On 26th October 2023, the Central Board of Indirect Taxes and Customs (CBIC) under the Ministry of Finance issued a notification stating that GST (Goods and Services Tax) will be levied on guarantees provided by corporations to their subsidiaries prospectively. The corporate guarantee would be taxable from the date of the notification.
- As per the notification, GST at 18% will be levied on 1% of the total amount guaranteed by the parent company or the actual consideration, whichever is higher.
Background:
This modification was recommended during the 52nd GST Council Meeting, chaired by Union Finance Minister Nirmala Sitharaman, held on 7th October 2023 in New Delhi, Delhi.
In the exercise of the powers conferred by section 164 of the CGST Act 2017 (12 of 2017), the government has amended the Central Goods and Services Tax (CGST) Rules, 2017, which will be now called “CGST (fourth amendment) Rules, 2023”.
Recommendations related to corporate guarantee:
i.To clarify that when no consideration is paid by the company to the director in any form for providing personal guarantee to the bank/financial institutes on their behalf, the open market value of the transaction will be treated as zero and hence, no tax to be payable in respect of such supply of services.
ii.To insert sub-rule (2) in Rule 28 of CGST Rules, 2017, to provide for taxable value of supply of corporate guarantee provided between related parties as 1% of the amount of such guarantee offered, or the actual consideration, whichever is higher.
- The value of the supply of service of corporate guarantee will be governed by the proposed sub-rule (2) of rule 28 of CGST Rules, 2017, irrespective of whether full ITC is available to the recipient of services or not.
Key Recommendations made during the 52nd GST Council Meeting:
A.Recommendations relating to GST rates on goods and services
i.Changes in GST rates of Goods
a.GST rates on “Food preparation of millet flour in powder form, containing at least 70% millets by weight” under Harmonized System (HS) Code 1901 have been prescribed as:
- 0% when sold in non-pre-packaged and unlabelled form.
- 5% when sold in pre-packaged and labelled form.
b.The zari thread or yarn made out of metallised polyester film /plastic film, falling under HS 5605, are covered by the entry for imitation zari thread or yarn attracting a 5% GST rate. No refund will be allowed on polyester film (metallised) /plastic film on account of inversion.
c.Foreign going vessels are liable to pay 5% IGST on the value of the vessel if it converts to coastal run.
ii.Other Changes relating to Goods
- Reduction of GST on molasses from 28% to 5%. This will help to increase liquidity with mills. Further, It will help to reduce the cost of manufacturing of cattle feed.
- GST Council has decided to exclude Extra Neutral Alcohol (ENA) from GST. ENA is primarily used for manufacturing alcoholic liquor for human consumption.
- A separate tariff HS code has been created at the 8-digit level in the Customs Tariff Act to cover rectified spirit for industrial use. The GST rate will be amended to create an entry for ENA for industrial use attracting 18% GST.
iii.Changes in GST rates of services
- Entries at Sl. No. 3 and 3A of notification No. 12/2017-CTR dated 28.06.2017 exempts pure and composite services provided to Central/State/UT governments and local authorities in relation to any function entrusted to Panchayat/ Municipality under Article 243G and 243W of the Constitution of India. The GST Council has recommended to retain the existing exemption entries with no change.
- Further, the GST Council has also recommended exempting services of water supply, public health, sanitation conservancy, solid waste management and slum improvement and upgradation supplied to Governmental Authorities.
iv.Other Changes Relating to Services
- The GST on Job work services for processing of barley into malt has been reduced to from 18% to 5%.
- District Mineral Foundation Trust (DMFT) set up by the State Governments across India in the mineral mining areas will be considered as Government Authorities. Thus, DMFT will now be eligible for the same exemptions from GST as available to any other Governmental Authority.
- Supply of all goods and services by Indian Railways shall be taxed under the Forward Charge Mechanism to enable them to avail ITC.
- GST Council has recommended that bus operators supplying transportation services through Electronic Commerce Operators (ECOs) may be excluded from the purview of section 9(5) of CGST Act (2017).
B.Measures for facilitation of Trade
i.Amnesty Scheme for filing of appeals against demand orders
- The GST Council has recommended providing an amnesty scheme through which appeals can file against demand order in cases where appeal could not be filed within allowable time period.
- Appeals against such cases will now be filed until January 31, 2024, by paying 12.5% of the disputed tax with at least 20% being debited from their Electronic Cash Ledger.
ii.Provision for automatic restoration of provisionally attached property
- Amendment will be made in sub rule (2) of CGST Rules 2017 which will facilitate release of provisionally attached properties after the expiry of period of 1 year.
iv.Clarification on various issues related to Place of Supply
- A circular will be issued to clarify the place of supply in respect of the following supply of services.
i.Supply of service of transportation of goods.
ii.Supply of advertising services.
iii.Supply of the co-location services.
v.Clarification on Export-related Services
- A circular will be issued to clarify the admissibility of export remittance received in the Special INR Vostro Account as permitted by RBI.
vi.Supplies to Special Economic Zone (SEZ) Units/ Developer for authorized operations
- Amendments will be made to allow the suppliers to Special Economic Zone (SEZ) developers/ Unit for authorized operations to make the supply of goods or services to them on payment of integrated tax, with a refund route.
- Certain commodities will be exempted from the notification – Pan Masala, Tobacco, Guthka, etc.,
C.Other Measures Related to Law and Procedures
i.Appointment of President & Member of Proposed GST Appellate Tribunals:
The Council has recommended aligning provisions of the CGST Act, 2017 with the Tribunal Reforms Act, 2021 regarding the appointment of the President and Members of the proposed GST Appellate Tribunals.
The council has recommended the amendment in section 110 of the CGST Act, 2017 to provide
- An advocate with 10 years experience in litigation under indirect tax laws in the Appellate Tribunal, Central Excise and Service Tax Tribunal, State VAT(value-added tax) Tribunals, High Court or Supreme Court to be eligible for the appointment as judicial member.
- Minimum Age required for appointment as President and Member will be 50 years.
- President and Member shall have tenure up to a maximum age of 70 and 67 years respectively.
ii.Law amendment with respect to Input Service Distributor(ISD):
- During the 50th Meeting, the GST Council recommended that the ISD procedure as in Section 20 of the CGST Act, 2017 be made mandatory prospectively for the distribution of ITC in respect of input services procured by Head Office (HO) from a third party.
- The Council has now recommended amendments in Section 2(61) and Section 20 of the CGST Act, 2017 as well as an amendment in Rule 39 of CGST Rules, 2017 in respect of the same.
About Central Board of Indirect Taxes and Customs (CBIC):
CBIC works under the jurisdiction of the Department of Revenue, Ministry of Finance.
i.CBIC is a statutory body established under the Central Boards of Revenue Act, 1963.
ii.In 1964, the Central Board of Revenue was split into the Central Board of Direct Taxes (CBDT) and the Central Board of Excise and Customs(CBEC).
iii.With the enactment of Finance Act, 2018, CBEC was renamed as Central Board of Indirect Taxes and Customs (CBIC).
Chairman – Sanjay Kumar Agarwal
Headquarters– New Delhi, Delhi
About Ministry of Finance:
Union Minister– Nirmala Sitharaman(Rajya Sabha- Karnataka)
Minister of State(MoS)– Pankaj Chaudhary(Constituency- Maharajganj,Uttar Pradesh); Bhagwat Kishanrao Karad(Rajya Sabha- Maharashtra)
