MM TAX CLUB

Sr. No.

Issue

Clarification

Refund claimed by the recipients of supplies regarded as deemed export

1

Whether  the Input  Tax  Credit (ITC)availed by the recipient of deemed    export    supply    for claiming  refund  of  tax  paid  on supplies   regarded   as   deemed exports  would  be  subjected  to provisions  of  Section  17  of  the CGST Act, 2017.

The refund in respect of deemed export supplies is  the  refund  of tax  paid  on  such  supplies. However,   the   recipients   of   deemed   export supplies were facing difficulties on the portal to claim  refund  of  tax  paid  due  to  requirement  of the  portal  to  debit  the  amount  so  claimed  from their  electronic  credit  ledger.    Considering  this difficulty,  the  tax  paid  on  such  supplies,  has been  made  available  as  ITC  to  the  recipients vide   Circular   No.   147/03/2021-GST   dated 12.03.2021 only for enabling them to claim such refunds on the  portal.  The  ITC  of  tax  paid  on deemed    export    supplies, allowed    to    the recipients for claiming refund of such tax paid, is not ITC in terms of the provisions of Chapter V of the CGST Act, 2017. Therefore, the ITC so availed   by   the   recipient   of   deemed   export supplies would not be subjected to provisions of Section 17 of the CGST Act, 2017

Whether the ITC availed by the recipient    of    deemed    export supply  for  claiming  refund  of tax paid on supplies regarded as deemed    exports    is    to    be included in the “Net ITC” for computation     of     refund     of unutilised ITC under rule 89(4) &  rule  89  (5)  of  the  CGST Rules, 2017.

The ITC of tax paid on deemed export supplies, allowed to the recipients for claiming refund of such  tax  paid,is  not  ITC  in  terms  of  the provisions of Chapter V of the CGST Act, 2017. Therefore, such ITC availed by the recipient of deemed export supply for claiming refund of tax paid on supplies regarded as deemed exports is not to  be  included  in  the  “Net  ITC”  for computation  of  refund  of  unutilised  ITC  on account of zero-rated supplies under rule 89(4) or on  account  of  inverted  rated  structure  under rule 89(5) of the CGST Rules, 2017

Clarification on various issues of section 17(5) of the CGST Act

Whether  the  proviso  at  the  end of  clause  (b)  of  sub-section  (5) of  section  17  of  the  CGST  Act is applicable to the entire clause (b)   or   the   said   proviso   is applicable  only  to  sub-clause (iii) of clause (b)?

1.Vide the Central Goods and Service Tax (Amendment  Act)  2018,  clause  (b)  of sub-section  (5)  of  section  17  of  the CGST  Act  was  substituted  with  effect from   01.02.2019.      After   the   said substitution,   the   proviso   after   sub-clause  (iii)  of  clause  (b)  of  sub-section (5)  of  section  17  of  the  CGST  Act provides as under:

“Provided  that  the  input  tax  credit  in respect of such goods or services or both shall be available, where it is obligatory for  an  employer  to  provide  the  same  to its employees under any law for the time being in force.”

2.The said amendment in sub-section (5) of  section  17  of  the  CGST  Act  was made based on the recommendations of GST  Council  in  its  28thmeeting.  The intent  of  the  said  amendment  in  sub-section     (5)     of     section     17,     as recommended by the GST Council in its 28thmeeting,  was  made  known  to  the trade  and  industry  through  the  Press Note    on    Recommendations    made during  the  28thmeeting  of  the  GST Council, dated 21.07.2018.It had been clarified “that scope of input tax credit is  being  widened,  and  it would  now  be made  available  in  respect  of Goods  or services  which  are  obligatory  for  an employer  to  provide  to  its  employees, under  any  law  for  the  time  being  in force.”

3.Accordingly,   it   is   clarified   that   the proviso  after  sub-clause  (iii)  of  clause (b)  of  sub-section  (5)  of  section  17  of the CGST Act is applicable to the whole of   clause   (b)   of   sub-section   (5)   of section 17 of the CGST Act

Whether the provisions of sub-clause  (i)  of  clause  (b)  of  sub-section  (5)  of  section  17  of  the CGST Act bar availment of ITC on  input  services  by  way  of “leasing  of  motor  vehicles, vessels or aircraft” or ITC  on input  services  by  way  of  any type  of  leasing  is  barred  under the said provisions?

