Central Board of Indirect Tax & Customs (CBIC) issued circular no. 20/06/03/2019-GST dated 18^th July, 2019 clarifying implications under GST related to Information Technology enabled services (ITes) outsourced to Indian entities by overseas companies (i.e. call centres, business process outsourcing service, accounts outsourcing service etc.). The said circular clarifies that the definition of “intermediary” u/s. 2(13) of IGST Act inter alia provides specific exclusion of a person i.e. that of a person who supplies such goods or services or both or securities on his own account. Therefore, the supplier of services would not be treated as “intermediary” even where the supplier of services qualifies to be “an agent/ broker or any other person” if he is involved in the supply of service on his own account.

The circular mentions that IT enabled services have not been defined under GST Act however, the same has been defined as below under sub-rule (e) of rule 10A of Income Tax Rules, 1962 pertaining to Safe Harbour rules for international transactions;

“information technology enabled services” means the following business process outsourcing services provided mainly with the assistance or use of information technology, namely;

(i) back office operations;

(ii) call centers or contact center services;

(iii) data processing and data mining;

(iv) insurance claim processing;

(v) legal databases;

(vi) creation and maintenance of medical transcription excluding medical advice;  

(vii) translation services;

(viii) payroll;

(ix) remote maintenance;

(x) revenue accounting;

(xi) support centers;

(xii) website services;

(xiii) data search integration and analysis;

(xiv) remote education excluding education content development; or

(xv) clinical database management services excluding clinical trials,

but does not include any research and development services whether or not in the nature of contract research and development services.

Implications under GST shall be as below;

• Where the supplier provides services as listed above to his clients or customers of his clients on his own account, the supplier will not be categorized as “intermediary” and hence the supplier can avail the benefits of export of services under GST subject to compliance with the criteria mentioned in section 2(6) of IGST Act.
• Where the supplier arranges or facilitates the supply of goods or back-end services or both which include support services, services provided during pre-delivery, delivery and post-delivery of supply (such as order placement and delivery and logistical support, obtaining relevant government clearances, transportation of goods, post-sales support and other services etc.), the supplier will fall under the ambit of “intermediary” under section 2(13) of IGST Act. Hence, the services provided by the supplier will be not qualify as export of service under GST.
• Where the supplier provides back-end services on his own account along with arranging or facilitating the supply of various support services as listed above, whether the supplier will fall under the ambit of “intermediary” under section 2(13) of IGST Act will depend on facts and circumstances of each case and would be determined keeping in view which set of services is the principal/ main supply.

Conclusion:

As can be seen from the aforesaid analysis that the deciding factor to qualify service provider as “intermediary” depends on the fact whether the service provider is providing services on his own or arranges/facilitates the same. If the service provider falls within the ambit of “intermediary”, he will not be eligible to claim the benefit of export of services under GST. As such there is very thin line of difference in deciding factors to determine whether the service provider is providing services for the client and customers of client on his own or arranges the same. Hence, it should be decided very judiciously after considering all the underlying facts and especially terms of the contract executed between the service provider and the overseas company.

According to the views of the author, few of the deciding factors in determining whether the service provided by the service provider on his own or as a facilitator could be;

• Whether the service provider provides exclusive service to the client or provide similar service to more than one client
• Contractual arrangements between the service provider and the client viz. whether the fees payable to the supplier of service depends on reimbursement of cost incurred for the people employed by the supplier of service or fixed in nature depending on nature of service
• Responsibility casted on the supplier of service as regards deliverance/ performance
• Whether the services are provided by the service provider independently or jointly along with the team of overseas client
• Whether the service provider is independent to take all the necessary decisions as regards the performance of service or not

Central Board of Indirect Tax and Customs clarified through circular No.108/27/2019-GST dated 18^th July, 2019 about procedures, documentation and implications under GST on transaction with respect to goods sent/taken out of India for exhibition or on consignment basis for export promotion. Key aspects of the same have been highlighted below.

