53rd GST Council Meeting Circulars Explained

53rd GST Council Meeting Circulars issued under the CGST Act clarify prominent issues troubling the trade. These were issued on 26th June 2024 covering crucial aspects such as time of supply, input tax credit availability, place of supply, and the taxability of specific transactions.

Team Clear has summarised the contents of 15 Circulars for you. Let’s delve into the GST new circulars.

Time of Supply Clarified for Continuous supply of services

Spectrum or natural resources allocation services 

Suppose the telecom operator/purchaser of the right to use any natural resources pays instalments over the contract period for spectrum/natural resource allocation by the Department of Telecommunications (DoT) or the government. The time of supply varies as follows:

• If full payment is made upfront, GST is payable when the payment of the said upfront amount is made or due, whichever is earlier. 
• For deferred payments in specified instalments, GST would be payable as and when the payments are due or made, whichever is earlier.

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Construction of road and maintenance services under the National Highways project in a Hybrid Annuity Mode (HAM) model

Suppose a specific portion of the bid project cost is received by the concessionaire during the construction period, and the remaining payment is received through deferred payment (annuity) spread over the years. The time of supply varies as follows:

• If the invoice is issued on or before the specified date or the date of completion of the event as per the contract- Time of supply is the date of issuing such invoice, or date of receipt of payments, whichever is earlier.
• If the invoice is issued after the specified date or due date of payment as per the contract- The time of supply is the date of provision of the service, or the date of receipt of payment, whichever is earlier.

The interest component included in the instalment/annuity payable is taxable.

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Availability of Input Tax Credit Clarified

• ITC is available for ducts and manholes used in the network of the Optical Fiber Cables (OFC). Hence, it is not blocked under Sec. 17(5)(c) or (d) of the CGST Act. These ducts and manholes used in the network of OFCs have not been expressly excluded from the definition of “plant and machinery” in the Explanation to Sec. 17, as they are neither in nature of land, building or civil structures nor are in nature of telecommunication towers or pipelines laid outside the factory premises. Read more
• ITC to insurance companies for repair of motor vehicles insured by them-

ITC is available to insurance companies for motor vehicle repair expenses they incur in case of reimbursement mode of claim settlement. As per Sec. 17(5), the availability of credit of GST paid on motor vehicle repair services received by the insurance company for the outward supply of the insurance services for such motor vehicles is not barred under Sec. 17(5) of the CGST Act. 

ITC claims on excess invoiced amounts beyond the approved claim for repairs- 

If the garage separately invoices the insurance company and the insured person for the approved claim and any excess, respectively, the insurance company can claim ITC only on approved claims invoiced on them provided it is reimbursed. 

If the garage issues a single invoice to the insurance company for the full amount that exceeds the approved claim, the insurance company can claim ITC only to the extent of the approved claim cost. 

If the repair invoice is not in the name of the insurance company, Sec. 16(a) and (aa) are not satisfied, input tax credit will not be available to the insurance company for that invoice.

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• The premium in taxable life insurance policies (allocated for investment or saving), not included in the taxable value under CGST Rule 32(4), cannot be tagged to a non-taxable or exempt supply. Therefore, there is no need to reverse the input tax credit under the CGST Rule 42 or 43, read with  Sec. 17(1) and (2). Read more
• No GST is payable and ITC need not be reversed by the manufacturer to replenish goods/parts for distributors who replaced these during warranty using their own stock on the manufacturer’s behalf. 

In cases of supply of extended warranty is OEM or a third party instead of the original supplier being a dealer, such an extended warranty is considered a separate supply of services and liable to GST. 

Where such an extended warranty is provided by the supplier at the time of original supply of goods, GST is payable for such composite supply of goods and services. However, if the person providing the extended warranty is different, such service of extended warranty is separately liable to GST. 

