Introduction
In the ever-evolving landscape of India’s Goods and Services Tax (GST) regime, the Central Board of Indirect Taxes and Customs (CBIC) continues to play a crucial role in clarifying and refining the implementation of this comprehensive tax system. On July 11, 2024, the CBIC issued four significant circulars that address various aspects of GST administration and compliance. These circulars, stemming from recommendations made during the 53rd GST Council meeting, provide essential guidance on critical issues faced by taxpayers and tax administrators alike. This comprehensive analysis delves into the contents of these circulars, exploring their implications and the practical impact they are likely to have on businesses and the broader GST ecosystem.
Circular No. 224/18/2024: Recovery of Outstanding Dues in July 2024 Circulars
The first circular, numbered 224/18/2024, tackles a pressing issue that has emerged due to the non-operational status of the GST Appellate Tribunal. This situation has created a unique challenge for taxpayers who wish to appeal against orders passed by the first appellate authority. The circular provides a much-needed clarification on the process of recovering outstanding dues in cases where the first appeal has been disposed of, but the Appellate Tribunal is not yet operational. The core of this circular lies in its recognition of the predicament faced by taxpayers. When the first appellate authority confirms, either partially or fully, a demand issued by the adjudicating authority, taxpayers are currently unable to file an appeal against this order due to the absence of a functional GST Appellate Tribunal. This situation has led to confusion regarding the ability of taxpayers to make the pre-deposit required under the provisions of the CGST Act, 2017. To address this issue, the circular outlines a clear procedure for taxpayers who intend to file an appeal against the order of the appellate authority. It allows them to make the payment of the pre-deposit amount as stipulated in section 112(8) of the CGST Act. The process involves navigating to the “Services >> Ledgers >> Payment towards demand” section from the dashboard, accessing the Electronic Liability Register (ELR) Part-II, selecting the relevant order, and making the payment.
Importantly, the circular clarifies that the amount deposited through this process will be adjusted against the pre-deposit required when filing an appeal before the Appellate Tribunal once it becomes operational. This provision ensures that taxpayers are not financially disadvantaged due to the current administrative gap. The circular also introduces an additional safeguard by requiring taxpayers to file an undertaking or declaration with the jurisdictional proper officer. This document should state the taxpayer’s intention to file an appeal against the order of the appellate authority before the Appellate Tribunal. This requirement serves a dual purpose: it demonstrates the taxpayer’s commitment to pursuing the appeal process and provides a formal record of their intention for administrative purposes.
In cases where a taxpayer neither makes the pre-deposit payment nor provides the required undertaking or declaration, the circular stipulates that it will be presumed that the taxpayer does not intend to file an appeal. Under such circumstances, the proper officer is authorized to initiate recovery proceedings in accordance with the provisions of the law. The circular also addresses scenarios where taxpayers have already made payments intended to cover a demand through Form GST DRC-03. In these cases, it provides a mechanism for taxpayers to file an application in Form GST DRC-03A electronically on the common portal. This application allows for the adjustment of the previously paid amount as if it were made towards the demand on the date of the original intimation through Form GST DRC-03. This provision ensures fairness and prevents double payment for those who have proactively addressed their tax liabilities.
Circular No. 225/19/2024: Clarifying the Taxability and Valuation of Corporate Guarantees
The second circular, numbered 225/19/2024, delves into the complex issue of taxability and valuation of corporate guarantees, particularly those provided between related persons. This circular addresses several key questions that have arisen in the business community regarding the GST implications of corporate guarantee services. One of the primary clarifications provided by this circular relates to the applicability of sub-rule (2) of rule 28 of the CGST Rules to corporate guarantees issued prior to October 26, 2023, when this sub-rule was inserted. The circular clearly states that for corporate guarantees issued or renewed before this date, the valuation should be done in accordance with Rule 28 as it existed at that time. This retrospective clarification provides much-needed certainty for businesses that have ongoing corporate guarantee arrangements predating the rule change. The circular also addresses the question of whether intra-group corporate guarantees issued before October 26, 2023, but still in force, would be liable to pay GST on “1% of the amount of such guarantee offered.” It reiterates that for guarantees issued or renewed before this date, the valuation should follow the pre-existing Rule 28. However, for guarantees issued or renewed on or after October 26, 2023, the new Rule 28(2) applies, requiring valuation at 1% of the guaranteed amount or the actual consideration, whichever is higher.
