The GST Council has met for the first time post election and the entire industry was keeping an eye on this meeting with high expectations. The council meeting discussed various crucial issues and made certain recommendations to resolve legal and technical issues being faced by the industry. The GST Council recommended about:

1. Changes in tax rates of goods and services;
2. Issues seeking clarification from CBIC
3. Measures to facilitate trade

This article discusses recommendations related to the changes in tax and the issues where necessary clarification is to be issued by CBIC to resolve the pending litigations.

1. Changes in GST Rates

a. Changes in GST Rates of goods

• Imports of ‘Parts, components, testing equipment, tools and tool-kits of aircrafts”: A uniform rate of 5% IGST shall apply irrespective of HS classification. This measure is taken to provide a fillip to MRO activities in India.

• All milk cans, whether made of steel, iron and aluminium, irrespective of their use will attract 12% GST.

• GST rate on ‘carton, boxes and cases of both corrugated and non-corrugated paper or paper-board’ (HS 4819 10; 4819 20) to be reduced from 18% to 12%.

• All solar cookers, whether single or dual energy source, will attract 12% GST.

• Existing entry of “Poultry keeping Machinery”, attracting GST of 12%, will be amended to incorporate “parts of Poultry keeping Machinery”.

• All types of sprinklers, including fire water sprinklers, will attract 12% GST.

• GST Council recommended in 52nd Council meeting about keeping rectified spirit/ Extra Neutral Alcohol (ENA) out of scope of GST when supplied for manufacturing of alcoholic liquor for human consumption. In line with Same, GST Council has recommended corresponding amendment in Section 9(1) of CGST Act.

b. Exemptions from GST

• IGST exemption on imports of specified items for defense forces is further extended for 5 years till 30th June, 2029.

• IGST exemption on imports of research equipment/buoys imported under the Research Moored Array for African-Asian-Australian Monsoon Analysis and Prediction (RAMA) programme subject to specified conditions. 

• Exempt Compensation Cess on the imports in SEZ by SEZ Unit/developers for authorised operations w.e.f. 01.07.2017.

• To exempt Compensation cess on supply of aerated beverages and energy drinks to authorised customers by Unit Run Canteens under Ministry of Defence.

• Adhoc IGST exemption on imports of technical documentation for AK-203 rifle kits imported  for  Indian Defence forces.

c. Change in GST rates of services

• Exemption for Railway
  • Exempt services provided by Indian Railways to general public, namely:

• sale of platform tickets, 
• facility of retiring rooms/waiting rooms, 
• cloak room services and 
• battery-operated car services and 

• Exempt the Intra-Railway transactions. 
• Exempt GST on the services provided by Special Purpose Vehicles (SPV) to Indian Railway by way of allowing Indian Railway to use infrastructure built & owned by SPV during the concession period and maintenance services supplied by Indian Railways to SPV. 
• The issue for the past will be regularized on ‘as is where is’ basis for the period from 01.07.2017 till the date of issue of exemption notification in this regard.

• Exemption for accommodation service

Exempt accommodation services having value of supply up to Rs. 20,000/- per month per person subject to the condition that the accommodation service is supplied for a minimum continuous period of 90 days.  Similar benefit shall be extended for past cases.

• Co-Insurance and re-insurance shall not be considered as supply

Following transactions shall not considered as supply under schedule III of CGST Act:

1. Co-insurance premium apportioned by lead insurer to the co-insurer for the supply of insurance service by lead insurer in coinsurance agreements.
2. Ceding commission or Re-insurance commission between insurer and re-insurer.

Past cases shall be regularized on “as is where is” basis.

Many Insurance companies have received notices for huge GST demand for such activities. Such a recommendation will bring great relief for such companies and it will be a welcome move to resolve the major dispute. 

• Extended benefit of exemption for insurance related services for prior period

GST liability on the Following services shall be regularized on “as is where is” basis:

• reinsurance services of specified insurance schemes covered by Sr. Nos. 35 & 36 of notification No. 12/2017-CT (Rate) dated 28.06.2017 for the period from 01.07.2017 to 24.01.2018
• GST liability on reinsurance services of the insurance schemes for which total premium is paid by the Government that are covered under Sr. No. 40 of notification No. 12/2017-CTR dated 28.06.2017 for the period from 01.07.2017 to 26.07.2018.

