GST Update: Issuance of Circulars to clarify certain issues under GST
by Rein Heads | Nov 2, 2023
| Dear All,
The Central Board of Indirect taxes and Customs (‘CBIC’) has issued Circulars 202/14/2023 to 204/16/2023 dated 27 October 2023 to clarify certain important issues under GST. The key aspects clarified in the said Circulars are summarized hereinbelow:
Circular No. 202/14/2023
For services to be treated as an export, one of the key conditions stipulated is that payment for such services should be received in convertible foreign exchange or Indian rupees wherever permitted by the Reserve Bank of India (‘RBI’)
It is clarified that if the payment for the export of services has been made into a Special Rupee Vostro Account of the correspondent bank account of the partner trading country, such payment shall be deemed as fulfillment of the conditions mentioned above. However, this is subject to the conditions stipulated in the Foreign Trade Policy 2023 and Circulars issued by the RBI in this regard.
Circular No. 203/15/2023
Clarification has been provided in respect of the applicability of Place of Supply (‘PoS’) provisions for the following services:
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PoS Clarifications |
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Service of transportation of goods
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Section 13(9) of the IGST Act has been omitted w.e.f. 1 October 2023 which provided that where supplier or recipient of services is located outside India, PoS for service of transportation of goods (other than mail and courier) shall be the destination of goods
It has been clarified that post omission of such provision, PoS for said services shall be as per default rule as provided under section 13(2) of the IGST Act i.e., as per the recipient location and not as per performance-based services provided under section 13(3)
For services of transportation of goods through mail and courier, PoS will continue to be determined under section 13(2) of the IGST Act
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Advertisement services
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In the case where vendor is selling right to use the space on hoarding/ structure (immovable property) to advertising company for display of their advertisement, such hoardings/ structure erected on the land should be considered as an immovable structure or fixture as it has been embedded in earth. Accordingly, PoS in such case would the location of immovable property
Where advertising company wishes to display its advertisement into specific locations and vendor is responsible for arranging such locations, such supply would be treated as supply of pure advertisement services and not in respect of an immovable property. Accordingly, PoS of such services would be determined as per Section 12(2) of the IGST Act i.e., location of the service recipient
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Co-location services
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Co location is a data center facility where companies can rent space for its servers and hardware’s along with other bundled services related to information technology (‘IT’) including security and upkeep of servers, interaction with system through a web based system etc. In this regard, it is clarified that:
Co-hosting services are in the nature of ‘hosting and IT provisioning services and do not appear to be limited to availability of immovable property. Such services include bundle of activities related to IT and therefore PoS of such services shall not be determined as per PoS of immovable property related services
However, where contract is limited to availability of space only with basic infrastructure for storage of servers and hardware without any IT support, such services shall be treated as supply of renting of immovable property and PoS shall be determined accordingly.
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Circular No. 204/16/2023
The following aspects have been clarified with respect to the value of corporate guarantee provided between the related parties:
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Services
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Value of Services
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Corporate guarantee provided by Directors on behalf of a Company
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As director/ promoters is a related party to the Company as per GST law provisions, such services of providing corporate guarantee to banks/financial institution (on behalf of the Company) would be treated as supply even without consideration as per entry number 1 of Schedule I to the CGST Act
Further, as per RBI guidelines, directors/ promoters cannot charge any consideration from the Company in respect to their personal guarantee provided. Due to such restrictions, open market value of such guarantee is Zero and therefore taxable value of such supplies would be Zero
However, where directors/ promoters are no longer connected with the management and continue to provide their guarantee as new management is unable to provide guarantee, in such a case taxable value shall be value of consideration paid to the person/ guarantor
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Corporate guarantee provided by person on behalf of other related person (including guarantee by holding company to its subsidiary company)
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In such case, taxable value of such services shall be determined as per newly inserted sub rule 2 to Rule 28 of the CGST Rules which provided that taxable value in such case shall be 1% of the value of the corporate guarantee provided or actual consideration, whichever is higher. |
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