Where such an extended warranty is provided anytime after the original supply of goods, such service is separately liable to GST. Read more

• Time limit under Sec. 16(4) of the CGST Act for RCM supplies from unregistered persons:

Where an invoice is to be issued by the recipient of such supplies in accordance with Sec. 31(3)(f) of the CGST Act, the relevant financial year for determining the time limit for input tax credit under Sec. 16(4) will be the financial year in which the invoice is issued. If the recipient issues the invoice after the time of supply and pays tax accordingly, they will be required to pay interest for the delay. Further, for delayed issuance of invoice by the recipient, they may also be liable to penal action under Sec. 122 of the CGST Act. Read more

Fixing Monetary Limits for Appeals 

The value to be considered for the above monetary limits are the amounts in dispute. For instance, tax, interest, penalty, erroneous refund, or late fee, unless any provisions of the GST law are held ultra vires to the Constitution of India. Note that this is the upper monetary limit, below which appeals or applications or Special Leave Petitions, as the case may be, shall not be filed by the Central Tax officers. Read more

Place of Supply Clarified

• Supply of goods made to an unregistered person where the billing address is different from the address of delivery of goods, especially in case of e-commerce sales: Place of supply is the location as per the address of the said person recorded in the invoice and the location of the supplier where the address of the said person is not recorded in the invoice. 

Where the billing and delivery addresses are different, the supplier may record the delivery address as the address of the recipient on the invoice to determine the place of supply of the said supply of goods. Read more

• Custodial Services Provided by Banks to Foreign Portfolio Investors: The main activity carried out by banks as custodians in relation to custodial services is maintaining an account of the securities held by the FPIs. It refers to services linked to or requiring the opening and operation of bank accounts such as lending, deposits, safe deposit locker, etc and transfer of money, including telegraphic transfer, mail transfer, electronic transfer, etc. 

However, the banking company does not provide financial leasing services, merchant banking, securities portfolio management, custodial, and depository services to an account holder. So, the custodial services banks or financial institutions provide to FPIs should not be treated as services provided to 'account holders'. Accordingly, Sec. 13(8)(a) of the IGST Act does not get attracted. The default provision of Sec. 13(2) applies, which means the place of supply shall be the location of the recipient of services. Read more

Taxability of Certain Supplies Clarified

• GST on loan charges: GST does not apply on loans lent by overseas affiliates to their Indian affiliate or by a person to a related person without consideration of processing fee/loan granting charges but in the form of interest/discount. However, if a processing fee, etc., is charged, then GST will apply. Read more
• GST on ESOP/ESPP/RSU: GST applies on the additional fee, markup, or commission that the foreign holding company charges from its domestic subsidiary for ESOP/ESPP/RSU to the employees of the domestic subsidiary company by such foreign holding company. It is payable on a reverse charge basis by the domestic subsidiary company to import such services. Otherwise, no GST is charged for transactions where a foreign holding company issues ESOP/ESPP/RSU to the employees of a domestic subsidiary, and the latter reimburses such cost without additional charges. Read more
• GST on salvage value deducted from insurance claim: GST does not apply on any salvage/wreck value deducted from the insurance claim amount for a damaged motor vehicle insured by it as it remains the insured person’s property. However, where the insurance claim is settled on the full claim amount, without deduction of the value of salvage/ wreckage (as per the contractual terms), the salvage becomes the property of the insurance company, and GST applies on the supply of salvage to the salvage buyer. Read more

Miscellaneous

• To determine the value of supply for the supply of services by the foreign affiliate to its related domestic entity (full ITC available), the value declared in the invoice may be deemed to be the open market value in terms of the second proviso to CGST Rule 28(1). Where the invoice is not issued, the value is considered as nil and may be deemed as the open market value. Read more
• The supplier may procure a CA/CMA certificate from the recipients of the supply to certify that the recipient has made the required proportionate reversal of input tax credit at their end for any credit note issued by the supplier for discounts under Sec. 15(3)(b)(ii) of the CGST Act to reduce the same from the value of supply. It will be in force until a system functionality/facility is developed on the GST portal. Read more

We hope this summary has provided valuable insights and a clearer understanding of the latest updates. 

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