GST Key updates – Summary of Recent Circulars & Key Points of 55th GST Council meeting

ByJigar Shah
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Clarification regarding availment of ITC where specified supplies are supplied through e-commerce operatorGST on notified services by e-commerce operators:

Electronic Commerce means the supply of goods or services or both, including digital products over digital or electronic network. (Sec. 2(44) of the CGST Act, 2017)

Electronic Commerce Operator means any person who owns, operates or manages digital or electronic facility or platform for electronic commerce. (Sec. 2(45) of the CGST Act, 2017)

E-commerce operators are mandatorily required to be registered under GST irrespective of any threshold limit.

The e-commerce operators are liable to pay tax under the reverse charge mechanism under Sec 9(5) if following services are rendered through e-commerce operators:

  • Passenger transport services
  • Housekeeping services
  • Restaurant services (including cloud kitchens)
  • Accommodation services

Further, it has to be paid through electronic cash ledger only and Input Tax Credit (ITC) cannot be utilized for same.

Clarification regarding availment of ITC where specified supplies are supplied through e-commerce operator (Circular No. 240/34/2024-GST)

It has been clarified that where specified services are supplied through e commerce operators and tax has been paid by ECO under Reverse Charge Mechanism under section 9(5) of CGST Act, then ECO is not required to reverse input tax credit on his inputs or input services to the extent of supplies made under Sec 9(5).

Further such ITC cannot be utilized for the payment of tax for supplies specified under Sec 9(5). However, such credit can be utilized for discharge of tax liability in respect of supply of services on his own account.

To get more clarity, let’s consider an example:

Let us assume that total turnover (excluding NIL rated sales) of a ECO is Rs. 50,00,000.

Turnover of Nil Rated Sales is Rs. 6,00,000.

Supplies on which tax is paid under RCM is say Rs. 4,00,000.

Total ITC is Rs. 14,00,000.

Here, ITC pertaining to Nil Rated Sales would be liable to be reversed. Therefore, aggregate turnover would be Rs. 56,00,000. (Supplies on which tax is paid under RCM is not to be considered in aggregate turnover)

So, amount of ITC to be reversed comes to Rs. 1,50,000 (6,00,000/56,00,000*14,00,000)

Clarification on availability of ITC as per section 16(2)(b) of the CGST Act, 2017 in respect of goods which have been delivered by the supplier at his place of business under Ex-Works Contract (Circular No. 241/35/2024-GST)

Further, it has been clarified that no ITC is required to be reversed pertaining to supplies on which tax has been paid under RCM.

From a plain reading of the section 16(2)(b) of the CGST Act, it is apparent that no reference has been given of any particular place where goods are required to be “received” by the registered person.

Further, explanation under Sec 16(2)(b) provides that where goods are delivered by the supplier to any other person, whether acting as an agent or not, upon the direction of the registered person, and where such delivery occurs either through transfer of documents of title to goods or otherwise, the registered person is deemed to have “received” such goods for the purpose of

section 16(2)(b) of CGST Act.

Accordingly, in cases where goods are delivered by the supplier to the registered person, either directly or to any other person on the directions of the said registered person, the registered person shall be considered to have “received” the said goods for the purpose of section 16(2)(b) of CGST Act.

In Ex-works contracts, title of goods will be regarded to as transferred to the recipient, at the time of hand over of the said goods at the factory gate of the supplier, even though the goods may be physically received by the recipient after the transit. Resultantly, ITC can also be availed upon hand over of the said goods at the factory gate of the supplier, even though the goods may be physically received by the recipient at a later stage.

Further, if goods are diverted for non-business purpose or subsequently lost, stolen, destroyed, or disposed of as gifts/free samples, ITC on such goods is disallowed.

Illustration:

Business entity A (located in Surat) delivers goods to Company B (located in Mumbai) under ex works contract. When business entity A handed over goods to transporter and title of goods has been transferred to Company B, Company B becomes eligible to claim ITC pertaining to such goods, even though goods have not been received at the premise of Company B.

This clarification has been resulted in improved working capital management through ITC availability. Now, dealers are no longer required to wait for physical receipt of goods to claim their tax credits, provided other conditions under Sections 16 and 17 of the CGST Act 2017 are met. This timing advantage can significantly impact cash flow management, especially for businesses dealing with high-value goods. It also reduces the compliance burden by eliminating the need to track physical receipt for ITC purposes.

Clarification on various issues pertaining to GST treatment of vouchers (Circular No. 243/37/2024-GST)

Section 2(118): “Voucher” means an instrument where there is an obligation to accept it as consideration or part consideration for a supply of goods or services or both and where the goods or services or both to be supplied or the identities of their potential suppliers are either indicated on the instrument itself or in related documentation, including the terms and conditions of use of such instrument.

