RECENT DEVELOPMENTS IN GST

[Dr. Sanjiv Agarwal]

The 50^th GST Council meeting which was held on 11.07.2023, took various steps and measures towards trade facilitation and streamlining the GST compliances which, inter alia, include few tax rate changes on goods and services, acceptance of report of Group of Ministers on GST on casinos, race courses and online games and deciding rate of 28% thereon, approval of GSTAT rules for appointment, classifications on various issues, recovery of tax and interest under rule 88C(3), mechanism for differences in ITC between forms 2B and 3B, registration, returns, compensation cess on SUVs, exemption from IGST on certain imported medicines, extension of date for amnesty scheme notified in March, 2023, extension of exemption for filing form GSTR-9 / 9C, directors services in personal capacity not to be covered under reverse charge and so on.

A series of notifications have been issued to implement Council’s decisions, i.e., Notification Nos 18/2023-CT to 26/2023-CT for extending various dates. Also, a bunch of Circular Nos. 192 to 199 have since been issued clarifying various issues of taxability, refund, exemption, interest on refund, ITC difference between GSTR 3B and 2A, TCS liability for Ecoms, e-invoices, cross charge etc. Summary of these changes has been captured inside. We expect more notifications, changes in rules and clarifications in the offing.

There is a wide spread protest on 28% GST rates recommended by the GST Council on online gaming. While there can be no opposition to levy of GST on online gaming, the issue of valuation, i.e., levy of GST on full value may be re-examined and there could be some abatement considered. The gaming industry which is dominated by start-ups will also have to demonstrate their hardship. It would be in the interest of all stakeholders to keep this industry alive and provide a clear tax policy. Also, it is desirable to differentiate games of skills with betting. However, taxing online gaming would require amendment in GST laws which is not easy given the federal structure. It may take time of 4-6 months for amendment across all states and UTs.

Revised dates for GST filings notified     

CBIC has issued following Notifications dated 17.07.2023 to further extend various filings under GST law:

Notification No.	Existing due date (already extended)	Revised due date	Dates extended for
18/2023- Central Tax dated 17.07.2023	30.06.2023	31.07.2023	GSTR-1 (Manipur) (April, May and June 2023)
19/2023- Central Tax dated 17.07.2023	30.06.2023	31.07.2023	GSTR-3B (Manipur) (April, May and June 2023)
21/2023- Central Tax dated 17.07.2023	30.06.2023	31.07.2023	GSTR-7 (Manipur) (April, May and June 2023)
22/2023- Central Tax dated 17.07.2023	30.06.2023	31.08.2023	GSTR-4 (2019-20 to 2021-22)
23/2023- Central Tax dated 17.07.2023	30.06.2023	31.08.2023	Revocation of cancellation of registration
24/2023- Central Tax dated 17.07.2023	30.06.2023	31.08.2023	Special procedures for assessment order deemed to be withdrawn for registered persons who failed to furnish a valid return within a period of thirty days from the service of the assessment order issued on or before the 28th day of February, 2023
25/2023- Central Tax dated 17.07.2023	30.06.2023	31.08.2023	Annual return (2017-18, 2018-19, 2019-20, 2020-21 or 2021-22)
26/2023- Central Tax dated 17.07.2023	30.06.2023	31.08.2023	GSTR-10

(Source: Notification No. 18 to 26/2023-CT dated 17.07.2023)

Interest under section 50(3) for wrong availment of IGST

• CBIC has issued clarification on charging of interest u/s 50 (3) of CGST Act, 2017 in case of wrong availment of IGST credit and its reversal.
• It has been clarified that :

1. In case of wrong availment of IGST credit by registered person and reversal there of :

1. For calculation of interest under rule 88B of CGST Rules, it is the total input tax credit available in electronic credit ledger, under the heads of IGST, CGST and SGST taken together, that has to be considered for calculation of interest under rule 88B of CGST Rules and for determining as to whether the balance in the electronic credit ledger has fallen below the amount of wrongly availed input tax credit of IGST, and to what extent the balance in electronic credit ledger has fallen below the said amount of wrongly availed credit.
2. 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.
3. When the balance of ITC, under the heads of IGST, CGST and SGST of electronic credit ledger taken together, falls below such wrongly availed amount of IGST credit, then it will amount to the utilization of such wrongly availed IGST credit and the extent of utilization will be the extent to which the total balance in electronic credit ledger under heads of IGST, CGST and SGST taken together falls below such amount of wrongly availed IGST credit, and will attract interest.

