CBIC CLARIFICATIONS ON TAXABILITY OF VARIOUS SERVICES

[Dr. Sanjiv Agarwal]

Based on the recommendations of the GST Council in its 55th meeting held on 21st December 2024, CBIC has clarified vide Circular No. 245/02/2025-GST dated 28.01.2025 on taxability / scope / exemption / payment etc in respect of following services:

• • Applicability of GST on penal charges being levied by the Regulated Entities (REs) in view of RBI instructions dated 18.08.2023 directing such Regulated Entities (REs) to levy penal charges in place of penal interest.
  • Whether GST exemption under Sl. No. 34 of notification No. 12/2017-CTR dated 28.06.2017 is available to payment aggregators in relation to settlement of an amount, up to two thousand rupees in a single transaction, transacted through credit card, debit card, charge card or other payment card services?
  • Regularizing payment of GST on research and development services provided by Government Entities against consideration in the form of grants received from Government Entities.
  • Regularizing payment of GST on skilling services provided by Training Partners approved by the National Skill Development Corporation.
  • Applicability of GST on facility management services provided to Municipal Corporation of Delhi (MCD) Headquarters.
  • Whether Delhi Development Authority (DDA) is a local authority as per section 2(69) of the CGST Act, 2017?
  • Regularizing payment of GST on Reverse Charge (RCM) basis on renting of commercial property by unregistered person to a registered person for taxpayers registered under composition levy.
  • Regularizing payment of GST on certain support services provided by an electricity transmission or distribution utility.
  • Regularizing the payment of GST on services provided by M/s Goethe Institute/Max Mueller Bhawans.

Applicability of GST on penal charges levied by the Regulated Entities (REs)

• As per RBI norms, Regulated Entities (REs) such as banks and non-banking financial companies (NBFCs) have to discontinue the use of penal interest for non-compliance with loan terms.
• Penal charges are amounts recovered to deter such acts. Such amounts are for preventing breach of contract or non-performance and are thus mere ‘events’ in a contract. It has been further clarified that the essence of a contract is its ‘performance’ and not its ‘breach’, meaning thereby that parties enter into a contract for execution and not for its breach. (as per Circular No. 178 dated 03.08.2022)
• Penal charges levied by REs, in compliance with RBI directions, are essentially in the nature of charges for breach of terms of contract and hence, fall within the ambit of the CBIC clarification.
• CBIC has now clarified that no GST is payable on the penal charges levied by Regulated Entities, in compliance with RBI directions for non-compliance with material terms and conditions of loan contract by the borrower.

Applicability of GST exemption to Payment Aggregators (PAs)

• CBIC has issued clarification on whether GST exemption under Sl. No. 34 of notification No. 12/2017-CTR dated 28.06.2017 is available to payment aggregators in relation to settlement of an amount, up to two thousand rupees in a single transaction, transacted through credit card, debit card, charge card or other payment card services?
• Payment Aggregators (PAs) are entities that facilitate e-commerce sites and merchants to accept various payment instruments from their customers without the need for the e-commerce sites and merchants to create a separate payment integration system of their own. In the process, PAs receive payments from customers, pool and transfer them on to the merchants within a specified time period.
• CBIC has now clarified that GST exemption under Sl. No. 34 of Notification No. 12/2017-CTR dated 28.06.2017 is available to RBI regulated Payment Aggregators (PAs) in relation to settlement of an amount, up to two thousand rupees in a single transaction, transacted through credit card, debit card, charge card or other payment card services, as PAs fall within the definition of ‘acquiring bank’ given in the Explanation to the said exemption entry. It is also clarified that this exemption is limited to payment settlement function only, which involves handling of money, and does not cover Payment Gateway (PG) services.
• This exemption is limited to payment settlement function only, which involves handling of money, and does not cover Payment Gateway (PG) services.

GST on the supply of research and development services on ‘as is where is’ basis regularized

• CBIC has issued clarification for regularizing payment of GST on research and development services provided by Government Entities against consideration in the form of grants received from Government Entities.
• Research and development services provided by Government Entities or research associations, universities, colleges or other institutions, notified under section 35 of the Income Tax Act, 1961, against consideration in the form of grants were exempted w.e.f. 10.10.2024 vide notification No. 08/2024-CT(Rate) dated 08.10.2024.’
• For the past period, the payment of GST on the supply of research and development services by Government Entities against grants received from the Government Entities has now been regularized for the period 01.07.2017 to 09.10.2024, on ‘as is where is’ basis.
• The payment of GST on services provided by Training Partners approved by the National Skill Development Corporation, which were exempt prior to 10.10.2024, has now been regularized for the period 10.10.2024 to 15.01.2025, on ‘as is where is’ basis.

