GST Updates - Circulars and Notifications issued in pursuance to 50th GST Council meet

Circular / Notification No. 192/04/2023
Issue
Manner of charging interest under section 50(3) in case of wrongly availed and utilized ITC of IGST

Gist of Clarification
It is clarified that interest under Section 50 (3) of the CGST Act, 2017 in respect of ITC wrongly availed and utilized under the IGST head will be calculated considering the cumulative balance available under the IGST, CGST and SGST heads and not on the basis of balance available under the IGST head alone in the manner specified under Rule 88B.

(Interest for wrongly availed credit under the CGST & SGST heads needs to be calculated basis balance available in the respective CGST or SGST heads)

Circular / Notification No. 193/05/2023

Issue
Verification of ITC for the period 01-04-2019 to 31-12-2021 with respect to the invoices or debit notes not reflecting in GSTR 2A.

Gist of Clarification
Vide Circular no. 183/15/2022 -GST dated 27th Dec the CBIC has prescribed manner of verification of ITC for the period 2017-18 and 2018-19 in the event of mismatch in ITC availed as per GSTR 3B and ITC auto-populated in GSTR 2A return. In terms of the clarification self-certification/certification from chartered account that Tax charged in the invoices not reflecting in the GSTR 2A returns is paid to the credit of the Government, in accordance with the provisions of Section 16(2)(c) of the GST Act, needs to be submitted
in such cases.

Thereafter amendments were carried out in Section 16(2) of the GST Act as well as Rule 36(4) of the CGST Rules. In line with the amendments, CBIC vide the current circular has prescribed the manner of verification of mismatch of ITC for the period 1.4.2019 to 31.3.2021. The gist of the clarification for the respective periods is as under

For the period 1.4.2019 to 8.10.2019
It is clarified that the procedure prescribed under circular 183/15/2022 is to be followed in toto. As such self-certification/Certification from CA. needs to be submitted for those invoices which are not appearing in the GSTR 2A return for the said periods

For the period: 09-10-2019 to 31-12-2019
Vide amendment carried in Rule 36(4) Taxpayers were allowed to avail ITC in excess of 20% over and above the total eligible ITC reflecting in GSTR 2A. The current circular clarifies that for the said period, benefit of Circular no. 183/15/2022 -GST dated 27th Dec 2022 is available only to the extent of such 20% excess ITC permissible in terms of Rule 36 (4). i.e self-certification/CA. certification needs to be submitted with respect to the said 20% ITC allowed over and above ITC reflecting in the GSTR 2A return. Any ITC availed in excess of 20% is not admissible even if certification is provided for such excess ITC availed

For the period: 01-01-2020 to 31-12-2020
Vide subsequent amendment carried in Rule 36(4) Taxpayers were allowed to avail ITC in excess of 10% over and above the total eligible ITC reflecting in GSTR 2A. Accordingly, self-certification/CA. certification needs to be submitted with respect to the said 10% ITC allowed over and above ITC reflecting in the Form GSTR 2A. Any ITC availed in excess of 10% is not admissible even if certification is provided for such excess ITC availed.

For the period: 01-01-2021 to 31-12-2021
Vide subsequent amendment carried in Rule 36(4) Taxpayers were allowed to avail ITC in excess of 5% over and above the total eligible ITC reflecting in GSTR 2A. Accordingly, self-certification/CA. certification needs to be submitted with respect to the said 5% ITC allowed over and above ITC reflecting in the Form GSTR 2A . Any ITC availed in excess of 5% is not admissible even if certification is provided for such
excess ITC availed.

For the period from 1.1.2022 onwards:
In view of the insertion of clause (aa) to Section 16(2), and substitution of Rule 36(4), ITC to the extent
of Invoices/Debit notes reflecting in form GSTR 2B can be availed. Accordingly, it is clarified that the
procedure prescribed vide above circular will not be applicable for the period 1.1.2022 onwards and credit can be availed to the extent of invoices/Debit notes reflecting in GSTR 2B.

It is further clarified that the procedure for such verification is applicable to ongoing proceedings such as scrutiny/audit/investigation etc. including any adjudication or appeal proceedings which are still
pending. The procedure will not apply to any completed proceedings.

