1. Legal Framework:
   • Section 120 of the CGST Act empowers the Central Board of Indirect Taxes & Customs (CBIC) to set monetary limits for filing appeals by tax authorities.
   • Appeals should not be pursued if the amount involved is below the specified threshold, promoting prudent litigation practices.
2. Monetary Limits for Appeals:
   • GSTAT: ₹20,00,000
   • High Court: ₹1,00,00,000
   • Supreme Court: ₹2,00,00,000
3. Principles for Applying Monetary Limits:
   • For tax disputes (with or without penalty and/or interest), the aggregate disputed tax amount (including CGST, SGST/UTGST, IGST and Compensation Cess) will be considered.
   • For disputes involving only interest, penalty, or late fees, the respective amounts will be considered and cumulatively where applicable.
   • In cases of erroneous refunds, the disputed refund amount will be considered (including CGST, SGST/UTGST, IGST and Compensation Cess).
   • Monetary limits apply to the total disputed amount in composite orders involving multiple appeals or demand notices and not on the amount involved in individual appeal or demand notice.
4. Exclusions from Monetary Limits:

The decision to file appeal shall be taken on merits irrespective of the above monetary limits in the following instances:

1. • Appeals involving constitutional validity of provisions or rules or orders, notifications, instructions, or circulars under the CGST, SGST/UTGST, IGST, or GST (Compensation to States) Acts.
   • Cases involving valuation, classification, refunds, place of supply, or recurring issues and/ or requiring interpretation of laws.
   • Cases where strictures/ adverse comments or costs have been imposed against the government or its officers.
   • Any other cases where the Board deems it necessary to contest in the interest of justice or revenue.
2. Guidance for Filing Appeals:
   • Appeals should not be filed solely based on exceeding the monetary limits; decisions must be merit-based.
   • Non-filing of appeals due to monetary limits should be clearly recorded to avoid setting any precedents.
   • Departmental representatives must inform GSTAT or the Courts that appeals were not filed due to monetary thresholds, ensuring no inference of acceptance by the Department.

This circular is a significant step towards reducing unnecessary litigation and providing certainty to taxpayers on their tax assessments, aligning with the broader goals of the National Litigation Policy.

1. Make, Model Number, and Machine Number:
   • Manufacturers using old or second-hand machines may not have readily available details. In Table 6 of FORM GST SRM-I, make and model numbers are optional. If the make is unavailable, the year of purchase can be declared. The machine number is mandatory and can be assigned if not available on the machine/ documents.
2. Electricity Consumption Rating:
   • If not available on the machine or in records, manufacturers can have the electricity consumption per hour certified by a Chartered Engineer. This certified rating should be declared in Table 6 of FORM GST SRM-I and uploaded with the form.
3. Value Reporting in Column 8 of Table 9 of FORM GST SRM-II:
   • For goods with no MRP, such as those manufactured for export, the sale price should be entered.
4. Qualifications of Chartered Engineer:
   • The Chartered Engineer must have a certificate of practice from the Institute of Engineers India (IEI).
5. Applicability to SEZ Units:
   • The special procedure is not applicable to manufacturing units located in Special Economic Zones (SEZ).
6. Applicability to Manual Processes:
   • The procedure does not apply to manual seamers/sealers or manual packing operations, such as post-harvest packing of tobacco leaves.
7. Machines for Filling, Capping, and Packing:
   • The machine used for final packing in the manufacturing process should be reported in Table 6 of FORM GST SRM-I.
8. Job Work or Contract Manufacturing:
   • The special procedure applies to all manufacturers, including job workers and contract manufacturers. If the job worker/ contract manufacturer is unregistered, the principal manufacturer is responsible for compliance.

These clarifications aim to streamline the implementation of the special procedure and provide consistent guidance to manufacturers and tax authorities.

