The much awaited 45th meeting of the GST Council was held on 17th September, 2021 in physical mode at Lucknow, an important state capital going to polls in near future. Though the agenda was crucial, no decision was taken for inclusion of petroleum products in GST fold. The tenure of National Anti-profiteering Authority got extended by one more year amid rumors of its getting merged with Competition Commission of India.
Compensation Cess also gets extended till 2026 now. Its consequences are going to be grave for Union Government as it may shake its fiscal balance in today’s erratic economy in the back drop of Covid pandemic.
The GST Council took various decisions inter alia, including exemptions, rate rationalization, extension of relaxations to Covid supplies, exports, ITC, debit notes, late fees, inclusion of some goods / services in tax net and so on. The details are captured on inside pages of this newsletter. All such recommendations shall be implemented in due course. CBIC has already issued Notification No. 35 and 36-Central Tax, both dated 24.09.2021 and the following few Circulars providing the much needed clarifications, based on GST Council recommendations.
New GST Clarifications
Based on the recommendations of 45th GST Council meeting held on 17.09.2021, CBIC has issued following three Clarifications / Circulars on 20.09.2021:
Scope of intermediary as defined in section 2(13) of IGST Act, 2017 has been clarified. There should be minimum three parties in the subject transaction. Principal to principle basis / sub-contracts not covered. Services to have character of an agent, broker etc.
Certain GST related issues have been clarified such as ITC u/s 16(4) of CGST act with reference to debit notes, carrying physical copy of invoice (Rule 48(4) of CGST Rules, 2017, Refund of unutilized ITC u/s 54(3) of CGST Act, 2017 in case of NIL rated exports.
Clarification relating to export of services condition (v) of section 2(6) of IGST Act, 2017 clarifies that a company incorporated in India and a body corporate incorporated by or under the laws of a country outside India, which is also referred to as foreign company under Companies Act, are separate persons under CGST Act, and thus are separate legal entities. These two separate persons would not be considered as “merely establishments of a distinct person in accordance with Explanation 1 in section 8”.
Clarification relating to refund of tax wrong fully paid as inter-State supply instead of intra-State supply or vice-versa under section 77of CGST Act, 2017 and section 19 of IGST Act, 2017. This Circular explains the meaning of term, ‘subsequently held’ and the relevant date for claiming refund of incorrect tax paid.
Clarification on doubts on scope of intermediary (Circular No. 159/15/2021-GST dated 20.09.2021)
> As per section 2(13) of IGST Act, 2013, “Intermediary means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account.”
> Primary requirements for intermediary services should have following basic pre-requisites:
- Minimum of three parties
- Two distinct supplies, viz, main supply and ancillary supply
- Intermediary services provider to have character of an agent / broker / similar person.
- Does not include a person who supplies such goods or services or both on his own account
- Such contracting for a service is not an intermediary service
> The specific provision of place of supply of ‘intermediary services’ under section 13 of the IGST Act shall be invoked only when either the location of supplier of intermediary services or location of the recipient of intermediary services is outside India.
> Whether or not, a specific service would fall under intermediary services within the meaning of sub-section (13) of section 2 of the IGST Act, would depend upon the facts of the specific case. While examining the facts of the case and the terms of contract, the basic characteristics of intermediary services, should be kept in consideration.
> This circular explains the concept by way of illustrations which are only indicative and generic.
Clarification on various GST issues (Circular No. 160/16/2021-GST dated 20.09.2021)
> Section 16(4) of CGST Act, 2017
- With effect from 01.01.2021, section 16(4) of the CGST Act, 2017 was amended vide the Finance Act, 2020, so as to delink the date of issuance of debit note from the date of issuance of the underlying invoice for purposes of availing input tax credit. The words “invoice relating to such” were omitted w.e.f. 01.01.2021.
- Finance Act, 2020 amended section 16(4) of CGST Act, 2017
- So as to delink the date of issuance of debit note from the date of issuance of the underlying invoice for purposes of availing input tax credit.
- e.f. 01.01.2021, in case of debit notes, the date of issuance of debit note (not the date of underlying invoice) shall determine the relevant financial year for the purpose of section 16(4)of the CGST Act.
- The availment of ITC on debit notes in respect of amended provision shall be applicable from 01.01.2021. Accordingly, for availment of ITC on or after 01.01.2021, in respect of debit notes issued either prior to or after 01.01.2021, the eligibility for availment of ITC will be governed by the amended provision of section 16(4), whereas any ITC availed prior to 01.01.2021, in respect of debit notes, shall be governed under the provisions of section 16(4),as it existed before the said amendment on 01.01.2021.
> Carrying physical copy of invoice during movement of goods in case of e-invoices (rule 138 A of CGST Rules, 2017)
- Revised rule 138A (2) states in unambiguous words that whenever einvoice has been generated, the Quick Reference (QR) code, having an embedded Invoice Reference Number (IRN) in it, may be produced electronically for verification by the proper officer in lieu of the physical copy of such tax invoice.
- There is no need to carry the physical copy of tax invoice in cases where invoice has been generated by the supplier in the manner prescribed under rule 48(4) of the CGST Rules and production of the Quick Response (QR) code having an embedded Invoice Reference Number (IRN) electronically, for verification by the proper officer, would suffice.