(The amendment in Act/Rule as well as clarification in the circular is restricted to Invoices/Debit notes and as such ITC on reverse charge payment as well as Bills of entry is not subject to the above provision
and credit can be availed on the same even if not reflecting in GSTR 2B)

Circular / Notification No. 195/07/2023

Issue
Applicability of GST in respect of warranty replacement of parts and repair services during warranty period.

Gist of Clarification

The following situations and GST implications thereon is clarified

• Considering the fact that likely cost of warranty replacement parts and cost of repair services is already included in the original supply, it is clarified that replacement of defective parts or repair services provided during the warranty period without any consideration does not amount to supply either in the hands of the manufacturer or the distributor. Further in such case ITC reversal is also not required to be made on such parts replaced free of cost during warranty period. However, any additional consideration is charged, tax is liable to be paid on such additional consideration charged.
• Where replacement for such defective part is provided by the manufacturer to the distributor from his own stock and the distributor does not charge any consideration for the same, no GST is required to be paid on the same and no ITC reversal is also required to be made.
• If the distributor replaces such defective part from his own stock or by purchasing the same from third parties and thereafter charges consideration for the same from the manufacturer, distributor is liable to charge GST on such consideration received and the manufacturer can avail ITC of the same, However there is no need to reverse ITC on the defective part so replaced.
• If the distributor is charging any consideration for the repair services only from the manufacturer, he is liable to pay tax on such consideration charged.
• Where the distributor replaces the defective part out of the supply already received from the manufacturer, in such a case the manufacturer can issue credit note in accordance with the provisions of Section 34(2) of the CGST Act, and thereafter the manufacturer can adjust his tax liability accordingly subject to the condition that the distributor reverses credit on the said part.
  However, no tax is payable by the manufacturer or distributor.
  (In the instant case the transaction is considered as sales return in the hands of the distributor and thereafter it is held as free replacement given by the manufacturer to the dealer for such warranty
  replacement)
• If the extended warranty is simultaneously supplied at the time of original supply, the same will be considered as a composite supply and accordingly Tax needs to be charged on the rate applicable to the Principal supply involved namely supply of goods.

However, if extended warranty is supplied subsequently, then tax needs to be discharged on the consideration charged for such extended warranty supplied subsequently.

(The circular primarily clarifies that if any consideration is charged for providing warranty replacement or repair services during the warranty period, tax is liable to be paid on the consideration charged. In the event such replacement or repair services is provided free of cost during the warranty period no
tax is liable to be paid or ITC reversal on the parts replaced is to be made either by the manufacturer or by the Distributor)

Circular / Notification No. 196/08/2023

Issue
Taxability of shares held in a subsidiary Company by the Holding Company

Gist of Clarification
It is clarified that Holding of shares in subsidiary company does not amount to supply under GST, since securities are neither goods nor services under GST

Circular / Notification No. 197/9/2023

Issue

Clarifications on refund related issues

Gist of Clarification

1. Refund of accumulated ITC under Section 54 (3) on the basis of invoices reflecting in Form GSTR 2B

   Consequent to insertion of clause (aa) to Section 16(2) of the CGST Act, and the substitution made in Rule 36(4), w.e.f 1.1.2022, ITC is available to the Tax payers only to the extent of invoices/debit notes appearing in the Form GSTR 2B.
   It is clarified vide the circular that refund claims of accumulated ITC under Section 54(3) of the CGST Act, for the Tax period January 2022 onwards will be granted basis the ITC of invoices/debit notes reflecting in GSTR 2B of the said tax period or any previous tax periods. However, any refund claims for the said Tax periods which are already processed in accordance with extant provisions will not be re-opened

2. Manner of calculation of Adjusted Total Turnover for calculation of refund under Rule 89 (4) of CGST Rules, 2017 (‘Refund of accumulated ITC in case of Zero-rated supply without payment of Tax’)
   Value of Export of Goods for the purpose of calculating Value of adjusted total turnover while calculating refund under rule 89 (4) is to be taken as lesser of the FOB value declared in shipping Bill or Value declared in tax invoice.
   (‘This is in alignment with the explanation inserted in Rule 89(4) of the CGST Rules)
3. Clarification regarding admissibility of refund where goods are exported or payment in convertible foreign exchange for service exports are received beyond the period prescribed under sub-rule (1) of rule 96A.

