Clarification on Difference in ITC availed in GSTR-3B and GSTR-2A, TCS in case of multiple e-commerce operators and ITC reversal on warranty replacements

Clarification on Difference in ITC availed in GSTR-3B and GSTR-2A, TCS in case of multiple e-commerce operators and ITC reversal on warranty replacements

1. Clarification on the availing of Input Tax Credit (ITC) in GSTR-3B and GSTR-2A for the period 01.04.2019 to 31.12.2021 | Circular No. 193/05/2023-GST

Background:

CBIC has clarified the manner of dealing with differences in ITC available in GSTR-3B and ITC available as per GSTR-2A vide Circular No. 183/15/2022-GST dated 27th December, 2022 for FY 2017-18 and 2018-19 in various situations.

Now the GST council has issued the similar following guidelines for the period of 01.04.2019 to 31.12.2021 vide Circular No. 193/05/2023-GST dated 17th July, 2023:

  • ITC is available subject to restrictions given under Section 16 of CGST Act with effect from 1st July, 2017 itself. 
  • Rule 36(4) of CGST Rules restricted ITC up to certain specified limit beyond the ITC available as per FORM GSTR- 2A with effect from 9th October, 2019 in following manner:
PeriodITC permitted
1st april 2019 to 8th october  2018Without any limit
9th october 2019 to 31st december 2019120% of the eligible ITC available in GSTR-2A
1st january 2020 to 31st december 2020110% of the eligible ITC available in GSTR-2A
1st january 2021 to 31st december 2021105% of the eligible ITC available in GSTR-2A
W.e.f. 1st January, 2022Only eligible ITC available in GSTR-2A
  • Since, ITC restriction has been changed in a phased manner, therefore, provisions of Circular No. 183/15/2022-GST dated 27th December, 2022 shall apply in following manner:
  1. 1st April 2019 to 8th October 2018: GST Circular 183/15/2022-GST dated 27th December, 2022 shall apply in total as it is.
  1. 9th October 2019 to 31st December 2019: 
    1. Rule 36(4) of CGST Rules permitted availment of ITC upto 120% of the ITC details of which is furnished by supplier in their GSTR-1 or IFF.
    2. Accordingly, the guidelines provided by Circular No. 183/15/2022 shall be applicable for verification of the condition given under Section 16(2)(c) of CGST Act shall not exceed 20% of the eligible credit available in GSTR-2A
    3. E.g.

ITC available in GSTR-2A: INR 3,00,000

ITC availed in GSTR-3B: INR 5,00,000

ITC admissible under Rule 36(4) of CGST Rules: INR 3,60,000 (3,60,000 * 120%)

ITC of INR 1,40,000 has been availed in excess of ITC permitted under Rule 36(4) of CGST Rules. Therefore, such ITC shall not be allowed even if documents prescribed under Circular No. 183/15/2022 is also produced by the registered person.

Benefit of Circular Circular No. 183/15/2022 can be taken for INR 60,000.

  1. 1st January 2020 to 31st December 2020: Benefit of Circular No.  183/15/2022 can be taken for 10% of eligible ITC appearing in GSTR-2A.
  1. 1st January 2021 to 31st December 2021: Benefit of Circular No.  183/15/2022 can be taken for 5% of eligible ITC appearing in GSTR-2A.
  1. 1st January, 2022 onwards: Consequent to insertion of Section 16(2)(aa) of CGST Act and amendment of Rule 36(4) of CGST Rules, with effect from 01.01.2022, no ITC shall be allowed in respect of invoices which are not appearing in GSTR-2B.

2. Clarification on TCS liability in case of multiple E-commerce Operators in one transaction | Circular No. 194/06/2023-GST

In this circular, the CBIC clarified the Tax Collected at Source (TCS) liability under Section 52 of CGST Act for transactions involving multiple E-commerce Operators (ECOs).The ECO responsible for collecting TCS and compliance depends on whether the supplier-side ECO is also the goods/services supplier.