Clarification on Place of Supply for Goods to Unregistered Persons

1. New Provision under IGST Act: Clause (ca) has been added to Section 10(1) of the IGST Act, 2017, effective from October 1, 2023. This provision states that for supplies made to unregistered persons, the place of supply is determined by the address recorded on the invoice. If no address is recorded, the place of supply defaults to the supplier’s location. The explanation within this clause clarifies that recording the name of the recipient’s state in the invoice suffices as an address.
2. Application to E-commerce Platforms: Questions have arisen about determining the place of supply when billing and delivery addresses differ, especially for e-commerce transactions. The following example illustrates the application of the new provision:

• Scenario:
  • Mr. A, an unregistered person in State X, orders a mobile phone via an e-commerce platform, specifying delivery to an address in State Y but using a billing address in State X.
• Clarification:
  • In such cases, the place of supply is the delivery address recorded on the invoice, as per clause (ca) of Section 10(1) of the IGST Act. Therefore, the place of supply for the mobile phone will be State Y.

Additionally, suppliers should record the delivery address as the recipient’s address on the invoice when billing and delivery addresses differ.

3. Summary of Clarifications:

• Billing vs. Delivery Address:
  • When the delivery address on the invoice differs from the billing address for unregistered persons, the place of supply is determined by the delivery address.
• Invoice Requirements:
  • Suppliers should record the delivery address as the recipient’s address on the invoice for accurate determination of the place of supply.

These clarifications aim to provide uniformity and clarity in the application of the new provision across different scenarios and ensure compliance with the IGST Act.

Key Points:

1. Import of Services by Related Persons: As per S.No. 4 of Schedule I of the Central Goods and Services Tax Act, 2017 (CGST Act), import of services by a person from a related person or from any of their establishments outside India, in the course or furtherance of business, is treated as a supply even if made without consideration.
2. Issues Raised: There have been representations from trade and industry indicating that some field formations are raising demands on registered persons in India for certain activities undertaken by related persons based outside India. These activities are being considered as import of services under reverse charge, despite no consideration being involved.
3. Rule 28 of CGST Rules: Rule 28 of the Central Goods and Services Tax Rules, 2017 (CGST Rules) provides the framework for valuing the supply of goods or services between related persons. It states that:

• The value of the supply shall be the open market value.
• If the open market value is not available, the value of similar goods or services should be used.
• If neither of the above values is determinable, rules 30 or 31 are applied in that order.
• When the recipient is eligible for full ITC, the value declared in the invoice is deemed to be the open market value.

4. Application to Import of Services: The provisions of Rule 28(1) and the second proviso are applicable to both domestic and international related party transactions where the recipient is eligible for full ITC. This ensures uniform treatment across all related party transactions.
5. Specific Clarifications:

• Tax on Reverse Charge Basis: In cases of import of services from a related person outside India, the registered person in India must pay tax under the reverse charge mechanism and issue a self-invoice as per Section 31(3)(f) of the CGST Act.
• Valuation of Services: When a foreign affiliate provides services to a related domestic entity eligible for full ITC, the value declared in the invoice by the domestic entity is deemed the open market value. If no invoice is issued, the value of such services may be deemed to be Nil, which is then considered the open market value as per the second proviso to Rule 28(1) of the CGST Rules.
• Consistency with Domestic Transactions: This clarification aligns the treatment of services imported from foreign affiliates with those provided by domestic distinct persons, ensuring that the valuation principles apply consistently, provided the recipient is eligible for full ITC.

1. Background:

• Concerns have been raised about the interpretation of the time limit specified under section 16(4) of the Central Goods & Services Tax Act, 2017 (CGST Act) and its application to such RCM supplies.

2. Issue:

• There is ambiguity regarding the relevant financial year to which the invoice pertains for the purpose of section 16(4) of the CGST Act, especially when the tax on RCM basis is paid after the supply has been received and no invoice was initially issued.