> Refund of unutilized input tax credit in case of nil rated exports (section 54(3)]
- Only those goods which are actually subjected to export duty i.e., on which some export duty has to be paid at the time of export, will be covered under the restriction imposed under section 54(3) from availment of refund of accumulated ITC.
- Goods, which are not subject to any export duty and in respect of which either NIL rate is specified in Second Schedule to the Customs Tariff Act, 1975 or which are fully exempted from payment of export duty by virtue of any customs notification or which are not covered under Second Schedule to the Customs Tariff Act, 1975, would not be covered by the restriction imposed under the first proviso to section 54(3) of the CGST Act for the purpose of availment of refund of accumulated ITC.
Export of services is defined in section 2(6) of IGST Act, 2017 (Circular No. 161/17/2021-GST dated 20.09.2021)
> Explanation 1 of the Section 8 of the IGST Act provides for the conditions wherein establishments of a person would be treated as establishments of distinct persons. An establishment of a person in India and another establishment of the said person outside India are considered as establishments of distinct persons.
> Supply of services made by a branch or an agency or representational office of a foreign company, not incorporated in India, to any establishment of the said foreign company outside India, shall be treated as supply between establishments of distinct persons and shall not be considered as “export of services” in view of condition (v) of sub-section (6) of section 2 of IGST Act.
> Any supply of service by a company incorporated in India to its branch or agency or representational office, located in any other country and not incorporated under the laws of the said country, shall also be considered as supply between establishments of distinct persons and cannot be treated as export of services.
> A subsidiary/ sister concern/ group concern of any foreign company which is incorporated in India, then the said company incorporated in India will be considered as a separate “person” under the provisions of CGST Act and accordingly, would be considered as a separate legal entity than the foreign company.
> A company incorporated in India and a body corporate incorporated by or under the laws of a country outside India, which is also referred to as foreign company under Companies Act, are separate persons under CGST Act, and thus are separate legal entities. Accordingly, these two separate persons would not be considered as “merely establishments of a distinct person in accordance with Explanation 1 in section 8”.
> Supply of services by a subsidiary/ sister concern/ group concern, etc. of a foreign company, which is incorporated in India under the Companies Act, 2013 (and thus qualifies as a ‘company’ in India as per Companies Act), to the establishments of the said foreign company located outside India (incorporated outside India), would not be barred by the condition (v) of the sub-section (6) of the section 2 of the IGST Act 2017 for being considered as export of services, as it would not be treated as supply between merely establishments of distinct persons under Explanation 1 of section 8 of IGST Act 2017 .
> The supply from a company incorporated in India to its related establishments outside India, which are incorporated under the laws outside India, would not be treated as supply to merely establishments of distinct person under Explanation 1 of section 8 of IGST Act 2017. Such supplies, therefore, would qualify as ‘export of services’, subject to fulfilment of other conditions as provided under sub-section (6) of section 2 of IGST Act.
Refund of Tax u/s 77(1) of CGST Act, 2017 (Circular No. 162/18/2021-GST dated 25.09.2021)
> CBIC has clarified as follows on the issue of refund of tax wrongly paid u/s 77(1) of CGST Act, 2017 and section 19(1) of IGST Act, 2017 to ensure uniformity in implementation.
> Section 77 / section 19 deals with tax wrongly collected and paid to Central Government or State Government resulting from a transaction considered as intra-state supply but subsequently held to be an inter-state supply. Such tax shall be refunded to the taxpayer in prescribed manner.
> It has been clarified that the term ‘subsequently held’ in section 77 of CGST Act, 2017 or under section 19 of IGST Act, 2017 covers both the cases where the inter-State or intra-State supply made by a taxpayer, is either subsequently found by taxpayer himself as intra-State or inter-State respectively or where the inter-State or intra-State supply made by a taxpayer is subsequently found/ held as intra-State or inter-State respectively by the tax officer in any proceeding. Refund claim under the said sections can be claimed by the taxpayer in both the above mentioned situations, provided the taxpayer pays the required amount of tax in the correct head.
> As per newly inserted sub-rule 1A in Rule 89 of CGST Rules, 2017, w.e.f. 24.09.2021, it has been stipulated that :
- Refund under section 77 of CGST Act, 2017 / Section 19 of IGST Act, 2017 can be claimed before the expiry of two years from the date of payment of tax under the correct head, i.e. integrated tax paid in respect of subsequently held inter-State supply, or central and state tax in respect of subsequently held intra-State supply, as the case may be.
- Where the taxpayer has made the payment in the correct head before the date of issuance of Notification No. 35/2021-Central Tax dated 24.09.2021, the refund application u/s 77 of the CGST Act/ section 19 of the IGST Act can be filed before the expiry of two years from the date of issuance of the said notification. i.e. from 24.09.2021.
> Refund u/s 77 of the CGST Act / section 19 of the IGST Act would not be available where the taxpayer has made tax adjustment through issuance of credit note under section 34 of the CGST Act in respect of the said transaction.
The above clarifications are based upon GST Council Recommendations and address the issues being raised by the taxpayers for quite some time.