GST Update No 236 on clarification on various issues under GST

GST law has brought pandora’s box of disputes in the interpretation of various provisions. CBIC has issued Circular No. 172/04/2022-GST dated 06.07.2022 to clarify various issues pertaining to GST. The present update seeks to discuss the key highlights of recent clarification issued by CBIC.

1. Refund claimed by recipients of supplies regarded as deemed exports: Various representations are received from trade and industry as regards whether the input tax credit availed by recipient of deemed export supply for claiming refund of tax paid be subject to provisions of Section 17 of CGST Act, 2017 and whether it is to be included in “Net ITC” for computation of unutilised ITC in accordance with Rule 89(4) and (5) of CGST Rules, 2017. In this respect, it is clarified that considering the earlier difficulties faced by the recipient on portal as regards to debiting of amount from electronic credit ledger, it has been clarified vide Circular No. 147/03/2021-GST dated 12.03.2021 that the ITC shall be made available to the recipients. However, the credit so availed is due to technical lacunae in the GST portal and is not in terms of input tax credit as prescribed under Chapter V of CGST Act, 2017. Therefore, it shall not be subject to provisions of Section 17 of CGST Act, 2017. Consequently, it shall not be included in “Net ITC” for computation of refund of unutilised ITC of zero-rated supply under Rule 89(4) of CGST Rules, 2017 or on account of refund of inverted rated structure under Rule 89(5) of the CGST Rules, 2017 .

Thus, firstly the problem of non taking of credit by deemed credit supplier, when he takes the refund, has been sorted out. The author of this article is also facing litigation on this count and before the High Court. Although it is clarified yet the matter are being litigated by the department.

Secondly, this credit is allowed only for the reason that there is lacuna in portal otherwise this is not credit. Hence, it is excluded from “Net ITC” for calculating refund of unutilised credit.

2. Clarification on issues prescribed under Section 17(5) of CGST Act, 2017:

(a) Whether the proviso at the end of Section 17(5)(b) is applicable on entire clause (b) or only to sub-clause (iii) of clause (b)?

The GST Council in its 28^th Council meeting recommended that the scope of input tax credit is being widened in GST and therefore, the taxpayers can claim input tax credit in respect of goods or services or both which are obligatory for an employer to provide the same to its employee under any law for the time being in force. The ambiguity as regards applicability of the provision of allowing credit in case of statutory obligation stems from the decision of Gujarat AAR in the case of M/s Tata Motors Ltd. wherein it was delivered that no input tax credit shall be available to the applicant taxpayer even if canteen services are being provided as a statutory obligation under any law for the time being in force. The reasoning adopted was that the provision of section 17(5)(b)(i) ended with colon while the proviso below it ended with semi-colon reflecting the said provisions as independent from section 17(5)(b)(ii) and its attached proviso. Consequently, the credit of outdoor catering was denied even if was statutorily provided under the Factories Act. Hence, CBIC has now clarified that the proviso after sub-clause (iii) of clause (b) of Section 17(5) of CGST Act, 2017 would stand applicable on entire clause (b) of Section 17(5) of CGST Act, 2017. Hence, ITC of goods or services that are provided as per statutory obligation would be admissible to the assessee. This is welcome move on part of GST council as well as CBIC to clarify the same and end the unwarranted litigations.

(b) Whether provisions of Section 17(5)(b)(i) of CGST Act, 2017 restricts availment of Input tax credit on input service by way of “leasing of motor vehicle, vessels and aircrafts” or ITC by way of any type of leasing?

In this respect it has been clarified that in accordance with provisions of Section 17(5)(b)(i) of CGST Act, 2017, it clearly prescribes that input tax credit shall be restricted in following scenario only, the extract of which is reproduced as follows: -

“(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:

Therefore, it is clarified that input tax credit pertaining to leasing, renting and hiring of motor vehicle, vessel and aircraft is only blocked and not leasing of any other items. Such type of clarifications should be issued by the CBIC at the earliest so that disputes are ended at the inception itself.

3. Perquisites provided by employer to the employee as per contractual agreements: The ambiguities regarding levy of GST on perquisites provided by the employer to the employees under contractual agreement entered during the course of employment has been a matter of debate and discussion since long. However, now the said dispute has put to an end by clarifying that as per Schedule III of CGST Act, 2017, no GST shall be attracted on services provided by employee to the employer in relation to employment. Hence, the perquisites provided in terms of employment shall also not be subject to GST. However, no clarity about perquisites has been provided by the CBIC. On the contrary, in view of the author of this update, the payment of such transactions should be exempted when the credit is allowed to the employer. It will avoid the unnecessary litigation and will save time and money of both department and taxpayer.

4. Utilisation of amount available in electronic credit ledger and cash ledger for payment of tax and other liabilities: In accordance with provisions of Section 49(4) of CGST Act, 2017 the input tax credit as available in electronic credit ledger can be used for discharging output tax liability only subject to order of utilisation as prescribed under Section 49B of CGST Act, 2017 read with Rule 88A of CGST Rules, 2017. Further, it is clarified that any payment to be made towards output tax which is either self-assessed in return or payable as consequence of any proceeding initiated under GST, can be made through balance available in electronic credit ledger. Moreover, it is stated that since output tax does not include tax payable under RCM, electronic credit ledger cannot be used for the discharging liability under RCM. Similarly, credit ledger cannot be used for payment of erroneous refund sanctioned in cash to the taxpayer. It is also clarified that cash ledger can be used for making payment of any liability under GST Law towards tax, interest, penalty, fee or any other amount payable. This again should be welcomed by the trade and industry because field formations always insists on fresh payment in cash whereas the balance lying in electronic cash ledger was paid in cash only. Moreover, the clarification of payment of demand of tax through electronic credit ledger is also a welcome step. This is always disputed by the field formation as they think that demand created by them should be paid through cash only.

The above clarifications issued by CBIC on various issues is a welcoming initiative, particularly regarding taxability of perquisites provided by the employer to their employees and availment of input tax credit on blocked items when statutorily provided under any Law in force. The above clarifications will put an end to unwanted litigations thereby providing relief to the taxpayers. However, it is hoped that the departmental officers follow these clarifications before initiating any action against the assessees.

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GST Update No 236 on clarification on various issues under GST

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