3. Clarification:

3.1 Legal Provisions:

• Section 16(2)(a) of CGST Act: ITC cannot be availed unless the registered person is in possession of a tax invoice or other prescribed tax-paying document.
• Rule 36(1)(b) of CGST Rules: ITC can be availed on the basis of an invoice issued in accordance with section 31(3)(f) of the CGST Act, subject to the payment of tax.
• Section 31(3)(f) of CGST Act: Requires a registered person to issue an invoice in respect of goods or services received from an unregistered supplier and to pay the tax on RCM basis.
• Section 16(4) of CGST Act: Specifies the time limit for availing ITC as the 30th of November following the end of the financial year to which the invoice or debit note pertains or the date of filing the annual return, whichever is earlier.

3.2 Interpretation:

• The time limit for availing ITC under section 16(4) of the CGST Act is linked to the financial year to which the invoice pertains.
• For RCM supplies received from unregistered suppliers, the recipient is required to issue an invoice under section 31(3)(f) and pay the tax accordingly.
• ITC can only be availed when the recipient is in possession of this self-issued invoice.

3.3 Conclusion:

• The relevant financial year for the purpose of section 16(4) of the CGST Act is the financial year in which the recipient issues the invoice under section 31(3)(f) of the CGST Act.
• If the recipient issues the invoice and pays the tax after the time of supply, they will be liable to pay interest on the delayed tax payment.
• Delayed issuance of the invoice may also result in penal action under section 122 of the CGST Act.

4. Implications:

• This clarification ensures uniformity in the implementation of the law across field formations.
• Recipients of supplies from unregistered persons under RCM should ensure timely issuance of invoices and payment of tax to avoid interest and penalties.
• The time limit for availing ITC will be calculated based on the financial year of the invoice issuance, providing clarity and reducing disputes in this regard.

Background:

• CBIC has received representations concerning the lack of a system on the common portal to verify whether ITC attributable to discounts offered through tax credit notes has been duly reversed by the recipients.
• This circular aims to provide a mechanism to enable suppliers and tax officers to verify compliance with the conditions under section 15(3)(b)(ii) of the CGST Act regarding the reversal of ITC by recipients in such cases.

Clarifications and Mechanism:

1. Conditions for Exclusion of Discount:
   • According to section 15(3)(b)(ii) of the CGST Act, discounts given by suppliers through tax credit notes after the supply must be excluded from taxable value if:
     • The discount is established in an agreement before or at the time of supply.
     • The discount is specifically linked to relevant invoices.
     • The recipient has reversed the ITC attributable to the discount.
2. Current Portal Limitations:
   • Presently, there is no functionality on the common portal to facilitate verification of ITC reversal by recipients for discounts offered through tax credit notes.
3. Interim Mechanism:
   • Until a suitable system is implemented on the common portal, suppliers may procure a certificate from recipients issued by a Chartered Accountant (CA) or Cost Accountant (CMA).
   • The certificate should verify that the recipient has reversed the required proportionate ITC in respect of each credit note issued by the supplier.
   • Details to be included in the certificate: credit note details, relevant invoice number, amount of ITC reversal, and reference to FORM GST DRC-03 or other relevant documents.
   • Certificates issued by CAs can be verified at https://udin.icai.org/search-udin, and those issued by CMAs at https://eicmai.in/udin/VerifyUDIN.aspx.
4. Threshold Exception:
   • For discounts where the total tax amount (CGST+SGST+IGST and Compensation Cess) in a financial year does not exceed Rs 5,00,000, suppliers may obtain an undertaking or certificate from the recipient instead of a CA/CMA certificate.
   • This undertaking/certificate should include the same details as specified for CA/CMA certificates.
5. Admissibility of Evidence:
   • Certificates issued by CA/CMA or undertakings/certificates by recipients shall be treated as valid evidence of compliance with section 15(3)(b)(ii) of the CGST Act.
   • Suppliers must present these certificates or undertakings to tax authorities during scrutiny, audit, investigations, etc., as required.
6. Applicability for past periods:
   • Even for past periods, where evidence of ITC reversal for credit notes issued by suppliers is required, suppliers may provide certificates issued by CA/CMA or undertakings/certificates by recipients to the relevant tax authorities.