• Clarify that retrocession is  ‘re-insurance of re-insurance’  and therefore, eligible for the exemption under Sl. No. 36A of the notification No. 12/2017-CTR dated 28.06.2017.

• Statutory collection made by Real estate Regulatory Authority (RERA)

GST Council has clarified that statutory collections made by Real Estate Regulatory Authority (RERA) are exempt from GST as they fall within the scope of entry 4 of No.12/2017-CTR dated 28.06.2017.

2. Clarification is required to be issued by CBIC on following issues

a. Valuation of corporate guarantee provided between related persons:

• Rule 28(2) of CGST Rules, 2017 was amended to provide that valuation of corporate guarantee service provided between related persons shall be 1% of the amount of guarantee offered or actual consideration, whichever is higher.
• Further, Circular No. 204/16/2023-GST dated 27 October 2023 also clarified that such deeming provisions shall also apply in the cases where full ITC is available to the recipient of services.
• However, GST Council has recommended that provisions of Rule 28(2) of CGST Rules would not be applicable in case of export of such services and also where the recipient is eligible for full input tax credit.

b. Clarification on valuation of Import of service between related persons where recipient is eligible for ITC

• Earlier, Clarification regarding valuation of service provided between distinct person, i.e., office of organization in one state to office of organization in another state, was issued vide circular No.  199/11/2023-GST  dated 17th July, 2023.
• However, such a circular did not discuss valuation in case of import of service between distinct persons.
• In this context, GST council has recommended to clarify that:
  • Where service is provided by foreign affiliate to a related domestic entity and the recipient is entitled to full ITC then value of services declared in the invoice by the domestic entity shall be deemed as open market value for second proviso to rule 28(1) of CGST Rules. 
  • Further, where no invoice is raised by the related domestic entity and full ITC is available to the recipient then the value of such services shall be deemed as Nil and may be deemed as open market value in terms of second proviso to rule 28(1) of CGST Rules.

• This clarification will be a relief for taxpayers who have missed issuing invoices for services between related parties, especially where there is no consideration involved. 

c. ITC is admissible on ducts and manholes used in the network of Optical Fiber Cables (OFCs): 

• The Council recommended to clarify that ITC is not restricted in respect of ducts and manhole used in the network of optical fiber cables (OFCs) under Setion 17(5)(c) of CGST Act.
• This clarification is aiming for the business in telecommunication and internet infrastructure sector to reduce cost of Input and avoid litigations

d. Place of supply applicable for custodial services provided by banks: 

• The Council recommended to clarify that the place of supply of Custodial services supplied by Indian Banks to Foreign Portfolio Investors is determinable as per Section 13(2) of the IGST Act, 2017.

e. Clarification on following issues to provide clarity to trade and tax officers and to reduce litigation:

• Clarification on taxability of re-imbursement of securities/shares as ESOP/ESPP/RSU provided by a company to its employees
• Clarification on requirement of reversal of input tax credit in respect of amount of premium in Life Insurance services, which is not included in the taxable value as per Rule 32(4) of CGST Rules.
• Clarification on taxability of wreck and salvage values in motor insurance claims
• Clarification in respect of Warranty/ Extended Warranty provided by Manufacturers to the end customers
• Clarification regarding availability of input tax credit on repair expenses incurred by the insurance companies in case of reimbursement mode of settlement of motor vehicle insurance claims.
• Clarification on taxability of loans granted between related person or between group companies.
• Clarification on time of supply on Annuity Payments under HAM Projects.
• Clarification regarding time of supply in respect of allotment of Spectrum to Telecom companies in cases where payment of licence fee and Spectrum usage charges is to be made in instalments.
• Clarification relating to place of supply of goods supplied to unregistered persons, where delivery address is different from the billing address
• Clarification on mechanism for providing evidence by the suppliers for compliance of the conditions of Section 15(3)(b)(ii) of CGST Act, 2017 in respect of post-sale discounts, to the effect that input tax credit has been reversed by the recipient on the said amount.
• Clarifications on various issues pertaining to special procedure for the manufacturers of the specified commodities, like pan masala, tobacco etc.