability on liquidated damages, compensation and penalty arising out of breach of contract or other provisions of law – reg. 

A contract to do something or to abstain from doing something cannot be said to have taken place unless there are two parties, one of which expressly or impliedly agrees to do or abstain from doing something and the other agrees to pay consideration to the first party for doing or abstaining from such an act. There must be a necessary and sufficient nexus between the supply (i.e. agreement to do or to abstain from doing something) and the consideration.

  • Liquidated Damages 

Liquidated damages cannot be said to be a consideration received for tolerating the breach or non-performance of contract. They are rather payments for not tolerating the breach of contract. Such payments being merely flow of money are not a consideration for any supply and are not taxable.

However, amounts paid for acceptance of late payment, early termination of lease or for pre-payment of loan or the amounts forfeited on cancellation of service by the customer as contemplated by the contract as part of commercial terms agreed to by the parties, constitute consideration for the supply of a facility, namely, of acceptance of late payment, early termination of a lease agreement, of pre-payment of loan and of making arrangements for the intended supply by the tour operator respectively. Therefore, such payments, even though they may be referred to as fine or penalty, are actually payments that amount to consideration for supply, and are subject to GST, in cases where such supply is taxable.

  • Compensation for cancellation of coal blocks

There was no agreement between the prior allottees of coal blocks and the Government that the previous allottees shall agree to or tolerate cancellation of the coal blocks allocated to them if the Government pays compensation to them. No such promise or offer was made by the prior allottees to the Government. Therefore, the compensation paid for cancellation of coal blocks pursuant to the order of the Supreme Court in the above case was not taxable.

  • Cheque dishonor fine/ penalty 

The fine or penalty that the supplier or a banker imposes, for dishonour of a cheque, is a penalty imposed not for tolerating the act or situation but a fine, or penalty imposed for not tolerating, penalizing and thereby deterring and discouraging such an act or situation. Therefore, cheque dishonor fine or penalty is not a consideration for any service and not taxable. 

  • Penalty imposed for violation of laws 

Penalties imposed for violation of laws cannot be regarded as consideration charged by Government or a Local Authority for tolerating violation of laws. They stipulate penalty not for tolerating violation but for not tolerating, penalizing and deterring such violations. These amounts are not leviable to GST.

  • Forfeiture of salary or payment of bond amount in the event of the employee leaving the employment before the minimum agreed period 

The said amounts are recovered by the employer not as a consideration for tolerating the act of such premature quitting of employment but as penalties for dissuading the non-serious employees from taking up employment and to discourage and deter such a situation. Therefore, such amounts recovered by the employer are not taxable as consideration for the service of agreeing to tolerate an act or a situation.

  • Late payment surcharge or fee 

The facility of accepting late payments with interest or late payment fee, fine or penalty is a facility granted by supplier naturally bundled with the main supply. Since it is ancillary to and naturally bundled with the principal supply such as of electricity, water, telecommunication, cooking gas, insurance etc. it should be assessed at the same rate as the principal supply. 

  • Fixed Capacity charges for Power 

Both the components of the price, the minimum fixed charges/capacity charges and the variable/energy charges are charged for sale of electricity and are thus not taxable as electricity is exempt from GST.

  • Cancellation charges 

Facilitation supply of allowing cancellation of an intended supply against payment of cancellation fee or retention or forfeiture of a part or whole of the consideration or security deposit in such cases should be assessed as the principal supply.

However, forfeiture of earnest money by a seller in case of breach of ‘an agreement to sell’ an immovable property by the buyer or such forfeiture by Government or local authority in the event of a successful bidder failing to act after winning the bid for allotment of natural resources, is a mere flow of money, as the buyer or the successful bidder does not get anything in return for such forfeiture of earnest money. Such payments being merely flow of money are not a consideration for any supply and are not taxable.

C. Circular No. 179/11/2022-GST: Clarification regarding GST rates & classification (goods) based on the recommendations of the GST Council in its 47th meeting held on 28th – 29th June, 2022 at Chandigarh –reg.

 Electric vehicles whether or not fitted with a battery pack, attract GST rate of 5%

  • Stones otherwise covered in S. No. 123 of Schedule-I (such as Napa stones), which are not mirror polished, are eligible for concessional rate under said entry
  • Mangoes under CTH 0804 including mango pulp, but other than fresh mangoes and sliced, dried mangoes, attract GST at 12% rate
  • Treated sewage water attracts Nil rate of GST
  • Nicotine Polacrilex Gum attracts a GST rate of 18%
  • Fly ash bricks and aggregate – condition of 90% fly ash content applied only to fly ash aggregate, and not fly ash bricks
  • Applicability of GST on by-products of milling of Dal/ Pulses such as Chilka, Khanda and Churi:

The by-products of milling of pulses/ dal such as Chilka, Khanda and Churi are appropriately classifiable under heading 2302 that consists of goods having description as bran, sharps and other residues, whether or not in the form of pellets, derived from the sifting, milling or other working of cereals or of leguminous plants.

It is hereby clarified that the subject goods which inter alia is used as cattle feed ingredient are appropriately classifiable under heading 2302 and attract GST at the rate of 5% vide S. No. 103A of Schedule-I of notification no. 1/2017-Central Tax (Rate), dated the 28th June, 2017 and that for the past, the matter would be regularized on as is basis.

Our Comments: Circular Nos. 177 & 179 have covered more or less the matters which were deliberated in the 47th GST Council Meeting held in the month of June, 2022. Sale of developed plot of land is nothing but a sale of land itself is a welcome clarification and needless to say, an obvious and logical one. Mayhem was created by Gujarat AAR ruling in the matter of Shree Dipesh Anilkumar Naik in the year 2020 which held sale of such developed plots as exigible to tax of 18%. 

Circular No. 178 is an interesting read which takes us back to the provisions of the Indian Contract Act, 1872. An attempt has been made to differentiate between “Condition of a contract” vis-à-vis “Consideration for a contract”. Most of the aspects are interpreted in the correct sense sans the issue of amounts forfeited on cancellation of bookings by hotels, etc. The Delhi Bench of the Tribunal in the case of M/s Lemon Tree Hotel vs. Commissioner, Goods & Service Tax, Central Excise & Custom (2020) 34 GSTL 220 (Tri.-Del) has held that the amount retained by assessee by way of cancellation charges did not qualify as taxable receipt under section 66E(e) and no service tax was attracted on said amount under provisions of section 66E(e). It is known to all that the customers pay an amount to the appellant in order to avail the hotel accommodation services, and not for agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act. Nevertheless, the clarifications provided by this circular in other matters will surely reduce the unnecessary litigations and will also stop enforcement actions mitigating the hardships being faced by genuine taxpayers.

The views expressed are strictly personal. The above information is for educational purpose only and do not constitute any legal opinion or advice. The author can be reached at [email protected]

Also Read: –

Title Notification No. Date
Clarification on GST rates & classification (goods) – 47th GST Council meeting Circular No. 179/11/2022-GST 03/08/2022
GST on liquidated damages, compensation & penalty out of breach of contract Circular No. 178/10/2022-GST 03/08/2022
CBIC clarifies GST rates & exemptions on 16 services Circular No. 177/09/2022-TRU 03/08/2022

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