Key Points:

1. Background:
   • Clarification was sought on the taxability under GST for ESOP/ESPP/RSU provided by Indian companies through their foreign holding companies.
   • Indian companies offer these options as part of employee compensation, with costs reimbursed to the foreign holding company.
2. Transactions Involved:
   • Employees exercise stock options granted by the foreign holding company.
   • The foreign holding company issues securities/shares directly to employees.
   • The Indian subsidiary reimburses the cost to the foreign holding company.
3. Taxability under GST:
   • Securities as Goods/Services: Securities are classified as neither goods nor services under the CGST Act, meaning their transfer does not attract GST.
   • Employee-Employer Relationship: ESOP/ESPP/RSU are part of employee remuneration and are not considered a supply of goods or services under GST as per Entry 1 of Schedule III of the CGST Act.
   • Reimbursement Costs: If the reimbursement from the Indian subsidiary to the foreign holding company is strictly on a cost-to-cost basis without any additional charges, it is not subject to GST.
   • Additional Charges: If there is any fee, markup, or commission charged by the foreign holding company over the cost of securities, it is considered a supply of service. GST would be levied on this additional amount, payable on a reverse charge basis by the Indian subsidiary.

Background:

• CBIC has received requests for clarification regarding the treatment of insurance premiums not included in the taxable value under Rule 32(4) of the Central Goods and Services Tax Rules, 2017 (CGST Rules) for life insurance business. Specifically, there were queries on whether such premiums constitute exempt/non-taxable supplies and if ITC availed on them needs to be reversed.

Key Clarifications:

1. Definition and Tax Treatment:
   • As per Section 2(11) of the Insurance Act, 1938, “life insurance business” includes policies that combine elements of investment along with risk cover. Rule 32(4) of the CGST Rules determines the value of supply for such policies by deducting the premium allocated for investment/savings.
   • The portion of the premium not included in the taxable value under Rule 32(4) does not qualify as exempt or non-taxable supply under Section 2(47) of the CGST Act, as it is neither nil-rated nor wholly exempted under Section 11 of the CGST Act nor non-taxable under Section 2(78).
2. Reversal of Input Tax Credit:
   • Rule 42 of the CGST Rules mandates the reversal of ITC under certain conditions. However, the portion of the premium not included in taxable value under Rule 32(4) does not fall under these conditions.
   • Sections 17(1) and 17(2) of the CGST Act restrict the availability of ITC only for supplies used partially for business and partially for exempt or non-taxable supplies or another purpose. Since the premium portion in question does not constitute exempt or non-taxable supply, there is no requirement to reverse ITC under these provisions.
3. Conclusion:
   • Therefore, the amount of premium for life insurance policies, which is excluded from taxable value as per Rule 32(4) of the CGST Rules, does not necessitate the reversal of ITC. This clarification aims to ensure uniformity in the implementation of GST provisions across field formations.

Background:

CBIC has received queries regarding GST liability for salvage or wreckage value in motor vehicle insurance claims. These concerns relate to whether insurance companies are liable to pay GST on the salvage or wreckage value deducted in claim assessments.

Key Clarifications:

1. GST Applicability on Salvage/Wreckage:
   • Under the GST law, tax liability arises from the concept of ‘supply’ defined in Section 7 of the CGST Act, which includes all forms of supply of goods or services made for consideration in the course of business.
2. Insurance Contract Terms and Salvage Treatment:
   • Insurance companies provide services by insuring vehicles against damages, with premiums charged from vehicle owners. In the event of a claim where the vehicle is deemed a total loss or constructive total loss, the insurance company may deduct the salvage or wreckage value from the claim settlement amount.
   • The ownership of salvage/wreckage remains with the insured unless explicitly transferred as per the terms of the insurance contract. The deduction of salvage from the claim amount is predetermined and does not constitute consideration for a supply by the insurance company.
   • If the insurance contract stipulates settlement on the basis of the Insured’s Declared Value (IDV) minus salvage value, and the insured retains ownership, there is no GST liability for the insurance company on the salvage value.
3. GST Liability Scenarios:
   • No GST Liability: When the insurance claim is settled by deducting the salvage value as per contract terms, and the salvage remains with the insured, there is no GST liability for the insurance company.
   • GST Liability Applies: If the insurance company settles the claim for the full IDV without deducting salvage, thereby acquiring ownership of the salvage, then GST liability arises when the salvage is subsequently disposed of or sold.