In case of open network for digital commerce(ONDC) agreements where multiple E-commerce operators are involved. The clarity was required to decide which ECO shall be responsible to deduct the TCS and comply with other provisions of Section 52. 

In the case of the ONDC Network or similar other arrangements, there are multiple ECOs involved in a single transaction, i.e., one providing an interface to the buyer and the other providing an interface to the seller. In this setup, the buyer-side ECO could collect consideration, deduct their commission and pass on the consideration to the seller-side ECO. 

a. Issue 1:

In a situation where multiple ECOs are involved in a single transaction of supply of goods or services or both through the ECO platform and where the supplier-side ECO himself is not the supplier in the said supply, who is liable for compliances under section 52 including collection of TCS ?

Buyer > Buyer Side ECO > Supplier side ECO > Supplier

Clarification :

The responsibility for compliance under section 52 of CGST Act, including collection of TCS, is to be done by the supplier-side ECO who finally releases the payment to the supplier for a particular supply made by the said supplier through him.

For Example: Buyer-side ECO collects payment from the buyer, deducts its fees/commissions and remits the balance to Seller-side ECO. Here, the Seller-side ECO will release the payment to the supplier after deduction of his fees/commissions. Therefore, supplier side ECO will be required to comply with provisions of Section 52 of CGST Act.

Issue 2: 

In a situation where multiple ECOs are involved in a single transaction of supply of goods or services or both through ECO platform and the Supplier-side ECO is himself the supplier of the said supply, who is liable for compliances under section 52 including collection of TCS?

Buyer > Buyer Side ECO > Supplier (also and ECO) 

Clarification :

In such a situation, TCS is to be collected by the Buyer-side ECO while making payment to the supplier for the particular supply being made through it.

For example : Buyer-side ECO, receiving payment from the buyer, deducts its fees, and sends the balance to the supplier (also an ECO per CGST Act Sec 2(45)). Here, the Buyer-side ECO must also collect and pay applicable TCS (Section 52, CGST Act) , along with other Section 52 compliances.

3. Clarifications regarding applicability of GST on certain services –reg. | Circular No. 201/13/2023-GST

The Government of India’s Ministry of Finance, Department of Revenue (Tax Research Unit), has recently issue Circular No. 201/13/2023-GST,  providing clarifications on the rates and classification of certain goods and services based on the recommendations of the GST Council in its 50th meeting held on 11th July 2023.These clarifications resolve doubts and ensure consistent GST application across various sectors.

Issue: 1 Whether  the services  supplied  by  director  of  a  company  in  his  personal  capacity  such  as renting  of  immovable  property  to  the  company  or  body  corporate  are  subject  to  Reverse Charge mechanism(RCM):

Clarification :

Entry No. 6 of notification No 13/2017 CTR dated 28.06.2017 provides that tax on services supplied by director of a company shall be paid by the company under Reverse Charge Mechanism

Therefore, CBIC has clarified that Services provided by a director to their company in a personal capacity, like property renting, aren’t taxed under Reverse Charge Mechanism (RCM). Only director services in an official capacity are taxed under RCM.

Issue 2:

Whether the supply  of  food  or beverages  in the cinema  hall  is  taxable  as  restaurant service of 5%.

Clarification :

The cinema operator may run refreshment or eating stalls in Cinema halls themselves or may give to a third party on contract basis. The customer may like to avail the services supplied by these stalls or choose not to avail these services. Also, the cinema operator can also install vending machines, or supply any other recreational service such as through coin operated machines etc. 

CBIC has clarified that supply of food or beverages in a cinema hall is taxable as ‘restaurant service’ under GST at the rate of 5%  as long as:

  1. the food or beverages are supplied by way of or as part of a service; and,
  2. supplied independent of the cinema exhibition service.

Also, CBIC has clarified that where the sale of cinema ticket and supply of food and beverages are clubbed together, and such bundled supply satisfies the test of composite supply, the entire supply will attract GST at the rate applicable to service of exhibition of cinema, the principal supply.

