Below is a quick summary of the same.
Also, we have enclosed is the copy of the circulars for your reading and reference.
Clarifications issued along with Deloitte comments
Circular No. 202/14/2023 – GST
· Clarification has been issued by CBIC 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 also took reference to RBI Circular No.10 dated 11th July 2022 and Foreign Trade Policy (FTP) 2023 where RBI has permitted that Indian exporter, undertaking exports of goods and services through this mechanism, shall be paid the export proceeds in INR from the balances in the designated Special Vostro account of the correspondent bank of the partner country.
· Based on said clarification, Indian exporter undertaking export of services can receive export proceeding in INR from the special rupee vostro accounts of correspondent banks.
This will also put rest to the disputes at ground level, wherein exports and consequently refunds are being denied (specifically DGGI officers)
Circular No. 203/15/2023 – GST
· This circular clarifies about place of supply of service of transportation of goods, including through mail or courier.
· It is clarified that place of supply for service of the transportation of goods other than through mail or courier after 1st October 2023 is location of recipient as per sec 13(2) of IGST act, if the location of the recipient is not available then it is location of the supplier of services.
· CBIC infact has even clarified that the place of supply for the service of transportation through mail or courier is also the location of recipient both before and after 1st October 2023.
· 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.
· The said circular also clarifies the place of supply of services in respect of advertisement sector (bill boards and hoardings).
· It clarified that
· The said circular also clarifies the place of supply of services in respect of supply of co-location services
· If the co-location services provided 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., then place of supply shall be as per sec 12(2) of IGST Act.
· It is clarified that, if the co-location services are providing physical space on rent, with basic infrastructure and without components of Hosting and Information Technology (IT) Infrastructure Provisioning services and no further responsibility of running, monitoring and surveillance, etc., then the place of supply shall be location of immovable property as per sec 12(3)(a) of IGST act.
Circular No. 204/16/2023 – GST
· Clarification has been issued 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 provided reference to Section 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 stated that the transactions between a director and its company is a related party transactions and the 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 where the guidelines provide that
“The system of obtaining guarantees should not be used by the 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 the 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. This requirement should be incorporated in the bank’s terms and conditions for sanctioning of credit limits”
· The circular based on the RBI guidelines provided that, since the directors of the company cannot take any consideration form the company for providing personal guarantee, the market value of service provided by the director is zero.
· Since the market value of services provided by the director is zero, even though the activity between director and the company amounts to supply of services, GST is not taxable on the same. The circular also provides that, in cases where any remuneration is received by the directors, then GST is applicable on such transactions.
· It is also clarified in the circular 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.