An important clarification is provided regarding the value of supply when a corporate guarantee is provided for a particular amount, but the loan is only partly availed or not availed at all by the recipient. The circular confirms that the value of supply is calculated based on the amount guaranteed, not on the amount of loan actually disbursed. This approach ensures consistency in valuation regardless of the utilization of the guarantee. The circular also addresses the issue of Input Tax Credit (ITC) availability for the recipient of corporate guarantee services. It clarifies that the recipient is eligible to avail full ITC, subject to other conditions specified in the Act and Rules, irrespective of when the loan is actually disbursed or the amount of loan disbursed. This provision ensures that the tax treatment aligns with the service provided rather than the subsequent financial transactions. In the context of loan takeovers, the circular provides clarity on whether GST would be applicable again when there is merely an assignment of an already issued corporate guarantee. It states that the takeover of a loan by another banking company or financial institution does not fall under the service of providing a corporate guarantee. Therefore, in such cases, there is no impact on GST unless a fresh corporate guarantee is issued or the existing guarantee is renewed. The circular also addresses scenarios where corporate guarantees are provided by multiple entities or co-guarantors. It clarifies that in such cases, the value of the service shall be the sum of the actual consideration paid or payable to co-guarantors if this amount is higher than one percent of the guaranteed amount. If the sum of actual consideration is less than one percent, then GST is payable by each co-guarantor proportionately on one percent of the amount guaranteed by them. Regarding the payment of GST on intra-group corporate guarantees, the circular specifies that for domestic corporates issuing such guarantees, GST is to be paid under the forward charge mechanism, with the supplier issuing an invoice under Section 31 of the CGST Act, 2017. However, for guarantees provided by foreign or overseas entities for related entities in India, GST is payable under the reverse charge mechanism by the recipient of the service. The circular provides guidance on the frequency and timing of GST payments on corporate guarantees. It clarifies that the value of supply should be calculated as one percent of the amount guaranteed per annum or the actual consideration, whichever is higher. For guarantees provided for periods less than a year, the valuation can be done on a proportionate basis. In cases of renewals, tax is payable on each renewal based on the same valuation principle.
Lastly, the circular addresses the applicability of Rule 28(2) to the export of corporate guarantee services between related persons. It clarifies that these provisions do not apply when the recipient of the corporate guarantee service is located outside India, effectively exempting such exports from this specific valuation rule.
Circular No. 226/19/2024: Refund Mechanism for Additional IGST Paid on Exports
The third circular, numbered 226/19/2024, introduces a mechanism for the refund of additional Integrated Goods and Services Tax (IGST) paid on account of upward revision in the price of goods subsequent to exports, typically through debit notes. This circular addresses a specific scenario that has been a point of concern for exporters who face price adjustments after the completion of the export process. The circular outlines a clear procedure for exporters to claim refunds of such additional IGST payments. It allows exporters to file an application for refund in Form GST RFD-01 electronically on the common portal. These applications will be processed by the jurisdictional GST officer of the concerned exporter, providing a streamlined approach to handling these specific refund requests. Recognizing that the common portal may not immediately have a separate category for claiming refunds of additional IGST paid, the circular provides an interim solution. It advises exporters to claim the refund under the “Any other” category, with the remark “Refund of additional IGST paid on account of increase in price subsequent to export of goods.” This guidance ensures that exporters can proceed with their refund claims without delay, even as the technical infrastructure is being updated to accommodate this specific type of refund.
The circular sets a minimum threshold for such refund claims, stating that no refund shall be paid if the amount claimed is less than one thousand rupees. This provision likely aims to ensure administrative efficiency by preventing the processing of very small refund amounts. Importantly, the circular addresses the time limit for filing such refund applications. It states that the application for refund of additional IGST paid can be filed before the expiry of two years from the relevant date as per section 54(2)(a) of the CGST Act. However, it also provides a special provision for cases where the relevant date as per this section was before the date on which rule 89(1B) came into force. In such cases, the refund application can be filed before the expiry of two years from the date on which the said sub-rule came into force. This provision ensures that exporters are not disadvantaged by the timing of the rule implementation.