Background:

CBIC had issued Circular No. 195/07/2023-GST dated 17.07.2023 to clarify GST liability and ITC availability concerning warranty replacements of parts and repair services. Subsequent representations from trade and industry have prompted further clarifications on related matters.

Key Clarifications:

1. Replacement of Goods Under Warranty:
   • The circular initially clarified GST liability and ITC reversal in cases involving the replacement of parts under warranty. It has been extended to explicitly cover scenarios where goods as a whole are replaced under warranty. This ensures uniform application of GST provisions.
2. Distributor Replenishment of Goods Under Warranty:
   • When a distributor replaces goods or parts out of their own stock on behalf of the manufacturer under warranty and subsequently receives replenishment from the manufacturer without additional charge, no GST is applicable on such replenishment. This aligns with the principles outlined in the circular for scenarios of parts replacement.
3. Extended Warranty Clarifications:
   • At Time of Original Supply: If an extended warranty agreement is made at the time of original goods supply, and the supplier of the extended warranty differs from the supplier of the goods, it is treated as a separate supply of services. This clarifies the distinction between composite supplies and separate service supplies.
   • After Original Supply: If the extended warranty is sold subsequent to the original supply, it is considered a distinct supply of services. The GST liability applies based on the nature of the extended warranty contract, emphasizing its role as an assurance rather than an immediate repair or replacement service.

These clarifications aim to streamline GST treatment for warranty and extended warranty scenarios, providing clarity on liabilities and ensuring consistency in compliance across industry sectors.

Background:

Insurance companies engaged in general insurance services for motor vehicles often settle claims either through cashless or reimbursement modes. Under reimbursement mode, the insured initially pays the repair costs to non-network garages and later seeks reimbursement from the insurance company. This has raised questions regarding the eligibility of insurance companies to claim ITC on repair expenses incurred in such scenarios.

Clarification by CBIC:

1. Availability of ITC:
   • Section 17(5) of the CGST Act allows ITC on services of repair of motor vehicles when received by a taxable person engaged in the supply of general insurance services for insured vehicles. Despite the insured initially paying the garage directly, the insurance company ultimately bears the liability for the repair costs as per the approved claim. Therefore, the insurance company qualifies as the “recipient” of the repair services under GST laws, entitling them to claim ITC on the input tax paid by the garage.
2. Extent of ITC:
   • If the garage issues separate invoices—one to the insurance company for the approved claim cost and another to the insured for additional amounts (such as compulsory deductibles, depreciation, salvage values, etc.), the insurance company can claim ITC on the invoice pertaining to the approved claim cost. This is contingent upon the insurance company reimbursing the insured only for the approved claim amount. Further, if the garage issues a single invoice, ITC is available to the insurer, provided the invoice for the repair of the vehicle is in the name of the insurance company.
3. Invoice Requirements:
   • For ITC eligibility, invoices must be issued in the name of the insurance company. If invoices are not addressed to the insurance company, but instead to the insured or third parties, the conditions under Section 16(2) of the CGST Act (specifically clauses (a) and (aa)) are not met, thereby precluding the insurance company from claiming ITC on such invoices.

Conclusion:

The CBIC’s clarification ensures that insurance companies can avail ITC on repair expenses incurred in reimbursement mode of claim settlement, provided invoices are correctly issued and the conditions under GST laws are met. This clarification aims to facilitate uniform implementation across field formations and address uncertainties surrounding ITC eligibility in these scenarios.