1. Activity of sending/ taking the goods out of India for exhibition or on consignment basis for export promotion do not constitute “supply” except when such activity satisfy the tests laid down in Schedule I of the Act.
2. The registered person engaged in such activity needs to maintain a record in the format specified in circular as annexure.
3. The goods can be sent/taken outside India on “approval basis” shall be accompanied by delivery challan issued in accordance with rule 55 of CGST Rules, 2017 [i.e. Transportation of goods without issue of invoice]
4. Since such transactions will not constitute “supply”, execution of a bond or LUT is not required.
5. The supply would be deemed to have taken place, on the expiry of six months from the date of removal if the goods are neither sold abroad nor brought back within six month. Hence, the tax invoice is to be issued once the sale is confirmed or on expiry of six months from the date of removal in case goods are neither sold nor brought back within the stipulated time.
6. Refund claim can be preferred only once sale is confirmed and not at the time of sending of goods on consignment. In case of deemed sale where neither sale is confirmed nor goods are brought back within six months, refund claim cannot be preferred under the option of export with payment (Rule 96). However, in such cases, refund claim can be preferred under LUT option.

CBIC has clarified various doubts as regards treatment of various sales promotional schemes under GST vide circular 92/11/2019 dated 7th March 2019 to ensure uniform implementation of the law. Summary of the said circular is as below.

Free Samples & Gift

It is clarified that samples which are supplied free of cost without any consideration do not qualify as “supply” under GST and hence will not be subject to tax except where the transactions fall within the ambit of schedule I of the Act specifying transactions which are subject to tax when carried out without consideration. As per clause (h) of section 17(5), the input tax credit shall not be available to the supplier on inputs, input services and capital goods to the extent they are used in relation to the gifts and free samples. However, if the said transaction is subject to tax under schedule I of the Act, the input tax credit will be available. 

Discount offered linked to volume of purchase

Sometimes a supplier offers a discount in proportion to quantity purchased by the customers e.g. 10% discount on purchase above Rs.5000/-, 15% discount on purchase above Rs.10,000/- and so on. Such discounts are shown on the face of the invoice. Some suppliers offer periodic/ year-end discounts to stockists/ distributors based on quantity purchased by them during the period/ year. such discounts are established in terms of the agreement entered into at the time of supply or even before that. In such cases, discounts are not shown on the face of invoice since such discounts are decided later based on volume supplied. Such discounts are passed on by the suppliers through credit notes

Buy one and Get one free

As stated above, goods and services which are supplied free of cost are not subject to tax (except in case of activities covered under schedule I of the Act). In case of buy one get one free offer, it is not free to supply but two or more supplies are supplied at a single price charged for the entire supply. Taxability of such supply will be dependent upon as to whether the supply is a composite supply or mixed supply and the rate of taxation will be determined as per section 8 of the Act. It is pertinent to note that as per section 8, for composite supply, tax rate applicable on item constituting as principal supply will be applicable on the full value of supply offered as part of buy one get one free. In case of mixed supply consisting of two or more supplies offered as a package for a single price (without bifurcation), tax rate applicable to the product/service with the highest rate of tax will be applied to the entire value of supply. It is also clarified that ITC shall be available to the supplier for the inputs, input services and capital goods used in relation to supply of goods or services or both as part of such offers.  

It is clarified that discounts offered by the suppliers to customers as above shall be excluded to determine the value of supply provided they satisfy the parameters laid down in sub-section (3) of section 15 of the said Act i.e. if the discount is offered after the supply, such discount is established in terms of agreement entered into at or before the time of such supply and specifically linked to relevant invoices and input tax credit attributable to such discount on the basis of document issued by the supplier has been reversed by the recipient.

Secondary Discount

These are the discounts which are not known at the time of supply or are offered after the supply is already over. It has been clarified that where condition laid down in clause (b) of section 15(3) with regards the reversal of input tax credit by the recipient of the supply is not fulfilled, credit note u/s. 34(1) can not be issued to give the effect of reduction in tax amount due to the discount offered subsequently. Hence, it is very important to note that credit note cannot be issued to reduce the taxable value of supply under GST unless the recipient of supply does a reversal of the credit attributable to the discount value offered by the supplier subsequent to supply of goods and services. Unilateral act of reducing the value of supply by the supplier through the issue of credit note without verification of the fact that recipient of the supply did a reversal of the input tax credit will result into the recovery of tax on the part of the supplier. 

Highlights of notifications issued by CBIC dated 7th March 2019 are as below.

