GST Circulars post 53rd GST Council meeting-Analysis-Part 5!

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

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

Circular No. 218/12/2024-GST dated 26^th June, 2024

This circular provides clarification regarding the taxability of the transaction of providing a loan by an overseas affiliate to its Indian affiliate or by a person to a related person.

The question is whether the activity of providing loans by an overseas affiliate to its Indian affiliate or by a person to a related person, where there is no consideration in the nature of processing fee/ administrative charges/ loan granting charges etc., and the consideration is represented only by way of interest or discount, will be treated as a taxable supply of service under GST or not. 

It is clarified that in the cases, where no consideration is charged by the person from the related person, or by an overseas affiliate from its Indian party, for extending a loan or credit, other than by way of interest or discount, it cannot be said that any supply of service is being provided between the said related persons in the form of processing/ facilitating/ administering the loan, by deeming the same as the supply of services as per clause (c) of sub-section (1) of section 7 of the CGST Act, read with S. No. 2 and S. No. 4 of Schedule I of CGST Act. Accordingly, there is no question of levy of GST on the same by resorting to open market value for valuation of the same as per rule 28 of Central Goods and Services Tax Rules, 2017. 

However, in cases of loans provided between related parties, wherever any fee in the nature of processing fee/ administrative charges/ service fee/ loan granting charges etc. is charged, over and above the amount charged by way of interest or discount, the same may be considered to be the consideration for the supply of services of processing/ facilitating/ administering of the loan, which will be liable to GST as the supply of services by the lender to the related person availing the loan. 

Circular No. 219/13/2024-GST dated 26^th June, 2024

This circular provides clarification on the availability of input tax credits on ducts and manholes used in the network of optical fiber cables (OFCs) in terms of section 17(5) of the CGST Act, 2017.

The question is whether the input tax credit on the ducts and manholes used in the network of optical fiber cables (OFCs) for providing telecommunication services is barred in terms of clauses (c) and (d) of sub-section (5) of section 17 of the CGST Act, read with Explanation to section 17 of CGST Act, 2017.

In view of the Explanation in section 17 of the CGST Act, it appears that ducts and manholes are covered under the definition of “plant and machinery” as they are used as part of the OFC network for making outward supply of transmission of telecommunication signals from one point to another. Therefore, it is clarified that availing of input tax credit is not restricted with respect to such ducts and manholes used in the network of optical fiber cables (OFCs), either under clause (c) or under clause (d) of sub-section (5) of section 17 of CGST Act. Ducts and manholes are basic components for the optical fiber cable (OFC) network used in providing telecommunication services. 

Circular No. 220/14/2024-GST dated 26^th June, 2024

This circular provides clarification on the place of supply applicable for custodial services provided by banks to Foreign Portfolio Investors. 

Representations were filed by banks seeking clarification on the Place of Supply in cases of Custodial Services provided by Banks to Foreign Portfolio Investors (FPIs), as a view is being taken by some field formations that the Place of Supply in case of ‘custodial service’ would be determined as per Section 13(8)(a) of the IGST Act, 2017, i.e. the location of the service provider (banks or financial institutions).

The question is Whether the activity of providing Custodial Services by banks or financial institutions to FPIs will be treated as services provided to an 'account holders' under Section 13(8)(a) of the IGST Act, 2017. Further, how the place of supply of the said services shall be determined? 

It is clarified that the custodial services provided by banks or financial institutions to FPIs are not to be treated as services provided to 'account holders' and therefore, the said services are not covered under Section 13(8)(a) of the IGST Act. Therefore, the place of supply of such services is not to be determined under Section 13(8)(a) of the IGST Act but has to be determined under the default provision i.e., sub-section (2) of section 13 of the IGST Act. Section 13(2) is the default rule which says that The place of supply of services shall be the location of the recipient of services:

Provided that where the location of the recipient of services is not available in the ordinary course of business, the place of supply shall be the location of the supplier of services.

Circular No. 221/15/2024-GST dated 26^th June, 2024

This circular provides clarification on the time of supply with respect to the supply of services for the construction of roads and maintenance thereof of National Highway Projects of the National Highways Authority of India (NHAI) in a Hybrid Annuity Mode (HAM) model.

Representations were filed by the trade and the field formations seeking clarification regarding the time of supply in respect of the supply of services of construction of road and maintenance thereof of National Highway Projects in the Hybrid Annuity Mode (HAM) model, where a certain portion of Bid Project Cost is received during the construction period and the remaining payment is received through deferred payment (annuity) spread over years.

The question was that under the HAM model of the National Highways Authority of India (NHAI), the concessionaire has to construct the new road and provide Operation & Maintenance of the same which is generally over a period of 15-17 years, and the payment of the same is spread over the years. What is the time of supply for the purpose of payment of tax on the said service under the HAM model? 

It is clarified that the tax liability on the concessionaire under the HAM contract, including on the construction portion, would arise at the time of issuance of invoice, or receipt of payments, whichever is earlier, if the invoice is issued on or before the specified date or the date of completion of the event specified in the contract, as applicable. If invoices are not issued on or before the specified date or the date of completion of the event specified in the contract, tax liability would arise on the date of provision of the said service (i.e., the due date of payment as per the contract), or the date of receipt of the payment, whichever is earlier. 

It is also clarified that as the installments/annuity payable by NHAI to the concessionaire also includes some interest component, the amount of such interest shall also be includible in the taxable value for the purpose of payment of tax on the said annuity/installment in view of the provisions of section 15(2)(d) of the CGST Act. 

 Circular No. 222/16/2024-GST dated 26^th June, 2024

This circular provides clarification on the time of supply of services of spectrum usage and other similar services under GST.

Representations were filed by the trade and the field formations seeking clarification regarding the time of supply for payment of GST in respect of the supply of spectrum allocation services in cases where the successful bidder for spectrum allocation (i.e. the telecom operator) opts for making payments in installments under deferred payment option as per Frequency Assignment Letter (FAL) issued by Department of Telecommunication (DoT), Government of India.

The question was that in cases of spectrum allocation where the successful bidder opts for making payments in installments as mentioned in the Notice Inviting Application (NIA) and Frequency Assignment Letter (FAL) issued by the Department of Telecommunications (DoT), Government of India, what will be the time of supply for the purpose of payment of GST on the said supply of spectrum allocation services. 

It is clarified that in the case where full upfront payment is made by the telecom operator, GST would be payable when the payment of the said upfront amount is made or is due, whichever is earlier, whereas in case where deferred payment is made by the telecom operator in specified installments, GST would be payable as and when the payments are due or made, whichever is earlier. 

It is also clarified that the similar treatment regarding the time of supply, as is discussed in the above paras, may apply in other cases also where any natural resources are being allocated by the government to the successful bidder/ purchaser for right to use the said natural resource over a period of time, constituting continuous supply of services as per the definition under section 2(33) of the CGST Act, with the option of payments for the said services either through an upfront payment or in deferred periodic installments over the period of time. 

Conclusion

The circulars issued following the 53rd GST Council meeting address significant areas of GST compliance, providing much-needed clarity on various complex issues. These clarifications collectively enhance compliance, reduce ambiguities, and support the smooth functioning of businesses under the GST regime. Understanding and implementing these guidelines will help businesses navigate the evolving GST landscape more effectively.

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