GST Circulars post 53rd GST Council meeting-Analysis-Part 2!

On June 22, 2024, the 53rd GST Council meeting was held in Delhi, with Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitharaman, presiding. The council proposed various adjustments to GST rates, introduced trade facilitation measures, and sought to streamline GST compliance. Many circulars are issued after this meeting by CBIC. Let’s understand them one by one.

Highlights of 53rd GST Council Meeting- Part I

Highlights of 53rd GST Council Meeting- Part II

Highlights of 53rd GST Council Meeting- Part III

GST Circulars post 53rd GST Council meeting- Analysis Part 1

Circular No. 210/4/2024-GST dated 26^th June, 2024

This circular covers Clarification on the valuation of the supply of import of services by a related person where the recipient is eligible for full input tax credit. 

 As per S.No. 4 of Schedule I of the CGST Act, 2017, import of services by a person from a related person or from any of his other establishments outside India, in the course or furtherance of business, is to be treated as supply even if made without consideration.

As per the second proviso to rule 28(1) of CGST Rules, in cases involving the supply of goods or services or both between the distinct or related persons where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value of the said goods or services.

The issue raised by trade and industry states that demands are being raised by some of the field formations against the registered persons seeking tax on a reverse charge basis in respect of certain activities undertaken by their related persons based outside India, by considering the said activities as import of services by the registered person in India, based on an expansive interpretation of the deeming fiction in S.No. 4 of Schedule I of CGST Act, though no consideration is involved in the said activities and the same are not considered as supplies by the said related person in India.

It is clarified in this circular that in cases where the foreign affiliate is providing certain services to the related domestic entity, and where full input tax credit is available to the said related domestic entity, the value of such supply of services declared in the invoice by the said related domestic entity may be deemed as open market value in terms of second proviso to rule 28(1) of CGST Rules. Further, in cases where full input tax credit is available to the recipient if the invoice is not issued by the related 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 in terms of second proviso to rule 28(1) of CGST Rules.

Also, it is stated that in the case of the import of services by a registered person in India from a related person located outside India, the tax is required to be paid by the registered person in India under the reverse charge mechanism. In such cases, the registered person in India is required to issue a self-invoice under Section 31(3)(f) of the CGST Act and pay tax on a reverse charge basis.

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 Circular No. 211/5/2024-GST dated 26^th June, 2024

This circular provides clarification on the time limit under Section 16(4) of the CGST Act, 2017 in respect of RCM supplies received from unregistered persons. 

In the cases where tax is payable on a reverse charge basis by the recipient, such as, where an activity is performed by the overseas related person for the entity located in India and no consideration is involved, such an activity may not be considered as supply of services by the concerned recipient in India and accordingly, no invoice is issued as well as no tax is paid by the said recipient under RCM in respect of the same. However, later on, either on their own based on some clarification issued by the department or based on some court judgment or on being pointed out by the tax authorities during scrutiny or audit or otherwise, the said recipient issues the invoice and pays the tax under RCM, along with interest, and claims input tax credit on such tax paid.

It is represented by the trade and industry that some of the field formations are taking the view that in such cases, the relevant year of the invoice for section 16(4) of CGST Act is the year in which the said supply was received and accordingly, the time limit for availing of ITC under section 16(4) of CGST Act is only up to the September/ November of the following financial year, i.e. the financial year following the financial year in which the said services was received.

In this circular, it is clarified that in cases of supplies received from unregistered suppliers, where tax has to be paid by the recipient under reverse charge mechanism (RCM) and where an invoice is to be issued by the recipient of the supplies by section 31(3)(f) of CGST Act, the relevant financial year for calculation of time limit for availing of input tax credit under the provisions of section 16(4) of CGST Act will be the financial year in which the invoice has been issued by the recipient under section 31(3)(f) of CGST Act, subject to payment of tax on the said supply by the recipient and fulfilment of other conditions and restrictions of section 16 and 17 of CGST Act. In case, the recipient issues the invoice after the time of supply of the said supply and pays tax accordingly, he will be required to pay interest on such delayed payment of tax. Further, in cases of such delayed issuance of invoice by the recipient, he may also be liable to penal action under the provisions of Section 122 of the CGST Act.

In conclusion, it can be said that ITC can be availed by the recipient on the basis of an invoice debit note or other duty-paying document. In RCM cases of unregistered persons, the invoice has to be issued by the recipient himself. Therefore, the relevant financial year, to which the invoice pertains, for time limit for availing of ITC under section 16(4) of CGST Act in such cases shall be the financial year of issuance of such invoice only.

Conclusion

The GST circulars issued after the 53rd GST Council meeting provide crucial clarifications. Circular No. 210/4/2024-GST offers clarity on the valuation of import services from related persons, emphasizing the importance of declaring the value in invoices and the applicability of the reverse charge mechanism. Circular No. 211/5/2024-GST addresses the time limit for availing input tax credit (ITC) in cases of supplies from unregistered persons, highlighting that the financial year for ITC claims is based on the issuance year of the self-invoice by the recipient. These clarifications are instrumental in resolving ambiguities and ensuring uniform application of GST provisions, thereby fostering a more transparent and efficient tax environment.

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