2. On considering credit of compensation cess as per ECL for calculation of interest under Rule 88B (b), credit of compensation cess available in electronic credit ledger cannot be taken into account while considering the balance of electronic credit ledger for the purpose of calculation of interest under rule 88B(3) of CGST Rules in respect of wrongly availed and utilized IGST, CGST or SGST credit.

(Source: Circular No. 192/04/2023-GST dated 17.07.2023)

Difference in ITC availed in Form GSTR-3B and GSTR-2A

CBIC has clarified on how 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.

• 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.
• The guidelines provided by Circular No. 183/15/2022-GST dated 27th December, 2022 shall be applicable for verification of the condition of clause (c) of sub-section (2) of Section 16 of CGST Act for the said period, subject to the condition that availment of Input tax credit by the registered person in respect of invoices or debit notes, the details of which have not been furnished by the suppliers under section 37(1), in FORM GSTR-1 or using IFF shall not exceed 20 per cent. of the eligible credit available in respect of invoices or debit notes the details of which have been furnished by the suppliers under section 37(1) in FORM GSTR-1 or using IFF.
• For the period from 01.01.2020 to 31.12.2020, when rule 36(4) of CGST Rules allowed additional credit to the tune of 10% in excess of the that reported by the suppliers in their FORM GSTR-1 or IFF, the guidelines provided by Circular No. 183/15/2022-GST dated 27th December, 2022 shall be applicable, for verification of the condition of clause (c) of sub-section (2) of Section 16 of CGST Act for the said period, subject to the condition that availment of Input tax credit by the registered person in respect of invoices or debit notes, the details of which have not been furnished by the suppliers under section 37(1), in FORM GSTR-1 or using the IFF shall not exceed 10 per cent. of the eligible credit available in respect of invoices or debit notes the details of which have been furnished by the suppliers under section 37(1) in FORM GSTR-1 or using the IFF.
• For the period from 01.01.2021 to 31.12.2021, when rule 36(4) of CGST Rules allowed additional credit to the tune of 5% in excess of that reported by the suppliers in their FORM GSTR-1 or IFF, the guidelines provided by Circular No. 183/15/2022-GST dated 27th December, 2022 shall be applicable, for verification of the condition of Section 16(2)(c) of CGST Act for the said period, subject to the condition that availment of Input tax credit by the registered person in respect of invoices or debit notes, the details of which have not been furnished by the suppliers under section 37(1), in FORM GSTR-1 or using the IFF shall not exceed 5 per cent. of the eligible credit available in respect of invoices or debit notes the details of which have been furnished by the suppliers under section 37(1) in FORM GSTR-1 or using the IFF.
• No ITC shall be allowed for the period 01.01.2022 onwards in respect of a supply unless the same is reported by his suppliers in their FORM GSTR-1 or using IFF and is communicated to the said registered person in FORM GSTR-2B.
• These instructions will apply only to the ongoing proceedings in scrutiny/ audit/ investigation, etc. for the period 01.04.2019 to 31.12.2021 and not to the completed proceedings. However, these instructions will apply in those cases during the period 01.04.2019 to 31.12.2021 where any adjudication or appeal proceedings are still pending.

(Source: Circular No. 193/05/2023-GST dated 17.07.2023)

TCS liability of multiple E-Commerce Operators in one transaction

CBIC has clarified on TCS liability u/s 52 of CGST Act, 2017 in case of multiple E- Commerce Operators (ECOs) in one transaction in the context of Open Network for Digital Commerce (ONDC)

• Issue 1- In a situation where multiple ECOs are involved in a single transaction of supply of goods or services or both through ECO platform and where the supplier-side ECO himself is not the supplier in the said supply, who is liable for compliances under section 52 including collection of TCS?

In this case, the Buyer-side ECO will neither be required to collect TCS nor will be required to make other compliances in accordance with section 52 of CGST Act with respect to this particular supply.

• Issue 2- In a situation where multiple ECOs are involved in a single transaction of supply of goods or services or both through ECO platform and the Supplier-side ECO is himself the supplier of the said supply, who is liable for compliances under section 52 including collection of TCS?