Background:

There have been queries regarding the GST implications on transactions where an overseas affiliate extends a loan to its Indian counterpart or where a person in India provides a loan to a related person, with consideration being solely in the form of interest or discount. The CBIC has issued a clarification to address these concerns and ensure consistency in GST implementation.

Key Clarifications by CBIC:

1. Taxability of Loan Transactions:
   • According to Section 7(c) of the CGST Act and Schedule I, any supply of goods or services between related persons, even without consideration, is considered a taxable supply under GST. Therefore, the provision of loans, credit, or advances by an entity to its related entity (whether overseas or domestic) is deemed as a supply under GST regulations.
2. Exemption on Interest or Discount:
   • Services involving the extension of deposits, loans, or advances, where the consideration is solely represented by interest or discount (excluding credit card interest), are fully exempt under GST as per Entry 27(a) of Notification No. 12/2017-Central Tax (Rate).
3. Processing or Administrative Charges:
   • The clarification distinguishes between transactions involving related parties and those with independent lenders. While independent lenders typically charge processing fees to cover administrative costs, loans between related parties may not involve similar costs due to shared information and reduced risk assessment. Therefore, no GST applies on loans extended without additional charges beyond interest or discount.
4. GST Applicability on Additional Charges:
   • If any fees resembling processing fees, administrative charges, or similar costs are levied alongside interest or discount on loans between related parties, such charges are deemed consideration for facilitating the loan and are subject to GST. This aligns with the principles of GST on taxable supplies of services. The same has been clarified at serial number 42 in the Sectoral FAQ on Banking, Insurance, and Stock Brokers Sector issued by CBIC.

Conclusion:

The CBIC’s clarification aims to provide clarity on the GST treatment of loan transactions involving related parties, ensuring that GST is levied appropriately on taxable supplies while exempting purely financial components such as interest or discount. This guidance supports uniform application of GST laws across different scenarios of loan provisions, promoting compliance and clarity in the financial services sector.

Background:

The Cellular Operators Association of India (COAI) has raised concerns regarding the denial of ITC by some tax authorities on ducts and manholes used in the network of Optical Fiber Cables (OFCs). This denial was based on the interpretation that such items fall under immovable property, thus blocked from ITC under section 17(5) of the CGST Act, 2017. To resolve these issues and provide clarity, the CBIC has issued the following clarification.

Key Clarifications by CBIC:

1. Relevant GST Provisions:
   • Section 17(5) of the CGST Act restricts ITC availability on goods or services used for the construction of immovable property, excluding plant and machinery. This includes works contract services and goods used in such construction.
2. Definition of Plant and Machinery:
   • As per the Explanation to section 17 of the CGST Act, “plant and machinery” includes apparatus, equipment, and machinery fixed to earth, used for making outward supplies of goods or services. This definition explicitly excludes land, buildings, civil structures, telecommunication towers, and pipelines laid outside factory premises.
3. Nature of Ducts and Manholes:
   • Ducts and manholes are essential components in OFC networks, facilitating the laying, maintenance, and operation of optical fiber cables. They are integral to the transmission of telecommunication signals and do not qualify as land, buildings, or civil structures, nor do they fall under excluded categories like telecommunication towers or external pipelines.
4. Conclusion:
   • Considering their role as part of the plant and machinery used directly in the supply of telecommunication services, ducts and manholes in OFC networks are eligible for ITC. They do not meet the criteria for exclusion under section 17(5) of the CGST Act, as they are neither part of immovable property construction nor fall under specifically excluded categories.

Implications for Stakeholders:

This clarification ensures that businesses in the telecommunication sector can avail of ITC on ducts and manholes used in OFC networks without ambiguity. It aims to prevent unwarranted litigation and promotes uniformity in GST implementation across different tax jurisdictions.

