Synopsis of the Circulars issued post 50th GST Council Meeting

“Stay updated on key clarifications post 50th GST Council Meeting! Explore Circulars addressing issues like IGST credit, ITC availing, TCS liability, warranty replacements, and more. Expert insights by Tarun K. Gupta.”

The 50^th GST Council Meeting was held on 11th July, 2023 in New Delhi, under the chairpersonship of the Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman. Some of the important clarifications issued by the Government based on the recommendations of the GST Council are as follows:

1. Clarification on charging of interest under section 50(3) of the CGST Act, 2017, in cases of wrong availment of IGST credit and reversal thereof (Circular No. 192/04/2023-GST)

It has been clarified that in the cases where IGST credit has been wrongly availed and subsequently reversed on a certain date, there will not be any interest liability under sub-section (3) of section 50 of CGST Act if, during the time period starting from such availment and up to such reversal, the balance of input tax credit (ITC) in the electronic credit ledger, under the heads of IGST, CGST and SGST taken together, has never fallen below the amount of such wrongly availed ITC, even if available balance of IGST credit in electronic credit ledger individually falls below the amount of such wrongly availed IGST credit. It has also been clarified that the credit of compensation cess cannot be taken into account while considering the balance of electronic credit ledger. This issue had come up since the amount of input tax credit available in electronic credit ledger, under any of the heads of IGST, CGST or SGST, can be utilized for payment of liability of IGST.

2. Clarification to deal with difference in Input Tax Credit (ITC) availed in FORM GSTR-3B as compared to that detailed in FORM GSTR-2A for the period 01.04.2019 to 31.12.2021 (Circular No. 193/05/2023-GST)

Pursuant to the Circular no. 183/15/2022-GST dated 27th December, 2022, it had been clarified that one could avail ITC even if the same had not been auto-populated in GSTR 2A, subject to production of tax payment certificates from the supplier and complying with the other conditions. This was applicable for the FYs 2017-18 and 2018-19 only. However the Hon’ble Karnataka High Court, in the matter of Wipro Limited India Vs Assistant Commissioner of Central Taxes Writ Petition No. 16175 of 2022 (Date of Judgement/Order : 06/01/2023), had held that in case of identical errors, the benefit of the Circular should also be available for 2019-20. The judgment had thus paved the way for seeking benefit of the Circular not only for 2017-18 and 2018-19, but for other years too, in cases where the issues are identical. The Department has also taken note of this and issued a Circular extending the same benefit for the period 01.04.2019 to 31.12.2021.

It has been clarified that:

• Since rule 36(4) came into effect from 09.10.2019 only, the guidelines provided by Circular no. 183/15/2022-GST dated 27th December, 2022 shall be applicable, in toto, for the period from 01.04.2019 to 08.10.2019.
• In respect of period from 09.10.2019 to 31.12.2019, rule 36(4) permitted availment of ITC to the extent not exceeding 20% of the eligible credit available in GSTR 2A. Accordingly, the guidelines provided by Circular No. 183/15/2022-GST shall be applicable only for verification of ITC availed upto 20% of the eligible credit available in GSTR 2A. The excess, if any, needs to be anyways disallowed as per rule 36(4). The Circular cannot save the ITC availed in excess of the 20%. E.g. if ITC availed in GSTR 3B is Rs. 1,50,000/- and ITC as per GSTR 2A is only Rs. 1,00,000/- the Circular can save ITC only upto Rs. 1,20,000/- i.e. an additional Rs. 20,000/- and the balance 30,000/- is anyways required to be reversed as per rule 36(4). Similar provisions will be applicable for the period from 01.01.2020 to 31.12.2020 to the extent of 10% and for the period from 01.01.2021 to 31.12.2021 to the extent of 5%.
• The relaxation provided during COVID for the period February to August, 2020 wherein ITC was to be adjusted on cumulative basis for the said months in the return for September 2020 and for the period April to June, 2021 wherein ITC was to be adjusted on cumulative basis for the said months in the return for June 2021 shall be available.
• The Circular has been issued as clarificatory in nature and shall be available to the ongoing proceedings in scrutiny/ audit/ investigation/ adjudication/ appeal, etc. for the period 01.04.2019 to 31.12.2021 but not to the completed proceedings.

3. Clarification on TCS liability under Sec 52 of the CGST Act, 2017 in case of multiple E-commerce Operators (ECOs) in one transaction (Circular No. 194/06/2023-GST)

• It has been clarified that in a situation where multiple ECOs are involved in a single transaction, the compliances u/s 52 including collection of TCS, is to be done by the ECO who finally releases the payment to the supplier.
• It has also been clarified that in a situation where multiple ECOs are involved in a single transaction and the supplier is an ECO itself, the compliances u/s 52 including collection of TCS, is to be done by the ECO who releases the payment to the supplier ECO.

