GST Update: Circulars pursuant to 52nd GST Council meeting

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GST Update: Circulars pursuant to 52nd GST Council meeting

Tejasvi

@tejasvi

November 1, 2023

Public Policy

Dear All,

Pursuant to 52nd GST council meeting held on October 07, 2023, The Central Board of Indirect Taxes and Customs (CBIC) has issued the following circulars:

Circular No. 202/14/2023 – GST

Clarifies that even though the consideration against export is received in Indian Rupees, the same shall be considered as export of services if the same is received in special INR Vostro account.
The circular has taken reference from RBI Circular No.10 dated 11th July 2022 and Foreign Trade Policy 2023, where RBI had permitted Indian exporter undertaking exports of goods and services through this mechanism to receive export proceeds in INR from the balances in the designated Special Vostro account of the correspondent bank of the partner country.
Accordingly, Indian exporter undertaking export of services can receive export proceeding in INR from the special rupee vostro accounts of correspondent banks. This will put to rest disputes at ground level, wherein exports and consequently refunds are being denied (specifically DGGI officers).

Circular No. 203/15/2023 – GST – It clarifies the place of supply for the following services:

Transportation of goods

Other than through mail or courier after 1st October 2023 - Location of recipient as per S. 13(2) of IGST Act. If recipient’s location is not available, then location of supplier of services.
Through mail or courier before and after 1st October 2023 - Location of recipient

GST authorities at the ground level were asserting that the place of supply in case of transport of goods by mail or courier would be the location where the services are actually wholly or partly performed, because the recipient makes the goods or time-sensitive documents available to the courier agency or mail service provider in India for the transportation. With the Circular, the disputes around place of supply of services by way of transportation of goods through mail or courier should stand addressed.

Advertisement sector (billboards and hoardings)

Supply of space/ right to use the space on hoarding/ structure for display of advertisement on such hoarding/structure - Location of such hoarding/structure i.e. Immovable property as per S.12(3)(a) of IGST Act.
Where advertisement services are provided in a way that recipient requests advertisement company for display of advertisement in a specific area or location and it is responsibility of the advertisement company to arrange for such location, hoarding / billboards - place of supply shall be as per S. 12(2) of IGST Act.

Co-location services

Co-location services are not limited to just renting of physical space along with air conditioning, security service, fire protection system and power supply but also includes information technology infrastructure services like network connectivity, backup facility, firewall services and monitoring and surveillance services etc. - place of supply shall be as per S. 12(2) of IGST Act.
Providing physical space on rent, with basic infrastructure and without components of hosting and IT Infrastructure provisioning services and no further responsibility of running, monitoring and surveillance, etc. - Location of immovable property as per sec 12(3)(a) of IGST act.

Circular No. 204/16/2023 – GST

It has been clarified that personal guarantee provided by a director of a Company to bank or financial institutions for sanctioning of credit facilities to the said company without any consideration is not taxable under GST.
The Circular has provided reference to S. 7(1)(c) of CGST Act read with schedule I of CGST Act that supply of any goods or services between related person in course or furtherance of the business even without consideration shall be treated as a supply. Further valuation for such supply as per Rule 28 of the valuation rules shall be market value of such supply.
Placing reliance on the above provisions, the circular has stated that transactions between a director and its company is a related party transactions and personal guarantee provided by the director is supply of services even though there is no consideration.
However, the circular also refers to RBI circular RBI/2021-22/21 dated November 2021, which states that “The system of obtaining guarantees should not be used by directors and other managerial personnel as a source of income from the company. Banks should obtain an undertaking from the borrowing company as well as guarantors that no consideration whether by way of commission, brokerage fees or any other form, would be paid by the former or received by the latter, directly or indirectly.”
The circular based on the RBI guidelines provides that since directors of a company cannot take any consideration from the company for providing personal guarantee, the market value of such service would be zero.
Hence, even though the activity between director and the company amounts to supply of services, GST is not chargeable on the same. The circular also provides that GST is applicable on transactions where remuneration is received by the directors.
It has also been clarified that after issue of notification 52/2023 dated 26.10.2023, as the transactions between related companies are valued at 1% as per rule 28(2), such transactions are taxable under GST Act.

We hope you will find the update useful.

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Tejasvi

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