GST on Facility Management services provided to Municipal Corporation of Delhi (MCD) Headquarters

• CBIC has clarified on applicability of GST on facility management services provided to Municipal Corporation of Delhi (MCD) Headquarters.
• MCD receives the services of facility management such as housekeeping, civil maintenance, furniture maintenance and horticulture agency for the upkeep of their office. These services are not supplied in relation to performing any functions entrusted to a Municipality under Article 243W of The Constitution of India.
• CBIC has clarified that GST is applicable on the services provided by facility management agency to MCD, Delhi HQ for upkeep of its head quarter building at applicable rates as these services are not covered under the scope of entry at Sr. No. 3A of the notification No. 12/2017-CTR dated 28.06.2017 which provides exemption to composite supply of goods and services in which the value of supply of goods constitutes not more than 25% of the value of the said composite supply provided to the Government or local authority by way of any activity in relation to any function entrusted to a Panchayat under Article 243G of The Constitution of India or in relation to any function entrusted to a Municipality under Article 243W of The Constitution of India.

Delhi Development Authority (DDA) is not a Local Authority

• CBIC has clarified on the issue of whether Delhi Development Authority (DDA) is a local authority as per section 2(69) of the CGST Act, 2017?
• Services supplied by local authority to a business entity are taxable on Reverse Charge (RCM) basis.
• Local authority u/s 2(69) of CGST Act, 2017 means an authority which is similar to the elected self-governing body such as Municipal Committee and which is entrusted with the control and management of municipal or local fund can be termed as local authority.
• It is clarified on DDA does not meet the requirement of local authority as per section 2(69) of the CGST Act, 2017. DDA cannot be treated as local authority under GST law.

GST on Reverse Charge (RCM) basis on renting of commercial property for taxpayers registered under composition levy.

• CBIC has clarified on regularizing payment of GST on Reverse Charge (RCM) basis on renting of commercial property by unregistered person to a registered person for taxpayers registered under composition levy.
• Renting of immovable property other than residential dwelling (commercial property) by unregistered person to registered person was brought under reverse charge basis in 54^th GST Council meeting.
• The recommendation was notified vide notification No.09/2024-CTR dated 08.10.2024 effective from 10.10.2024 by inserting an entry at Sr. No. 5AB of the notification No. 13/2017-CTR dated 28.06.2017 thereby prescribing payment of GST on reverse charge basis on renting of immovable property other than residential dwelling (commercial property) by unregistered person to registered person.
• Exclusion of the same from the entry at Sr. No. 5AB of the notification No. 13/2017-CT(Rate) dated 28.06.2017 was notified vide notification No. 07/2025-CT(Rate) dated 16.01.2025.
• CBIC has now clarified that payment of GST on Reverse Charge (RCM) basis on renting of immovable property other than residential dwelling (commercial property) by unregistered person to registered person under composition levy is regularized for the period from 10.10.2024 to 15.01.2025 on ‘as is where is’ basis.

GST on certain support services provided by an electricity transmission or distribution utility

• CBIC has clarified on regularizing payment of GST on certain support services provided by an electricity transmission or distribution utility.
• The GST Council, in its 54th meeting recommended to exempt supply of services by way of providing metering equipment on rent, testing for meters/ transformers/ capacitors etc., releasing electricity connection, shifting of meters/service lines, issuing duplicate bills etc., which are incidental or ancillary to the supply of transmission and distribution of electricity provided by electricity transmission and distribution utilities to their consumers.
• Entry at Sr. No. 25A was inserted in the notification No. 12/2017- CTR dated 28.06.2017 vide notification No. 08/2024-CTR dated 08.10.2024, with effect from 10.10.2024.
• These incidental or ancillary services to the supply of transmission or distribution of electricity supplied by transmission or distribution utilities are now covered under the said exemption entry.
• Thus, the payment of GST on certain incidental or ancillary services to the supply of transmission or distribution of electricity, supplied by an electricity transmission or distribution utility is now regularized for the period 10.10.2024 to 15.01.2025, on ‘as is where is’ basis.

GST on services provided by M/s Goethe Institute/Max Mueller Bhawans

• CBIC has issued clarification for regularizing the payment of GST on services provided by M/s Goethe Institute/Max Mueller Bhawans.
• Goethe Institute/Max Mueller Bhawan have six institutes across India which provide linguistic and cultural training to young Indians preparing for their stay in Germany.
• Prior to 1^st April, 2023, these Institutes did not collect GST from their students nor did they pay GST to Government as they were under the bonafide belief that their activities are exempt from GST.
• CBIC has now regularized the payment of GST on services supplied by Goethe Institute/Max Mueller Bhawans for the period from 01.07.2017 to 31.03.2023 on ‘as is where is’ basis.