1. Sub-clause   (i)   of   clause   (b)   of   sub-section  (5)  of  section  17  of  the  CGST Act   provides   that   ITC   shall   not   be available in respect of following supply of goods or services or both—“(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: Provided that the input tax credit in  respect  of  such  goods  or  services or  both  shall  be  available  where  an inward   supply   of such   goods   or services   or   both   is   used   by   a registered   person   for   making   an outward  taxable  supply  of  the  same category of goods or services or both or   as   an   element   of   a   taxable composite or mixed supply”

2. It is clarified that “leasing” referred in sub-clause (i) of clause (b) of sub-section (5)  of  section  17 refers  to  leasing  of motor  vehicles,  vessels  and  aircrafts only  and  not  to  leasing  of  any  other items. Accordingly, availment of ITC is not barred under sub-clause (i) of clause (b) of sub-section (5) of section 17 of the CGST Act in case of leasing, other than leasing  of  motor  vehicles,  vessels  and aircrafts

Perquisites provided by employer to the employees as per contractual agreement

Whether    various    perquisites provided by the employer to its employees in terms of contractual agreement entered into  between  the  employer  and the   employee   are   liable   for GST?

1. Schedule  III  to  the  CGST  Act  provides that  “services  by  employee  to  the employer  in  the  course  of  or  in  relation to    his    employment”  will  not  be considered   as   supply   of   goods   or services and hence GST is not applicable on  services  rendered  by  employee  to employer provided they are in the course of or in relation to employment.
2. Any    perquisites    provided    by    the employer  to  its  employees  in  terms  of contractual    agreement    entered    into between the employer and the employee are in  lieu  of  the  services  provided  by employee to the employer in relation to his  employment.  It  follows  therefrom that     perquisites     provided     by     the employer  to  the employee  in  terms  of contractual    agreement    entered    into between the employer and the employee, will not be subjected to GST when the same   are   provided   in   terms   of   the contract   between   the   employer   and employee.

Utilisation of the amounts available in the electronic credit ledger and the electronic cash ledger for payment of tax and other liabilities

Whether  the  amount  available in  the  electronic  credit  ledger can    be    used    for    making payment  of  any  tax  under  the GST Laws?

1. In  terms  of sub –section  (4)  of  section 49 of CGST Act, the amount available in the electronic credit ledger may be used for making any payment towards output tax under the CGST Act or the Integrated Goods   and   Services   Tax   Act,   2017(hereinafter referred to as “IGST Act”),subject  to  the  provisions  relating  to  the order of utilisation of input tax credit as laid  down  in  section  49B  of  the  CGST Act  read  with  rule  88A  of  the  CGST Rules.
2. Sub-rule  (2)  of  rule  86  of  the  CGST Rules   provides for   debiting   of   the electronic  credit  ledger  to  the  extent  of discharge  of  any  liability  in  accordance with  the  provisions  of  section  49  or section 49A or section 49B of the CGST Act.
3. Further,   output   tax   in   relation   to   a taxable person  (i.e.  a  person  who  is registered or liable to be registered under section  22  or  section  24  of  the  CGST Act) is defined in clause (82)of section 2 of the CGST Act as the tax chargeable on taxable supply of goods or services or both but excludes tax payable on reverse charge mechanism.
4. Accordingly,  it  is  clarified  that  any payment towards output tax, whether self-assessed n  the  return  or  payable as  a  consequence  of  any  proceeding instituted under the provisions of GST Laws, can  be  made  by  utilization  of the amount available in the electronic credit ledger of a registered person.
5. It is further  reiterated  that as output  tax does   not   include   tax   payable   under reverse   charge   mechanism, implying thereby  that  the  electronic  credit  ledger cannot  be  used  for  making  payment  of any  tax  which  is  payable  under  reverse charge mechanism.

Whether  the  amount  available in  the  electronic  credit  ledger can    be    used    for    making payment  of  any  liability  other than tax under the GST Laws?

As   per   sub-section   (4)   of   section   49,   the electronic credit ledger can be used for making payment of output tax only under the CGST Act or  the  IGST  Act.  It  cannot  be  used  for  making payment  of  any  interest,  penalty,  fees  or  any other   amount   payable   under   the   said   acts. Similarly,  electronic  credit  ledger  cannot  be used    for    payment    of    erroneous    refund sanctioned  to  the  taxpayer,  where  such  refund was sanctioned in cash.

Whether  the  amount  available in the electronic cash ledger can be used for making payment of any   liability   under   the   GST Laws?

As  per  sub –section  (3)  of  section  49  of  the CGST   Act,   the   amount   available   in   the electronic cash ledger may be used for making any payment towards tax, interest, penalty, fees or   any   other   amount payable   under   the provisions of the GST Laws.