Post 54th GST Council meeting held on 09.09.2024, CBIC has issued 4 Circulars bearing Nos. 230 to 233, all dated between 10.09.2024 clarifying taxability, place of supply, time of supply and input tax credit on various issues relating to goods and services.
This Part-8 of the Article offers the gist of Circular Nos. 230 and 231 which are on the following topics:
GST on Advertising Services to Foreign Clients - Circular No. 230/24/2024-GST dated 10.09.2024
- GST Council in its 54th meeting held on 09.09.2024 recommended to provide clarity and to remove doubts arising on the issue of place of supply of advertising services provided by Indian advertising companies to foreign entities i.e., whether such services are covered under export of services.
- Media owners raise invoice to the advertising agency for inventory costs, which are then paid by the advertising agency. Subsequently, the advertising agency raises invoice to the foreign client for the rendered advertising services and receives the payments in foreign exchange from the foreign client.
- CBIC has accordingly, clarified as follows:
- Whether the advertising company can be considered as an “intermediary” between the foreign client and the media owners as per section 2(13) of IGST Act, 2017?
- Foreign clients enter into a comprehensive agreement with advertising companies/agencies in India and outsource the entire activity of advertising services to the advertising companies/agencies.
- Advertising companies/agencies enter into an agreement with the media owners in India for implementing the said media plan and procurement of media space for airing or releasing or printing advertisement.
- Such agreement is in the nature of two distinct principal-to-principal supplies and no agreement of supply of services exists between the Media company and the foreign client.
- The advertising company is not acting as an agent but has been contracted by the client to procure and provide certain services. The advertising agency is providing the services to the client on its own account.
- It is clarified that in the present scenario, the advertising company is involved in the main supply of advertising services, including resale of media space, to the foreign client on principal-to-principal basis as detailed above and does not fulfil the criteria of “intermediary” under section 2(13) of the IGST Act, 2017.
- The same cannot be considered as “intermediary” in such a scenario and accordingly, the place of supply in the instant matter cannot be linked with the location of supplier of services in terms of section 13(8)(b) of the IGST Act, 2017.
- Whether the representative of foreign client in India or the target audience of the advertisement in India can be considered as the “recipient” of the services being supplied by the advertising company under section 2(93) of CGST Act, 2017?
- The “recipient” of the services means the person who is liable to pay consideration where a consideration is payable for the supply of goods or services or both.
- The foreign client is liable to pay the consideration to advertising company for the supply of advertising and not the consumers or the target audience that watches the advertisement in India.
- Even if a representative of the said foreign client based in India, including a subsidiary or related person of the said foreign client, is interacting with the advertising company on behalf of the said foreign client, the said representative based in India cannot be considered as a recipient of the service, if the agreement is between the foreign client and the advertising company, the invoice is being issued for the said service by the advertising company to the foreign client and the payment for the said service is received by the advertising company directly from the said foreign client.
- The recipient of the advertising services provided by the advertising company in such cases is the foreign client and not the Indian representative of the foreign client based in India or the target audience of the advertisements, as per section 2(93) of the CGST Act, 2017.
- Whether the advertising services provided by the advertising companies to foreign clients can be considered as performance-based services as per section 13(3) of the IGST Act, 2017?
Availability of Input Tax Credit on Demo Vehicles - Circular No. 231/25/2024-GST dated 10.09.2024
In 54th meeting of GST Council held on 09.09.2024, it was recommended to issue clarification regarding availability of input tax credit on demo vehicles by the dealers of vehicle manufacturers.
- Accordingly, CBIC has issued clarification on use of demo vehicles and input tax credit in relation to such vehicles.
- The demo vehicles are the vehicles which the authorised dealers for sale of motor vehicles are required to maintain at their sales outlet as per dealership norms and are used for providing trial run and for demonstrating features of the vehicle to the potential buyers. These vehicles are purchased by the authorised dealers from the vehicle manufacturers against tax invoices and are typically reflected as capital assets in books of account of the authorized dealers. As per dealership norms, these vehicles may be required to be held by the authorized dealers as demo vehicle for certain mandatory period and may, thereafter, be sold by the dealer at a written down value and applicable tax is payable at that point of time.
- On availability of input tax credit on demo vehicles, which are motor vehicles for transportation of passengers having approved seating capacity of not more than 13 persons (including the driver), in terms of clause(a) of section 17(5) of CGST Act, it has been clarified that as demo vehicles promote sale of similar type of motor vehicles, they can be considered to be used by the dealer for making ‘further supply of such motor vehicles’. Accordingly, input tax credit in respect of demo vehicles is not blocked under clause (a) of section 17(5) of CGST Act, as it is excluded from such blockage in terms of sub-clause (A) of the said clause.
- Where authorized dealer merely acts as an agent or service provider to the vehicle manufacturer for providing marketing service, including providing facility of vehicle test drive to the potential customers of the vehicle on behalf of the manufacturer and is not directly involved in purchase and sale of the vehicles, in such cases, the sale invoice for the vehicle is directly issued by the vehicle manufacturer to the customer. In such a case, the authorized dealer is merely providing marketing and/or facilitation services to the vehicle manufacturer and is not making the supply of motor vehicles on his own account. Therefore, the said demo vehicle cannot be said to be used by the dealer for making further supply of such motor vehicles. Accordingly, in such cases, input tax credit in respect of such demo vehicle would not be excluded from blockage in terms of sub-clause (A) of clause (a) of section 17(5) of CGST Act and therefore, input tax credit on the same would not be available to the said dealer.
- On availability of input tax credit on demo vehicles in cases where such vehicles are capitalized in the books of account by the authorized dealers, it has been clarified that availability of input tax credit on demo vehicles is not affected by way of capitalization of such vehicles in the books of account of the authorized dealers, subject to other provisions of the Act.
- However, in case of capitalization of demo vehicles, availability of input tax credit would be subject to provisions of section 16(3) of CGST Act, which provides that where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the Income-tax Act, 1961, the input tax credit on the said tax component shall not be allowed. In case demo vehicle, which is capitalized, is subsequently sold by the authorized dealer, the authorized dealer shall have to pay an amount or tax as per provisions of section 18(6) of CGST Act read with rule 44(6) of the Central Goods and Service Tax Rules, 2017.
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