4. Clarification on availability of ITC in respect of warranty replacement of parts and repair services during warranty period (Circular No. 195/07/2023-GST)

• It has been clarified that where the manufacturer provides replacement of parts and/ or repair services to the customer during the warranty period, without separately charging any consideration at the time of such replacement/ repair services, no further GST is chargeable. It has also been clarified that these supplies cannot be considered as exempt supply and accordingly, the manufacturer, is not required to reverse the ITC. Further, if any additional consideration is charged by the manufacturer from the customer, either for replacement of any part or for any service, then GST will be payable on such supply with respect to such additional consideration.
• In cases where the distributor provides the replacement of parts and/ or repair services to the customer on behalf of the manufacturer and does not charge from the customer, no GST is applicable. However, if any additional consideration is charged, then GST will be payable on such supply with respect to such additional consideration.
• If the distributor raises a claim of his charges/ cost of parts to the manufacturer, it has to be done with GST and the manufacturer will be eligible to avail ITC. Alternatively the manufacturer can issue a credit note to the distributor with GST and the distributor will have to reverse the ITC for the value of parts.
• In cases of extended warranty, in case the same is issued at the time of original sale of the vehicle, the consideration for such extended warranty becomes part of the value of the composite supply, the principal supply being the supply of goods, and GST would be payable accordingly. However if the extended warranty is sold anytime after, GST will be applicable depending on the nature of the contract (i.e. whether the extended warranty is only for goods or for services or for composite supply involving goods and services).

5. Clarification on taxability of shares held in a subsidiary company by the holding company (Circular No. 196/08/2023-GST)

It has been clarified that in the activity of holding of shares of subsidiary company by the holding company per se cannot be treated as a supply of services by a holding company to the said subsidiary company and cannot be taxed under GST.

6. Clarification on refund related issues (Circular No. 197/09/2023-GST)

• Refund of accumulated input tax credit under Section 54(3) on the basis of that available as per FORM GSTR 2B – It has been clarified that for refund applications for the tax period January 2022 onwards, refund of accumulated input tax credit under Section 54(3) will be on the basis of those invoices available as per FORM GSTR 2B and not as per GSTR 2A.
• Manner of calculation of Adjusted Total Turnover under sub-rule (4) of Rule 89 of CGST Rules – It has been clarified that the value of goods exported out of India to be included while calculating “adjusted total turnover” will be same as being determined as per the Explanation inserted in the said sub-rule (4) of rule 89 of CGST Rules vide Notification No. 14/2022-Central Tax dated 05.07.2022.
• Clarification in respect of admissibility of refund where an exporter applies for refund subsequent to compliance of the provisions of sub-rule (1) of rule 96A – It is clarified that in cases of delay in export of goods or delay in realisation of export proceeds, on actual export of the goods or as the case may be, on realization of payment in case of export of services, the said exporters would be entitled to refund of unutilized input tax credit in terms of sub-section (3) of section 54 of the CGST Act, if otherwise admissible. It has also been clarified that the said exporter would be entitled to claim refund of the integrated tax so paid earlier on account of goods not being exported, or as the case be, the payment not being realized for export of services, within the time frame. However no refund of the interest paid in compliance of sub-rule (1) of rule 96A shall be admissible.

7. Clarification on issue pertaining to e-invoice (Circular No. 198/10/2023-GST)

It has been clarified that Government Departments or establishments/ Government agencies/ local authorities/ PSUs, registered solely for the purpose of TDS as per provisions of section 51 of the CGST Act, are to be treated as registered persons under the GST law. Accordingly, e-invoices are required to be issued for the supplies made to such Government Departments or establishments/ Government agencies/ local authorities/ PSUs, etc.

8. Clarification regarding taxability of services provided by an office of an organisation in one State to the office of that organisation in another State, both being distinct persons (Circular No. 199/11/2023-GST)

• Manner of distribution of third party services procured by the Head Office for itself and/ or for Branch Offices – It has been clarified that in such cases, the Head Office has an option to distribute ITC in respect of such common input services by following the Input Service Distributor (ISD) mechanism.
• Value of internally generated services of Head Office provided to Branch Offices – In case of valuation of internally generated services provided by Head Office to its Branch Offices and where the Branch Office is entitled to avail full ITC, the value as declared in the Tax Invoice (including Nil) shall be the value acceptable for this purpose, irrespective of the fact whether cost of any particular component of such services, like employee cost etc., has been included or not in the value of the services in the invoice. It has also been clarified that even if full ITC is not available to be availed by the Branch Office, the cost of salary of employees of the HO, involved in providing the said service, is not mandatorily required to be included while computing the taxable value of the supply of such services.

9. Clarification regarding whether services supplied by director of a company in his personal capacity such as renting of immovable property to the company or body corporate are subject to Reverse Charge mechanism (Circular No. 201/13/2023-GST)

It has been clarified that services supplied by a director of a company or body corporate to the company or body corporate in his private or personal capacity such as services supplied by way of renting of immovable property to the company or body corporate are not taxable under RCM. Only those services supplied by director of company or body corporate, which are supplied by him as or in the capacity of director of that company or body corporate shall be taxable under RCM in the hands of the company or body corporate.

10. Clarification regarding whether supply of food or beverages in cinema hall is taxable as restaurant service (Circular No. 201/13/2023-GST)

It has been clarified that supply of food or beverages in a cinema hall is taxable as ‘restaurant service’ as long as (a) the food or beverages are supplied by way of or as part of a service, and (b) supplied independent of the cinema exhibition service. However where the sale of cinema ticket and supply of food and beverages are clubbed together, and such bundled supply satisfies the test of composite supply, the entire supply will attract GST at the rate applicable to service of exhibition of cinema which is the principal supply.

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Disclaimer: The views expressed herein are of the author and does not constitute professional advice. Viewers are advised to refer to the original Circular for reference and seek professional assistance for interpreting the Circulars. The author can be contacted at tarunkrgupta@yahoo.com or 9830124482 (M).