GST guidance note for IT/ITeS sector

Summary of the key points relevant for IT/ITeS sector:


1. Classcification of software 


  • It has been clarified (question 1) that any development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology and temporary transfer or permitting the use or enjoyment of any intellectual property would be treated as supply of services.   However, that pre-developed software or pre-designed software supplied in any medium/ storage or made available through the use of encryption keys would be treated as supply of goods
  • Question 18 clarifies as to what would contitute supply of services “involving temporary transfer or permitting the use or enjoyment of any intellectual property. In providing its clarification on this aspect, the FAQs describe that a End User License Agreement (EULA) as a legal contract between the software application author or publisher and the user of that application which governs the softwares usage.  The FAQs suggests reliance on such EULAs to decide whether or not a supply involves “temporary transfer or permitting the use or enjoyment of any intellectual property rights”. 


NASSCOM comments and way forward 

Reliance has been placed on EULA for determination of “service” or “goods” and no principles/ criteria has been laid out towards the same, which again would be subject matter of contention.  NASSCOM would continue to represent the issue before the GST council or Sectoral Working Group officials to seek clarification on the subject of software being “service” or “goods” when supplied on a media and electronically.


2.  Place of supply in case of IT/ ITeS services (Question 8, 9 and 23)


The FAQs have clarified that the place of supply for IT/ ITeS services would be the location of the recipient in terms with Section 12 (for domestic supplies) and section 13 (for cross border transactions).   Further, in question 23, the tax liability where supplies have been made from multiple locations to a recipient under a single contract has been examined under the following fact pattern:


  • Delivery of services from various locations;
  • Integrated pricing for the contract as a whole;
  • Contract or agreement with the recipient entered into by one of the branches (Main branch). 


In case of the above fact pattern, it has been clarified that the supply could be visualised as consisting of distinct supplies. 


  • First supply – Branches engaged in supply making a supply to the main branch which has entered into the contract or agreement. 
  • Second supply – Main branch making supply to the customer. 


NASSCOM comments and way forward


FAQs clarifies that a single invoice can be raised although supplies are made from multiple offices.  However, it is not clear what the “main branch” should be and how it would need to be determined, ie whether the main branch needs to be determined based on number of employees engaged from a particular location, based on revenue and/ or cost attribution, based on control or other such factors.  NASSCOM would try and obtain further clarity on this aspect. 


In addition of course, given that the clarification is not categorical on this aspect, NASSCOM would continue to represent in the seeking the following clarifications


  • That both the “location of provider” and “location of recipient” are determined based contractual locations; and
  • Method of determination of contractual location is reasonable. 


3. Valuation of self-supplies (Question 24)

 In question 24 the valuation of supplies made by the branches to the main branch has been evaluated.  It has been clarified that the value delared on the invoice would be deemed to be the open market value of goods and services.  In providing this clarification, reliance has been placed on the second proviso to Rule 28 of the CGST Rules. 


NASSCOM comments and way forward


FAQs suggest that where multiple offices are involved in a supply, while invoicing could be made from the branch/ office which has executed the contract, a self-supply from the other branches/ offices.  However, relying on the second proviso to Rule 28 of the CGST Rules, the fact that any value declared on such invoices would be deemed the open market value is a welcome clarification. 


4. SEZ registrations (Question 14 and 15) – The FAQs have now clarified that all SEZ units in a State can obtain a single registration.  The only requirement is that SEZ units have a separate registration from that of DTA units. 

5. Liability under reverse charge in case of OIDAR services from Overseas supplier (Question 17) – The FAQs clarify that in case of OIDAR services provided by an Overseas Supplier, the Overseas Supplier is liable to take registration and pay tax.   This clarification is welcome as it reaffirms the position taken by several players that no reverse charge is required to be discharged in case of OIDAR supplies. 

6. ISD registration (Question 26) – The FAQs clarify that ISD registration is not mandatory.   This clarification is welcome and is in line with the clarification provided by the Government on its Twitter handle. 

Share This Post

Leave a Reply