4. CBIC’s Circular No. 195/07/2023-GST provides ITC and GST clarifications for part replacements and repairs under warranty periods.

CBIC has received various representations that as a common trade practice, the original equipment manufacturers (OEM) offers warranty for the goods supplied by them. During the warranty period, replacement goods /services are supplied to customers on Free of Charge basis and as such no separate consideration is charged and received at the time of replacement. 

Therefore, clarification is required to avoid unnecessary litigation with respect to GST liability as well as liability to reverse ITC against such supplies of replacement of parts and repair services during the warranty

Key points on Applicability of GST and ITC reversal are summarized below:

S.No.IssueClarification
1In cases of Original Equipment Manufacturer (OEM) warranty, where parts replacement or repair services are provided during the warranty period without separate charges.
whether GST is applicable on such replacement of part or supply of repair services made without any consideration?
The value of original supply of goods includes the likely cost of replacement of parts or repair services to be incurred during the warranty period. Tax on such invoice is already paid at the time of supply of goods.
Therefore, During the warranty period, If manufacturer offers free warranty service or provide replacement of part, GST is not applicable on the same.
However, if any additional fee is charged for the replacements, GST will be applicable on the additional consideration.
2In such cases, whether the manufacturer is required to reverse input tax credit taken for parts supplied under warranty  or repair services provided without consideration?Original goods supply with warranty includes estimated repair/replacement costs. Therefore, supply of repair services and replacement part is not considered as exempted services.
Accordingly, the manufacturer is not required to reverse the input tax credit in respect of the said replacement parts or on the repair services provided.
3Whether GST is applicable if the distributor provides free warranty parts or repairs services on behalf of the manufacturer without any consideration?In such cases, as no consideration is being charged by the distributor from the customer. Therefore, no GST would is payable by the distributor on such supply.
However, if any additional consideration ischarged by the distributor from the customer,then GST will be payable on such supply with respect to such additional consideration
4In the above scenario where distributor provides warranty replacement or repair services to the customers without any consideration, is there any supply involved between distributor and manufacturer? 
Whether the distributor will be required to reverse input tax credit for parts replacement?
(a) In some cases, distributor replaces the part(s) warranty from his own stocks and charges the consideration for such part  from the manufacturer by raising a tax invoice.
In such a case, GST is payable by the distributor on the said supply made by him to the manufacturer and the manufacturer would be entitled to avail the ITC on such invoice.
Further, no reversal of ITC is required by the distributor.
(b) In case where distributor obtain the part from the manufacturer for replacement purpose, the manufacturer is providing such part(s) to the distributor for replacement to the customer during the warranty period, without separately charging any consideration.
Therefore, no GST is payable on such replacement of part. Further, no reversal of ITC is required by the manufacturer.
(c) In some cases, the distributor replaces the part(s) under warranty out of the supply already received from the manufacturer and the manufacturer issues a credit note in respect of such replacement.
Accordingly, the tax liability may beadjusted by the manufacturer, subject to thecondition that the said distributor has reversed the ITC availed against the parts so replaced.
5If distributor gives free warranty repair service to customer on behalf of manufacturer but charges manufacturer for it (via tax invoice/debit note), would GST be applicable on this activity carried out by the distributor?In this case, the distributor supplies repair services to the manufacturer. The manufacturer is the recipient as per GST Act, 2017. GST is applicable to this service by the distributor to the manufacturer. The manufacturer can claim input tax credit, As per CGST Act
6Sometimes companies provide  offers  of  Extended warranty  to  the  customers which can be availed at the time of original supply or just before  the  expiry  of  the standard  warranty  period. Whether  GST  would  be payable in both the cases?If a customer agrees to extended warranty during original supply, its cost is included in the composite supply value with the main supply as goods. GST is levied accordingly.If a consumer adds extended warranty post-original supply, it’s a distinct contract. GST is applicable based on the contract’s nature (goods, services, or composite supply). Manufacturer, distributor, or third party may pay GST accordingly.

DISCLAIMER: The views expressed are strictly of the author and VJM & Associates LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

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