In such a situation, TCS is to be collected by the Buyer-side ECO while making payment to the supplier for the particular supply being made through it. In this scenario, the Buyer-side ECO will also be required to collect TCS, as applicable, pay the same to the Government in accordance with section 52 of CGST Act and also make other compliances under section 52 of CGST Act.

(Source: Circular No. 194/06/2023-GST dated 17.07.2023)

ITC on warranty replacement of parts / repairs

CBIC has clarified on availability of ITC in respect of warranty replacement of parts and repair services during warranty period as follows:

• The original equipment manufacturers /suppliers offer warranty for the goods / services supplied by them. During the warranty period, replacement goods /services are supplied to customers free of charge and as such no separate consideration is charged and received at the time of replacement.
• 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 on such replacement of parts and/ or repair service during warranty period.
• 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.
• Since, the value of original supply of goods (provided along with warranty) by the manufacturer to the customer includes the likely cost of replacement of parts and/ or repair services to be incurred during the warranty period, these supplies can not be considered as exempt supply and as such, manufacturer is not required to reverse the input tax credit for such replacement / repairs.
• GST would not be payable on replacement of parts and/ or repair services provided by a distributor without any consideration from the customer, as part of warranty on behalf of the manufacturer?
• If any additional consideration is charged by the distributor 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.
• Where the distributor provides repair service, in addition to replacement of parts or otherwise, to the customer without any consideration, as part of warranty, on behalf of the manufacturer but charges the manufacturer for such repair services either by way of issue of tax invoice or a debit note, there is a supply of service by the distributor and the manufacturer is the recipient of such supply of repair services. GST would be payable on such provision of service by the distributor to the manufacturer and the manufacturer would be entitled to avail the input tax credit of the same, subject to other conditions of CGST Act.
• If a customer enters in to an agreement of extended warranty with the manufacturer at the time of original supply, then 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.
• In case where a consumer enters into an agreement of extended warranty at any time after the original supply, then the same is a separate contract and GST would be payable by the service provider, whether manufacturer or the distributor or any third party, 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)

(Source: Circular No. 195/07/2023-GST dated 17.07.2023)

Taxability of shares held by holding company in subsidiary company

CBIC has clarified on whether the holding of shares in a subsidiary company by the holding company will be treated as supply of service under GST and taxed or it will not be treated as a supply.

• Securities are considered neither goods nor services in terms of definition of goods under clause (52) of section 2 of CGST Act and the definition of services under clause (102) of the section 2. Further, securities include ‘shares’.
• The securities held by the holding company in the subsidiary company are neither goods nor services.
• Purchase or sale of shares or securities, in itself is neither a supply of goods nor a supply of services.
• It cannot be said that a service is being provided by the holding company to the subsidiary company, solely on the basis that there is a SAC entry ‘997171’ in the scheme of classification of services mentioning; “the services provided by holding companies, i.e. holding securities of (or other equity interests in) companies and enterprises for the purpose of owning a controlling interest.”, unless there is a supply of services by the holding company to the subsidiary company in accordance with section 7 of CGST Act.
• 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.

(Source: Circular No. 196/08/2023-GST dated 17.07.2023)

CBIC clarifications on Refunds

CBIC has issued following clarifications in relation to refund under GST law:

1. Refund of accumulated ITC u/s 54(3)                           

1. Since availment of input tax credit has been linked with FORM GSTR-2B w.e.f. 01.01.2022, availability of refund of the accumulated input tax credit under section 54(3) of CGST Act for a tax period shall be restricted to input tax credit as per those invoices, the details of which are reflected in FORM GSTR-2B of the applicant for the said tax period or for any of the previous tax periods and on which the input tax credit is available to the applicant.
2. Since section 16(2)(aa) and Rule 36(4) have been amended w.e.f. 01.01.2022, the restriction on availability of refund of accumulated input tax credit for a tax period on the basis of the credit available as per FORM GSTR-2B for the said tax period or for any of the previous tax periods, shall be applicable for the refund claims for the tax period of January, 2022 onwards.

