Post 53rd GST Council meeting held on 22.06.2024, CBIC has issued 23 Circulars bearing Nos. 207 to 229, all dated between 26.06.2024 and 15.07.2024 clarifying taxability, place of supply, time of supply etc on various issues relating to goods and services.
This Part-4 of the Article offers the gist of Circular No. 216, 217, 2018 and 219 which are on the following topics:
Taxability and ITC availability involving warranty / extended warranty - Circular No. 216/10/2024-GST dated 26.06.2024
Based on the recommendation of the 53rd GST council meeting held on 22.06.2024, CBIC in order to clarify the issue and to ensure uniformity in the implementation of the provisions of the law across the field formations, has issued clarification in respect of GST liability and ITC availability in cases involving Warranty / Extended Warranty, in furtherance to Circular No. 195/07/2023-GST dated 17.07.2023 -
- For cases where goods as such or the parts are replaced under warranty, wherever, ‘any part,’ ‘parts’ and ‘part(s)’ has been mentioned in Para 2 of Circular No. 195/07/2023-GST dated 17.07.2023, the same may be read as ‘goods or its parts, as the case may be’, the reversal of ITC in respect of cases where goods as such or the parts are replaced under warranty would be required.
- For cases where the distributor replaces the parts / goods to the customer as part of warranty out of his own stock on behalf of the manufacturer and subsequently gets replenishment of the said parts / goods from the manufacturer and the manufacturer then provides the said goods or parts, to the distributor through a delivery challan, without separately charging any consideration at the time of such replenishment - no GST is payable on such replenishment of goods or the parts, as the case may be. Further, no reversal of ITC is required to be made by the manufacturer in respect of the goods or the parts.
- For cases of extended warranty, where agreement for extended warranty is made at the time of original supply of goods, and the supplier of extended warranty is different from the supplier of goods - supply of extended warranty and supply of goods cannot be treated as the composite supply and the supply of extended warranty will be treated as a separate supply from the original supply of goods.
- For cases where supply of extended warranty is made subsequent to the original supply of goods, or where supply of extended warranty is to be treated as a separate supply from the original supply of goods - the supply of extended warranty shall be treated as a supply of services distinct from the original supply of goods, and the supplier of the said extended warranty shall be liable to discharge GST liability applicable on such supply of services.
ITC for Insurance Companies on repair of motor vehicles - Circular No. 217/11/2024-GST dated 26.06.2024
Based on the recommendation of the 53rd GST council meeting held on 22.06.2024, CBIC in order to clarify the issue and to ensure uniformity in the implementation of the provisions of the law across the field formations, has issued clarification in respect of entitlement of ITC by the insurance companies on the expenses incurred for repair of motor vehicles in case of reimbursement mode of insurance claim settlement -
- Whether ITC is available to insurance companies in respect of repair expenses reimbursed by the insurance company in case of reimbursement mode of claim settlement –
- Payment is made by the insurance company for the approved cost of repair services through reimbursement to the insured and the payment of the repair services to the garage is first made by the insured, which is then reimbursed by the insurance company to the insured to the extent of the approved claim cost. However, the liability to pay the cost of repair service for the approved claim lies with the insurance company.
- The insurance company is covered in the definition of “recipient” in respect of the said supply of services of vehicle repair under section 2(93) of CGST Act, 2017 and the availment of ITC in respect of tax paid on motor vehicle repair services received by the insurance company for outward supply of insurance services for such motor vehicles is not barred under section 17(5) of CGST Act, 2017.
- ITC is available to Insurance Companies in respect of motor vehicle repair expenses incurred by them in case of reimbursement mode of claim settlement
- Where the invoice raised by the garage includes an amount in excess of the approved claim cost, and the insurance company only reimburses such approved claim cost to the garage after considering the standard deductions viz. the compulsory deductibles to be borne by the insured, depreciation, improvements outside the coverage, value of salvage of the damaged parts of the motor vehicles, etc., and the remaining amount is paid by the insured to the garage - what is the extent of ITC available to the insurer in such cases?
