This Tax Alert summarizes recent Circulars[1] issued by the Central Board of Indirect Taxes and Customs (CBIC) basis the recommendations made in the 53rd Goods and Services Tax (GST) Council meeting held on 22 June 2024.
The key clarifications are:
- In case of Employee Stock Option Plan (ESOPs), since the reimbursement by the domestic subsidiary company to the foreign holding company is for transfer of securities/shares, there is no supply of service and hence, not leviable to GST.
- In case of GST credit notes for post supply discount, the supplier needs to obtain self-certificate/ Chartered Accountant certificate certifying that the recipient has reversed the proportionate input tax credit (ITC) in respect of such credit notes.
- Where the invoice mentions billing address as well as delivery address, the place of supply in case of supply of goods to an unregistered person shall be the delivery address.
- In cases where full ITC is available to the recipient, if the invoice is not issued by the domestic entity with respect to any service provided by the foreign affiliate to it, the value of such services may be deemed to be declared as Nil and may be deemed as open market value.
- The monetary limits have been prescribed for filing appeal before Tribunal (INR 20 lakhs), High Court (INR 1 crore) and Supreme Court (INR 2 crores). Principles have been laid down for determining such monetary limits in various scenarios. Further, certain exceptions are provided where the said monetary limits will not apply.
Comments
- The Circulars are expected to provide much needed relief to the industry, aims at reducing litigation and facilitate ease of doing business.
- Department is disputing reduction of tax liability basis credit notes issued for various reasons and requiring the suppliers to substantiate ITC reversal by the recipient. The mechanism prescribed for post supply discount may be used even in such scenarios.
- The e-commerce industry may need to revisit the position taken for determining place of supply of goods where billing and delivery address were different and need to align the IT system with the clarification issued.
- The Circular w.r.t. GST liability on salvage/ wreck value may also help the banks and financial institutions to take GST position on disposal of repossessed assets in case of loan default by the borrower.
- Since insurance companies are eligible to claim ITC on motor repair expenses, such companies may also explore the possibility to avail ITC on hospital invoices in case of medical insurance provided the invoices are in the name of insurance company.
- The Circular clarifies that the concept of continuous supply of services also applies in case of reverse charge transactions. Further, in such cases, the date of provision of service will be deemed to be the due date of payment.
- Certain other clarifications on GST rates and corporate guarantee are expected to be issued along with the notifications basis the GST Council’s recommendations.
[1] Circular Nos. 207 to 222/2024 – GST all dated 26 June 2024