2. Requirement of undertaking in Form RFD 01 (vide Circular No. 125 dated 18.11.2019)

1. Undertaking in form IGST-RFD-01 may be as follows:

Undertaking in FORM GST RFD 01:- “I hereby undertake to pay back to the Government the amount of refund sanctioned along with interest in case it is found subsequently that the requirements of clause (c) of sub-section (2) of section 16 of the CGST/ SGST Act have not been complied with in respect of the amount refunded.”

2. Refund in compliance of Rule 96A(1)

• As long as goods are actually exported or as the case may be, payment is realized in case of export of services, even if it is beyond the time frames as prescribed in rule 96A(1), the benefit of zero-rated supplies cannot be denied to the concerned exporters. In such cases, 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 section 54(3) of the CGST Act, if otherwise admissible.
• In such cases subsequent to export of the goods or realization of payment in case of export of services, as the case may be, the said exporters 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 .
• No refund of the interest paid in compliance of rule 96A(1) shall be admissible.
• The refund application in the said scenario may be made under the category “Excess payment of tax”. However, till the time the refund application cannot be filed under the category “Excess payment of tax” due to non-availability of the facility on the portal to file refund of IGST paid in compliance with the provisions of rule 96A(1) of CGST Rules as “Excess payment of tax”, the applicant may file the refund application under the category “Any Other” on the portal.                                     

(Source: Circular No. 197/09/2023-GST dated 17.07.2023)

CBIC clarifications on e-invoice

• CBIC has clarified on applicability of e-invoice under rule 48(4) in respect of supplies made by a registered person, whose turnover exceeds the prescribed threshold for generation of e-invoicing, to Government Departments or establishments/ Government agencies/ local authorities/ PSUs registered solely for the purpose of deduction of tax at source as per provisions of section 51.
• Government Departments or establishments/ Government agencies/ local authorities/ PSUs, which are required to deduct tax at source as per provisions of section 51 of the CGST/SGST Act, are liable for compulsory registration in accordance with section 24(vi) of the CGST Act.
•  Government Departments or establishments/ Government agencies/ local authorities/ PSUs, registered solely for the purpose of deduction of tax at source as per provisions of section 51 of the CGST Act, are to be treated as registered persons under the GST law as per provisions of section 2(94) of CGST Act.
• The registered person, whose turnover exceeds the prescribed threshold for generation of e-invoicing, is required to issue e-invoices for the supplies made to such Government Departments or establishments/ Government agencies/ local authorities/ PSUs, etc under rule 48(4) of CGST Rules.

(Source: Circular No. 198/10/2023-GST dated 17.07.2023)

CBIC clarifications on ‘cross charge’ in case of ‘distinct persons’

• CBIC has issued a 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.
• In respect of common input services procured by the HO from a third party but attributable to both HO and BOs or exclusively to one or more BOs, HO has an option to distribute ITC in respect of such common input services by following ISD mechanism laid down in Section 20 of CGST Act.
• HO can also issue tax invoices under section 31 of CGST Act to the concerned BOs in respect of common input services procured from a third party by HO but attributable to the said BOs and the BOs can then avail ITC on the same subject to the provisions of section 16 and 17 of CGST Act.
• In case, the HO distributes or wishes to distribute ITC to BOs in respect of such common input services through the ISD mechanism
• HO is required to get itself registered mandatorily as an ISD in accordance with Section 24(viii) of the CGST Act.
• In respect of supply of services by HO to BOs, the value of the said supply of services declared in the invoice by HO shall be deemed to be open market value of such services, if the recipient BO is eligible for full input tax credit.
• In cases where full input tax credit is available to a BO, the value declared on the invoice by HO to the said BO in respect of a supply of services shall be deemed to be the open market value of such services, 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.
• In such cases where full input tax credit is available to the recipient, if HO has not issued a tax invoice to the BO in respect of any particular services being rendered by HO to the said BO, the value of such services may be deemed to be declared as Nil by HO to BO, and may be deemed as open market value in terms of second proviso to rule 28 of CGST Rules.
• In respect of internally generated services provided by the HO to BOs, the cost of salary of employees of the HO, involved in providing the said services to the BOs, is not mandatorily required to be included while computing the taxable value of the supply of such services, even in cases where full input tax credit is not available to the concerned BO.

(Source: Circular No. 199/11/2023-GST dated 17.07.2023)