- In cases where the garage issues two separate invoices in respect of the repair services, one to the insurance company in respect of approved claim cost and second to the customer for the amount of repair service in excess of the approved claim cost, then the ITC may be available to the insurance company on the said invoice issued to the insurance company subject to reimbursement of said amount by insurance company to the customer.
- In cases where the invoice for full amount for repair services is issued to the insurance company while the insurance company makes reimbursement to the insured only for the approved claim cost - ITC may be available to the insurance company only to the extent of reimbursement of the approved claim cost to the insured, and not on the full invoice value.
- Whether ITC is available to the insurer where the invoice for the repair of the vehicle is not in name of the insurance company- ITC will not be available to the insurance company in respect of such an invoice.
GST on loan by Overseas Affiliate / Related Persons - Circular No. 218/12/2024-GST dated 26.06.2024
Based on the recommendation of 53rd meeting of GST Council held on 22.06.2024, CBIC has issued a clarification regarding taxability of the transaction of providing loan by an overseas affiliate to its Indian affiliate or by a person to a related person:
- The clarification issued is on whether the activity of providing loans by an overseas affiliate to its Indian affiliate or by a person to a related person, where there is no consideration in the nature of processing fee/ administrative charges/ loan granting charges etc., and the consideration is represented only by way of interest or discount, will be treated as a taxable supply of service under GST or not.
- The processing fee/ service fee is generally a one-time charge that lenders levy on applicants when they apply for a loan. This fee is generally non-refundable and is used to cover the administrative cost of processing the loan application. Charges of any other nature in respect of loan, other than by way of interest or discount, would represent taxable consideration for providing the facilitation/ processing/ administration services for the loan and hence would be liable to GST.
- To cover such costs, the independent lender generally collects a fee that is in the nature of processing fee/ administrative charges/ service fee/ loan granting charges, which is leviable to GST.
- It may not be desirable to place the services being provided for processing the loans by banks or independent lenders vis-a-vis the loans provided by a related party, on equal footing.
- Where no consideration is charged by the person from the related person, or by an overseas affiliate from its Indian party, for extending loan or credit, other than by way of interest or discount, it cannot be said that any supply of service is being provided between the said related persons in the form of processing/ facilitating/ administering the loan, by deeming the same as supply of services
- There is no question of levy of GST on the same by resorting to open market value for valuation of the same as per rule 28 of Central Goods and Services Tax Rules, 2017
- In cases of loans provided between related parties, wherever any fee in the nature of processing fee/ administrative charges/ service fee/ loan granting charges etc. is charged, over and above the amount charged by way of interest or discount, the same may be considered to be the consideration for the supply of services of processing/ facilitating/ administering of the loan, which will be liable to GST as supply of services by the lender to the related person availing the loan.
ITC on Ducts / Manholes used in OFC’s - Circular No. 219/13/2024-GST dated 26.06.2024
Based on the recommendation of 53rd meeting of GST Council held on 22.06.2024, CBIC has issued clarification on availability of input tax credit on ducts and manholes used in network of optical fiber cables (OFCs) in terms of section 17(5) of the CGST Act, 2017. Accordingly,
- The clarification is on whether the input tax credit on the ducts and manholes used in network of optical fiber cables (OFCs) for providing telecommunication services is barred in terms of section 17(5)(c,d) of the CGST Act, read with Explanation to section 17 of CGST Act. Accordingly,
- Ducts and manholes are basic components for the optical fiber cable (OFC) network used in providing telecommunication services. The OFC network is generally laid with the use of PVC ducts/sheaths in which OFCs are housed and service/connectivity manholes, which serve as nodes of the network, and are necessary for not only laying of optical fiber cable but also their upkeep and maintenance.
- Ducts and manholes are covered under the definition of “plant and machinery” as they are used as part of the OFC network for making outward supply of transmission of telecommunication signals from one point to another.
- Ducts and manholes used in network of optical fiber cables (OFCs) have not been specifically excluded from the definition of “plant and machinery” in the Explanation to section 17 of CGST Act, as they are neither in nature of land, building or civil structures nor are in nature of telecommunication towers or pipelines laid outside the factory premises.
- Availment of input tax credit is not restricted in respect of such ducts and manhole used in network of optical fiber cables (OFCs), under section 17(5) (c, d) of CGST Act.
(To be continued…)
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