Therefore, voucher is just an instrument which creates an obligation on the supplier to accept it as consideration or part consideration and the transactions in voucher themselves cannot be considered either as a supply of goods or as a supply of services. However, supply of underlying goods and/or services, for which vouchers are used as consideration or part consideration, may be taxable under GST.

Further, if any voucher remains unused/unredeemed, then there is no redemption of voucher and hence no supply of goods and services. Furthermore, amount retained for unredeemed vouchers by the voucher issuer cannot be regarded as consideration for any supply and hence, such amount would not be taxable as per the provisions of CGST act.

Conclusion:

Transaction in vouchers is not regarded as supply or goods as money is excluded from the definition of goods under Sec 2(52) of CGST Act.

But if goods/services are supplied in consideration of vouchers either in full or part then same is treated as supply under GST and would be taxable under GST.

Let’s consider an example regarding same:

Reliance Mart (RM) has announced an offer that on purchase of Rs. 10,000 customers would get a voucher of Rs. 1,000 which can be redeemed within a period of 1 month.

Assume, Customer A has purchased goods from RM worth Rs. 12,500 and entitled for a voucher of Rs. 1,000 on 5th Jan, 2025 and redeemed such voucher on 1st Feb, 2025.

In such a case, Reliance Mart would offer Rs. 1,000 as sale in the month of February 2025 and not in January as issue of voucher is not considered as sale while it would be considered as sale when the voucher is used by the customer for the purchase of goods. Therefore, RM is liable to pay tax on such voucher at the time of filing of return of February.

Also, assume Customer B has purchased goods from RM worth Rs. 11,050 and entitled for a voucher of Rs. 1,000 on 7th Jan, 2025 and has not redeemed such voucher till 10st Feb, 2025.

In such a case, since voucher has not been utilized by the customer till the expiry of redemption of voucher, RM will not be liable to pay any tax on such transaction of issuing the voucher.

Summary of Recommendations of the 55th Meeting of the GST Council dated 21-12-2024

  • It was clarified that no GST is payable on penal charges for non-compliance with loan terms (like charges levied on delay in payment of instalments) levied and collected by banks and NBFCs
  • Recommended to cover sponsorship services provided by body corporates under Forward Charge Mechanism

Earlier, sponsorship services provided by any person to body corporates or partnership firms was covered under RCM.

Now it has been recommended that even though services are provided to Body Corporates or Partnership Firms, tax is required to be paid under FCM if service provider is a body corporate to ensure better compliance and streamlined taxation.

For Example:

Company A enters into a sponsorship agreement with Az Events, for promoting its products during an event. The consideration for this sponsorship service is Rs.1,00,000. And the applicable GST rate is 18%.

Earlier, GST of Rs. 18,000 was required to be paid under RCM by Company B being body corporate. But after considering recommendations of 55th Meeting of the GST council, if Az Events is a body corporate, then tax is required to be paid by Az Events itself under FCM else Company A is required to pay tax under RCM.

  • Supply of goods warehoused in a Special Economic Zone (SEZ) or Free Trade Warehousing Zone (FTWZ) to any person before clearance of such goods for exports or to the Domestic Tariff Area, shall be treated neither as supply of goods nor as supply of services.
  • GST Council recommended to waive off the amount of late fee which is in excess of late fee payable till date of filing of GSTR 9 for delayed filing of FORM GSTR-9C for FY 2017-18 to FY 2022-23 if said GSTR-9C is filed on or before 31 March 2025.

    Hence, separate late filling fees for late filling of GSTR 9C shall not be charged if filed before 31st March, 2025. Earlier in absence of this clarification, there was lack of clarity about how much late filling fees will be charged for GSTR 9C. A group of experts were of the view that general penalty of Rs. 25,000/- can be charged for late filling of GSTR 9C/

  • To amend proviso to section 107(6) of CGST Act, 2017 to provide for payment of pre-deposit at 10% instead of 25% for filing appeals before Appellate Authority in cases involving only demand of penalty without involving the demand of tax.
  • To insert new proviso to section 112(8) of CGST Act, 2017 to provide for payment of pre-deposit at 10% for filing appeals before Appellate Tribunal (AT) in cases involving only demand of penalty without involving the demand of tax. Earlier, payment of pre-deposit was not required for filing appeals before AT.
  • Recommended to incorporate Invoice Management System (IMS) under GST law so that IMS gets legal validity and consequently, it would result in various amendment in GST Act and Rules. It would result in simplification of reconciliation process. Further, it would be required to incorporate more clear guidelines via rules on how to handle credit notes if same are rejected by the recipient as it would result in increase in tax liability of supplier. Subsequently, there would be a key change where taxpayer will be able to file GSTR 3B only if GSTR 2B is available on portal.

Limitation: The purpose of this article is for knowledge sharing purpose. Views expressed in this note are personal views of the author. The same should not be construed as professional advise

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