GST Circulars post 53rd GST Council meeting-Analysis-Part 4!

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

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

GST Circulars post 53rd GST Council meeting- Analysis Part 3

Circular No. 215/9/2024-GST dated 26^th June, 2024

This circular provides clarification on the taxability of salvage/ wreck value earmarked in the claim assessment of the damage caused to the motor vehicle. 

The insurance companies, which are engaged in providing general insurance services in respect of insurance of motor vehicles, insure the cost of repairs/ damages of motor vehicles incurred by the policyholders. Such damages to the insured vehicle are classified into two categories: 

• Total Loss/ Constructive Total Loss or Cash Loss; and 
• Partial Loss Situation

The question was whether the insurance company is liable to pay GST on the salvage/ wreckage value earmarked in the claim assessment of the damage caused to the motor vehicle. It is clarified that in cases where due to the conditions mentioned in the contract itself, general insurance companies are deducting the value of salvage as deductibles from the claim amount, the salvage remains the property of the insured, and insurance companies are not liable to discharge GST liability on the same. However, in cases, where the insurance claim is settled on the full claim amount, without deduction of the value of salvage/ wreckage (as per the terms of the contract), the salvage becomes the property of the insurance company and the insurance company will be obligated to discharge GST on supply of salvage to the salvage buyer. 

Circular No. 216/10/2024-GST dated 26^th June, 2024

This circular provides clarifications on various matters as follows:

•  Clarification regarding GST liability as well as liability to reverse input tax credit in respect of cases where goods as such or the parts are replaced under warranty:

A table in Para 2 of Circular No. 195/07/2023-GST dated 17.07.2023 clarifies GST liability as well as liability to reverse ITC, only in cases involving replacement of 'parts' and not if goods as such are replaced under warranty. It is clarified that the clarification provided in Para 2 of the said circular is also applicable in cases where the goods as such are replaced under warranty. Accordingly, wherever, ‘any part,’ ‘parts’ and ‘part(s)’ have been mentioned in Para 2 of Circular No. 195/07/2023-GST dated 17.07.2023, the same may be read as ‘goods or its parts, as the case may be’.

• Clarification in respect of cases where the distributor replaces the parts/ goods to the customer as part of warranty out of his own stock on behalf of the manufacturer and subsequently gets replenishment of the said parts/ goods from the manufacturer:

There may be cases where the distributor replaces the goods or their parts to the customer under warranty by using his stock and then raises a requisition to the manufacturer for the goods or the parts, as the case may be. The manufacturer then provides the said goods or the parts, as the case may be, to the distributor through a delivery challan, without separately charging any consideration at the time of such replenishment. In such a case, no GST is payable on such replenishment of goods or parts, as the case may be. Further, no reversal of ITC is required to be made by the manufacturer in respect of the goods or the parts, as the case may be, so replenished to the distributor.

• Nature of supply of extended warranty, at the time of original supply of goods, as a separate supply from the supply of goods, if the supply of extended warranty is made by a person different from the supplier of the goods:

(a) If a customer enters into an agreement of extended warranty with the supplier of the goods at the time of original supply, then the consideration for such extended warranty becomes part of the value of the composite supply, the principal supply being the supply of goods, and GST would be payable accordingly. However, if the supply of extended warranty is made by a person different from the supplier of the goods, then the supply of extended warranty will be treated as a separate supply from the original supply of goods and will be taxable as a supply of services. 

(b) In case where a consumer enters into an agreement of extended warranty at any time after the original supply, then the same shall be treated as a supply of services distinct from the original supply of goods, and the supplier of the said extended warranty shall be liable to discharge GST liability applicable on such supply of services.

Circular No. 217/11/2024-GST dated 26^th June, 2024

This circular provides clarification about the entitlement of ITC by the insurance companies on the expenses incurred for the repair of motor vehicles in case of reimbursement mode of insurance claim settlement.

The insurance companies, which are engaged in providing general insurance services in respect of insurance of motor vehicles, insure the cost of repairs/ damages of motor vehicles incurred by the policyholders and settle the claims in two modes i.e., Cashless or Reimbursement.

The following issues are clarified in this regard:

• ITC is available to insurance companies in respect of repair expenses reimbursed by the insurance company in case of reimbursement mode of claim settlement.

It is clarified that ITC is available to Insurance Companies in respect of motor vehicle repair expenses incurred by them in case of reimbursement mode of claim settlement. 

• Where the invoice raised by the garage also includes an amount in excess of the approved claim cost, the insurance company only reimburses the approved claim cost to the garage after considering the standard deductions viz. the compulsory deductibles to be borne by the insured, depreciation, improvements outside the coverage, the value of salvage of the damaged parts of the motor vehicles, etc. The remaining amount is to be paid by the insured to the garage. What is the extent of ITC available to the insurer in such cases? 

In cases where the garage issues two separate invoices in respect of the repair services, one to the insurance company in respect of the approved claim cost and second to the customer for the amount of repair service in excess of the approved claim cost, the input tax credit may be available to the insurance company on the said invoice issued to the insurance company subject to reimbursement of said amount by the insurance company to the customer. 

However, if the invoice for the full amount for repair services is issued to the insurance company while the insurance company makes reimbursement to the insured only for the approved claim cost, then, the input tax credit may be available to the insurance company only to the extent of reimbursement of the approved claim cost to the insured, and not on the full invoice value. 

• ITC is available to the insurer where the invoice for the repair of the vehicle is not in the name of the insurance company?

In such a case, conditions of clause (a) and (aa) of section 16(2) of the CGST Act is not satisfied and accordingly, the input tax credit will not be available to the insurance company in respect of such an invoice. 

Conclusion

The circulars issued after the 53rd GST Council meeting provide crucial clarifications on various aspects of GST compliance, particularly for insurance companies and their treatment of claims and warranties. These clarifications not only aid in ensuring proper GST compliance but also facilitate smoother operations for insurance companies and their customers. Understanding and adhering to these guidelines is essential for stakeholders to navigate the complexities of GST effectively.

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