Background:

There have been queries regarding the determination of the Place of Supply for Custodial Services provided by banks or financial institutions to Foreign Portfolio Investors (FPIs). This issue arises due to differing interpretations across field formations, with some holding that these services should be treated as services provided to ‘account holders’ under Section 13(8)(a) of the IGST Act, 2017, thereby making the location of the supplier (banks or financial institutions) the place of supply.

Key Clarifications by CBIC:

1. Definition and Scope of Custodial Services:
   • Custodial services, in the context of securities, involve the safekeeping of securities, maintaining accounts, collecting benefits accruing to clients, and keeping clients informed about relevant actions by issuers. These services are crucial for managing investments by FPIs in various permissible instruments under Indian regulations.
2. Applicability of Section 13(8)(a) of IGST Act:
   • Section 13(8)(a) of the IGST Act pertains to services provided by banks or financial institutions to ‘account holders’, where the place of supply is determined as the location of the supplier. However, custodial services provided to FPIs do not fall under the definition of services provided to ‘account holders’ as per the IGST Act.
3. Comparison with Service Tax Regime:
   • The IGST Act provisions under Section 13(8)(a) mirror those of Rule 9(a) of the Service Tax Place of Provision of Supply Rules, 2012. Under the Service Tax regime, custodial services were considered outside the scope of services provided to ‘account holders’ and were not covered under Rule 9(a).
4. Place of Supply Determination:
   • Since custodial services provided to FPIs do not qualify as services to ‘account holders’, the place of supply cannot be determined under Section 13(8)(a) of the IGST Act. Instead, it falls under the default provision as per sub-section (2) of section 13 of the IGST Act, which determines the place of supply based on other relevant factors.

Conclusion:

In conclusion, the CBIC clarifies that custodial services provided by banks or financial institutions to FPIs are not categorized as services provided to ‘account holders’ under Section 13(8)(a) of the IGST Act. Therefore, the place of supply for such services should be determined under the default provisions of sub-section (2) of section 13 of the IGST Act.

This clarification aims to ensure uniformity in the interpretation and application of GST provisions across different jurisdictions, thereby preventing unnecessary disputes and providing clarity to stakeholders in the banking and financial sectors.

Background:

CBIC has issued a clarification regarding the time of supply for services related to the construction and maintenance of National Highway Projects under the Hybrid Annuity Mode (HAM). This clarification aims to provide uniformity in understanding and implementation across field formations, addressing concerns raised by stakeholders regarding the taxation of such services.

Key Clarifications by CBIC:

1. Nature of HAM Contracts:
   • Under the HAM, concessionaires undertake both the construction of new highways and their subsequent operation and maintenance (O&M). The payment for these services is structured as a combination of upfront payments during construction and deferred payments (annuity) spread over several years.
2. Holistic Approach to Contracts:
   • HAM contracts are integral agreements encompassing both construction and O&M services. They cannot be artificially segmented into separate contracts based solely on payment terms. The concessionaire is contractually obligated to complete construction and ensure the ongoing maintenance of the highway.
3. Time of Supply Determination:
   • Continuous Supply of Services: The services provided under HAM contracts, including construction and O&M, fall under the definition of ‘continuous supply of services’ as per section 2(33) of the CGST Act.
   • Time of Supply: According to section 13(2) of the CGST Act:
     • If the invoice is issued within the prescribed period under section 31, the time of supply shall be the date of issue of the invoice or the date of receipt of payment, whichever is earlier.
     • If the invoice is not issued within the prescribed period, the time of supply shall be the date of provision of service or the date of receipt of payment, whichever is earlier.
   • Special Consideration: Section 31(5) of the CGST Act mandates that for continuous supply of services where payment is periodic or linked to specific events, the invoice must be issued on or before the due date or the completion of the event. This requirement ensures clarity on the time of supply.
4. Tax Liability Clarity:
   • The tax liability for the concessionaire under HAM contracts arises:
     • At the time of invoice issuance or receipt of payment, whichever is earlier, if the invoice is issued within the prescribed period.
     • On the date of provision of service (due date of payment as per contract) or receipt of payment, whichever is earlier, if the invoice is not issued within the prescribed period.
5. Inclusion of Interest Component: As HAM payments to concessionaires include an interest component, this amount is considered part of the taxable value for calculating GST liabilities on these services.

