Tax, Accounting, and Finance Chronicle

In the aftermath of the pivotal 53rd GST Council meeting on June 22, 2024, the Central Board of Indirect Taxes and Customs (CBIC) has released a series of 16 circulars, numbered 207 to 222, all dated June 26, 2024. These circulars provide critical clarifications on various aspects such as taxability, place of supply, and time of supply. This article delves into Circulars No. 210, 211, and 212, highlighting their significant provisions and implications.

Circular No. 210/4/2024-GST: Valuation of Supply of Import of Services by Related Persons

Following the recommendations of the 53rd GST Council, the CBIC has clarified the valuation of services imported by related persons where the recipient is eligible for full input tax credit (ITC). According to the second proviso to Rule 28(1) of the CGST Rules, the invoice value is deemed the open market value for such transactions.

The circular reiterates the guidelines issued on July 17, 2023 (Circular No. 199/11/2023-GST), concerning services between distinct persons eligible for full ITC. It extends these provisions to cover imported services between related entities. If the Head Office (HO) does not issue an invoice for services provided to a Branch Office (BO), the service value is considered Nil and deemed as open market value.

Moreover, for foreign affiliates providing services to related domestic entities eligible for full ITC, the invoice value is considered the open market value. If the domestic entity does not invoice these services, they are also deemed Nil and considered the open market value.

Circular No. 211/5/2024-GST: Time Limit for Availment of ITC under RCM Supplies from Unregistered Persons

This circular, based on the GST Council’s recommendations, clarifies the time limit for availing ITC under Section 16(4) of the CGST Act, 2017, for supplies received from unregistered persons under the reverse charge mechanism (RCM).

For supplies where the recipient must issue an invoice per Section 31(3)(f) of the CGST Act, the financial year relevant for calculating the ITC availment time limit is when the recipient issues the invoice, provided the tax is paid, and all conditions of Sections 16 and 17 are met. Should the recipient delay issuing the invoice and tax payment, interest on the delayed tax payment and possible penalties under Section 122 of the CGST Act will apply.

Circular No. 212/6/2024-GST: ITC Mechanism for Providing Compliance Evidence by Supplier

To ensure uniformity and compliance with Section 15(3)(b)(ii) of the CGST Act, 2017, regarding the reversal of ITC when a supplier issues a tax credit note, the CBIC has introduced a clarificatory mechanism. Currently, the GST portal lacks functionality for verifying ITC reversal compliance. Therefore, suppliers must provide substantial proof to avoid demands from GST authorities.

Until a portal-based verification system is available, suppliers must submit a certificate or self-undertaking from the recipient to prove ITC reversal. For tax amounts exceeding Rs 5,00,000 in a financial year, the recipient must provide a certificate from a Chartered Accountant (CA) or Cost Management Accountant (CMA). For amounts below this threshold, an undertaking or certificate from the recipient suffices. These documents must detail the credit notes, relevant invoice numbers, ITC reversal amounts, and reference documents like FORM GST DRC-03.

These certificates or undertakings will serve as admissible evidence under Section 15(3)(b)(ii) during scrutiny, audits, or investigations. They can also be retrospectively procured to provide necessary compliance evidence for past periods.

Summary of Circulars

In conclusion, these circulars from the CBIC, grounded in the GST Council’s recommendations, aim to streamline tax processes and ensure clarity on critical GST provisions. They emphasize the importance of meticulous documentation and compliance to avoid legal complications and facilitate smooth tax administration.

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