In terms of rule 96A(1) of the CGST rules, the taxpayers are required to pay tax if goods are not exported within three months from the date of issue of invoice or where payment for services exported are not received in convertible foreign exchange within a period of one year from the date of issue of invoice

Vide the circular it is clarified that benefit of zero rating should not be denied even if goods are not exported or payment in convertible foreign exchange is not received within the stipulated period.

It is further clarified that where taxpayers have paid IGST on the grounds of non compliance of provisions of Rule 96A(1), they are eligible to claim refund of the tax paid, as and when goods are actually exported or payment in foreign currency is received for services exported. However, if any
interest is paid by the Tax payers, no refund of such interest paid will be granted.

Circular / Notification No. 198/10/2023

Issue

E-invoice

Gist of Clarification
Registered persons whose turnover exceeds the prescribed threshold for generating E-invoicing are required to mandatorily issue e-invoice for supplies made to governmental Departments or establishments/ government agencies /local authorities /PSU’s ,etc.

Circular / Notification No. 199/11/2023

Issue
Manner of transfer of credit of common input services procured from third parties and Taxability of internally generated services between distinct persons.

Gist of Clarification
The circular clarifies that it is not mandatory to follow the ISD mechanism to distribute credit of common input services procured from third parties. Tax-payers can choose to follow cross charge mechanism by raising Tax invoice under Section 31 of the CGST Act and transfer the credit to the said
Distinct person.

Further credit can be transferred either by way of ISD mechanism or by way of raising Tax invoice under Section 31 only if the said input services are attributable to the said Distinct person or have been provided by such third party to the said distinct person.

(However, in the case of cross charge basis where Tax invoice is raised there is no clarity on the following
aspects namely)

• manner of distribution of credit is not clarified. We therefore recommend that in such cases the value and Tax attributable to the Distinct person may be determined basis the turnover of the
  respective BO’s
  
• Whether value declared in such Tax invoices raised should be considered for the purpose of determining aggregate Turnover or for the purpose of ITC reversal under Rule 42/43 i.e., ITC
  reversal on common input services used for providing taxable and exempt supplies.
  

We are of the view that in such cases there is no underlying supply between distinct persons and as such the value declared in such tax invoice need not be considered for the above purposes)

The circular further clarifies that in case of internally generated services provided by one Distinct person to the other, the value of such services needs to be determined in accordance with the provisions of Rule 28 of the CGST Rules, i.e basis open market value. However, in accordance with the second proviso to the said rule, if the recipient unit is eligible to avail full input tax credit on such services, any value declared in the invoice will be accepted. In the event Tax payers have not raised any invoice for such services, it will be deemed that value declared is nil and the same shall be accepted.

Where the recipient unit is not eligible to full input tax credit, the value needs to be determined in accordance with the provisions of Rule 28, however it is not mandatory that certain components such as salary of employees of the Distinct person working for the recipient unit needs to be considered for determining value even in cases where the recipient unit is not eligible to avail full ITC.

(We recommend that in such cases where full input tax credit is not available to the recipient, even if the component of salary cost of employees is not considered, appropriate value be determined basis provisions consistent with those specified under Rule 28)

Notification No. 25/2023-Central Tax
Matter
Extension of amnesty for non-filers of GSTR 9

Explanation
Rationalization of Late fees provided through Notification No 07/2023– Central Tax, dated the 31st March 2023 for non-filers of Annual return for FY 2017-18 to FY 2021-22 has been extended till 31St August 2023.

Notification No. 22/2023-Central Tax
Matter
Extension of amnesty for non-filers of GSTR 4

Explanation
Rationalization of Late fees provided through Notification No 73/2017– Central Tax, for non-filers of GSTR-4 for FY 2017-18 to FY 2021-22 has been extended till 31St August 2023.

Notification No. 26/2023-Central Tax
Matter
Extension of amnesty for non-filers of GSTR 10

Explanation
Rationalization of Late fees provided through Notification No 08/2023– Central Tax, dated the 31st March 2023 for non-filers of GSTR -10 (Final Return) has been extended till 31St August 2023.