Conclusion:

This clarification by CBIC ensures that the time of supply for construction and maintenance services under the HAM model for National Highway Projects aligns with statutory provisions, providing clear guidelines for GST compliance. It aims to prevent ambiguity and promote consistent implementation across jurisdictions, benefiting stakeholders involved in infrastructure development under HAM contracts.

Background:

Representations have been received from the trade and the field formations seeking clarification regarding the time of supply for payment of GST in respect of supply of spectrum allocation services in cases where the successful bidder for spectrum allocation (i.e. the telecom operator) opts for making payments in instalments under deferred payment option as per Frequency Assignment Letter (FAL) issued by Department of Telecommunication (DoT), Government of India.

1. In order to clarify the issue and to ensure uniformity in the implementation of the provisions of law across the field formations, the Board, in exercise of its powers conferred by section 168 (1) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “CGST Act”), hereby clarifies the issues as under:

Clarifications

Issue: Time of supply for payment of GST on spectrum allocation services when the telecom operator opts for deferred payment.

Clarification:

• • Under the spectrum allocation model followed by DoT, the bidder (telecom operator) bids for the right to use spectrum offered by the government. The Government of India (through DoT) is the service provider, and the bidder/telecom operator is the service recipient. GST is to be discharged on the supply of spectrum allocation services by the recipient of services (the telecom operator) on a reverse charge basis [Notification No. 13/2017-Central Tax (Rate) dated 28^th  June, 2017 referred].
  • If the telecom operator opts for installment payments, the payment has to be made over the contract period in installments as specified in the Frequency Assignment Letter of DoT. This constitutes a ‘continuous supply of services’ as defined under section 2(33) of the CGST Act, since the service (spectrum usage) is agreed to be provided continuously for a period exceeding three months with periodic payment obligations.
  • As per section 13(1) of CGST Act, the liability to pay tax on supply of services shall arise at the time of supply. In the case of forward charge supplies, the time of supply of services is governed by section 13(2) of CGST Act, which is the earlier of the date of issue of invoice by the supplier, the date of provision of service, or the date of payment.
  • For services taxed on a reverse charge basis, section 13(3) of the CGST Act, 2017 states that the time of supply of services shall be the earlier of:
    • the date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier; or
    • the date immediately following sixty days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier.

Issue: Field formations considering the Frequency Assignment Letter as a document akin to an invoice and demanding interest on installments paid after 60 days.

Clarification:

1. • The Frequency Assignment Letter is in the nature of a bid acceptance document that indicates the acceptance of the auction result by the competent authority and details of blocks and spectrum allotted to the telecom operator. It also specifies the payment options and amounts.
   • Section 31(5)(a) of CGST Act requires that in cases of continuous supply of services, where the due date of payment is ascertainable from the contract, the invoice shall be issued on or before such due date of payment. In this case, the due date is ascertainable from the Notice Inviting Applications read with the Frequency Assignment Letter, and thus, the tax invoice must be issued on or before the due date of payment as per the option exercised by the telecom operator.
2. Clarification:
   • For full upfront payment by the telecom operator, GST is payable when the payment of the upfront amount is made or is due, whichever is earlier. For deferred payments in specified installments, GST is payable as and when the payments are due or made, whichever is earlier.
3. Extension to other cases:
   • This clarification regarding the time of supply also applies to other cases where any natural resources are allocated by the government to a successful bidder/purchaser for the right to use the said natural resource over a period of time, constituting continuous supply of services under section 2(33) of the CGST Act, with payment options either upfront or in deferred periodic installments.