ITC reversal by ECO- GST Circular dated 31.12.2024!

The dynamic nature of the Goods and Services Tax (GST) regime in India often necessitates clarifications to address ambiguities and ensure uniform compliance across industries. One such area that has witnessed consistent updates is the tax treatment of services provided through Electronic Commerce Operators (ECOs), particularly those covered under Section 9(5) of the Central Goods and Services Tax (CGST) Act, 2017.

To address queries and streamline compliance, the GST Circular No. 240/34/2024-GST, dated 31^st December 2024, sheds light on the Input Tax Credit (ITC) obligations of ECOs for services supplied under Section 9(5). This circular builds on earlier guidelines and provides clarity on whether ECOs are required to reverse ITC on such supplies.

Let's understand the details!

Circular No. 240/34/2024-GST Central Tax dated 31.12.2024:

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GOVERNMENT OF INDIA

MINISTRY OF FINANCE

DEPARTMENT OF REVENUE

CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS

GST POLICY WING

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F. No. CBIC-20001/14/2024-GST

New Delhi: 31.12.2024

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Circular No. 240/34/2024-GST

To,

The Principal Chief Commissioners/ Chief Commissioners of Central Tax (All)

The Principal Directors General/ Directors General (All)

Sub: Clarification in respect of input tax credit availed by electronic commerce operators where services specified under Section 9(5) of Central Goods and Services Tax Act, 2017 are supplied through their platform -reg.

Reference is invited to Circular No. 167/23/2021 - GST dated 17.12.2021 which clarified that electronic commerce operators (hereinafter referred to as "ECOs") required to pay tax under section 9(5) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as "CGST Act") are not required to reverse input tax credit (ITC) in respect of supply of restaurant services through their platform (notified services under section 9(5)). In this regard, representations have been received seeking clarification regarding the requirement of reversal of ITC, if any, in respect of the supply of services, other than restaurant services, under section 9(5) of the CGST Act.

2. The issue has been examined and to ensure uniformity in the implementation of the law across the field formations, the Board, in the exercise of its powers conferred under section 168(1) of the CGST Act, hereby clarifies the issue as below:

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3. It is requested that suitable trade notices may be issued to publicize the contents of this Circular.

4. Difficulty, if any, in implementation of this Circular may be brought to the notice of the Board. The Hindi version would follow.

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(Sanjay Mangal)                       

Principal Commissioner (GST)

Key Highlights

1. Context of the Circular:
   • As per section 9(5) of the CGST Act, 2017, the Government may specify categories of services the tax on intra-State supplies of which shall be paid by the Electronic Commerce Operator (ECO) if such services are supplied through it. Accordingly, Notification No. 17/2017 - Central Tax (Rate) contains the list of services on which tax is to be paid by the ECO as if he is supplying such services. The specified services are as follows:
     1. Transportation of passengers
     2. Providing accommodation in hotels
     3. House-keeping
     4. Restaurant service
   • Circular No. 167/23/2021-GST dated 17.12.2021 clarified the issue of whether ECO is required to reverse proportionate ITC for restaurant services for the reason that input tax credit is not admissible on 'restaurant service'. It stated that the ECO is not required to reverse proportionate ITC for restaurant services. ITC can be claimed in full while paying dues other than tax u/s 9(5) by the ECO.
   • Now, Circular No. 240/34/2024-GST dated 31.12.2024 clarifies about the ITC reversal w.r.t. other services u/s 9 (5).
2. Clarification on ITC Reversal:
   • ECOs are not required to reverse ITC on inputs and input services used for supplies covered under Section 9(5) of the CGST Act (e.g., notified services such as transportation, housekeeping, hotel, etc.).
   • The principle outlined in the earlier circular for restaurant services applies equally to other notified services under Section 9(5).
3. ITC Utilization Restrictions:
   • The ITC availed by ECOs cannot be utilized for discharging the tax liability under Section 9(5).
   • Tax liabilities for supplies under Section 9(5) must be paid in cash via the electronic cash ledger.
   • However, the ITC can be utilized for discharging tax liabilities related to the ECO's own services, such as platform fees or commissions.

Conclusion

The GST Circular No. 240/34/2024-GST, dated 31st December 2024, provides much-needed clarity on the treatment of Input Tax Credit (ITC) for Electronic Commerce Operators (ECOs) dealing with notified services under Section 9(5) of the CGST Act. By reiterating that ECOs are not required to reverse ITC for such services and emphasizing the necessity to discharge tax liabilities through the electronic cash ledger, the government has streamlined compliance requirements while maintaining fairness in tax administration.

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