Circular No. 227/21/2024: Electronic Filing of Refund Applications by Canteen Stores Department under July 2024 Circulars
The fourth and final circular, numbered 227/21/2024, focuses on streamlining the process of refund applications for the Canteen Stores Department (CSD), a unique entity that serves defense personnel and their families. This circular introduces significant changes to the refund process for CSD, moving towards a more digital and efficient system. The circular announces the introduction of a new functionality on the common portal that enables CSD to file refund applications electronically. This development marks a significant shift from the previous manual filing system, aligning the CSD’s processes with the broader digital initiatives in GST administration. For refunds claimed on fifty percent of the applicable central tax, integrated tax, and Union territory tax paid by CSD on all inward supplies of goods, the circular stipulates the use of Form GST RFD-10A. This form is to be filed electronically on the common portal, simplifying the process and reducing paperwork. The circular sets a quarterly frequency for CSD to apply for refunds. However, it also provides flexibility by allowing CSD to file refund applications for multiple quarters, even clubbing multiple financial years together. This provision recognizes the unique nature of CSD’s operations and allows for more efficient processing of refunds.
Addressing the time limit for filing refund applications, the circular states that CSD can file for refunds of tax paid on inward supplies of goods or services before the expiry of two years from the last day of the quarter in which such supply was received. This provision ensures a reasonable timeframe for CSD to compile and submit their refund claims. The circular outlines the process for proper officers to handle these refund claims. It instructs them to process the refunds filed by CSD in a manner similar to refund claims filed in Form GST RFD-01 under the provisions of rule 89 of the CGST Rules. This approach ensures consistency in the treatment of refund applications across different types of taxpayers. An important safeguard mentioned in the circular is the requirement for proper officers to ensure that the amount of refund sanctioned does not exceed 50% of the central tax, state tax, Union territory tax, and integrated tax paid on the supplies received by CSD. This provision aligns with the special provisions granted to CSD under the GST regime.
The circular also addresses the transition from the previous manual system to the new electronic system. It clarifies that the provisions of Circular No. 60/34/2018-GST dated September 4, 2018, will continue to apply for all refund applications filed manually before the amendments in the CGST Rules. This ensures continuity in the processing of older applications while moving forward with the new electronic system.
Conclusion: Implications and Future Outlook of the July 2024 Circulars
The four circulars issued by the CBIC on July 11, 2024, represent significant steps in refining and clarifying various aspects of the GST regime. These circulars address several critical issues that have been points of concern or confusion for taxpayers and tax administrators alike.
The circular on the recovery of outstanding dues provides a much-needed interim solution to the challenges posed by the non-operational status of the GST Appellate Tribunal. By offering a clear mechanism for making pre-deposits and filing declarations, it balances the needs of taxpayers with the requirements of tax administration. The detailed clarifications on the taxability and valuation of corporate guarantees offer much-needed guidance in an area that has been subject to interpretation. By addressing various scenarios and providing specific valuation methods, this circular is likely to reduce disputes and ensure more consistent treatment of these transactions across the country. The introduction of a refund mechanism for additional IGST paid on exports due to price revisions addresses a specific pain point for exporters. This provision recognizes the realities of international trade, where price adjustments are sometimes necessary after the completion of exports.
Finally, the move towards electronic filing of refund applications for the Canteen Stores Department represents a significant step in modernizing the processes for this unique entity. This change is likely to result in more efficient processing of refunds and better record-keeping. These circulars, taken together, demonstrate the CBIC’s commitment to addressing practical challenges in GST implementation and its responsiveness to the needs of various stakeholders. They also highlight the ongoing evolution of the GST system, as it continues to be refined and adapted to meet the complex realities of India’s diverse economy. As businesses and tax professionals digest and implement these changes, it is likely that new questions and challenges will emerge. The GST Council and the CBIC will need to remain vigilant and responsive, continuing to issue clarifications and modifications as needed to ensure the smooth functioning of the GST regime. In the broader context of India’s economic landscape, these circulars represent another step in the maturation of the GST system. As the system becomes more refined and responsive to the needs of various stakeholders, it is expected to contribute more effectively to the ease of doing business in India and to the overall economic growth of the country.