Increase in turnover threshold limit for dealers under composition scheme

Threshold limit of aggregate turnover for composition scheme dealers u/s.10 of CGST Act has been enhanced to Rs. 1.5 crore during previous financial year. This will be applicable effective from 1st April, 2019. For 7 notified states (Arunachal Pradesh, Manipur, Mizoram, Meghalaya, Nagaland, Sikkim, Tripura, Uttrakhand), threshold limit shall be Rs.75 lacs. Notification no. 14/2019 – Central Tax supersedes the earlier notification 08/2017 – Central Tax dated 27-06-2017.

Due date for filling 3B return

Due date for filling 3B return for the months of April to June 2019 has been prescribed as 20th day from the end of respective month. Every registered person furnishing the return in FORM GSTR-3B of the said rules shall, subject to the provisions of section 49 of the said Act, discharge his liability towards tax, interest, penalty, fees or any other amount payable under the said Act by debiting the electronic cash ledger or electronic credit ledger, as the case may be. Notification 13/2019 – Central Tax.

Due date for filling GSTR-1 return (monthly)

Due date for filling GSTR-1 return for the months of April to June 2019 has been prescribed as 11th day from the end of respective month for registered persons having aggregate turnover of more than 1.5 crore rupees in the preceding financial year or the current financial year. Time limit for furnishing details of inward supplies as per section 38(2) and return for discharge of tax liability 39(1) of CGST Act will be notified later depending on smooth functioning of new mechanism of return filling which is proposed to be made operational effective from July 2019. Notification 12/2019 Central Tax.

Due date for filling GSTR-1 return (quarterly)

Due date for filling GSTR-1 return for the months of April to June 2019 has been prescribed as 31st July, 2019 for registered persons having aggregate turnover of up to 1.5 crore rupees in the preceding financial year or the current financial year. Time limit for furnishing details of inward supplies as per section 38(2) and return for discharge of tax liability 39(1) of CGST Act will be notified later depending on smooth functioning of new mechanism of return filling which is proposed to be made operational effective from July 2019. Notification 11/2019 Central Tax.

Threshold limit for mandatory registration increased to Rs.40 lacs

Any person, who is engaged in exclusive supply of goods (within state) and whose aggregate turnover in the financial year does not exceed forty lakh rupees are not required to get registered under GST. This will be made effective from 1st April, 2019. However, this will not be applicable to following class of persons. Notification 10/2019 – Central Tax.

• Persons required to get registered under act compulsorily irrespective of turnover u/s.24 of CGST Act including persons engaged in inter-state supply of goods
• Persons engaged in supply of ice cream and other edible ice whether or not containing cocoa, pan masala, tobacco and manufactured tobacco substitutes
• Persons engaged in making intra-State supplies in the States of Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Telangana, Tripura, Uttarakhand
• Persons opt for voluntary registration u/s. 25(3) of CGST Act
• Previously, notification 5/2017 was issued under section 23(2) which exempted those who are entirely supplying exempted goods or services but are liable to registration only due to their liability to tax under 9(3). But now, this exemption appears to override section 22. It is to be noted that where aggregate turnover includes income by way of interest or discount on loans and advances the benefit of this exemption notification cannot be taken. ‘Exclusively engaged in supply of goods’ is a condition of the notification and section 22 can be invoked if this condition is violated on any day in the year and tax from Rs.20 lacs upto the date when this condition stands breached may become due without any availability of input tax credit.

  Composition scheme for supplier of services

Composition scheme has been notified for the service providers having Lacsturnover in the preceding year up to Rs.50 lakh. First supplies of goods or services or both the aggregate turnover of fifty lakh rupees made on or after the 1^st day of April in any financial year, by a registered person can avail benefit of composition scheme subject to following conditions. Tax rate applicable in case of taxable supplies by the composite dealer will be 6% (CGST &  SGST @ 3% each). This will be made effective from 1st April 2019. Notification 2/2019 Central Tax

• Supplies are made by registered person having turnover up to Rs.50 lakh during previous financial year and not eligible to pay tax as composite dealer u/s.10
• Registered person was not engaged in making any supply which is not leviable to tax
• Registered person is not engaged in making inter-state supply
• Registered person is neither a casual taxable person nor a non-resident taxable person
• Tax rate applicable for all supplies will be 6% notwithstanding different tax rates prescribed under section 9 or 11 of CGST Act
• Registered person is not engaged in making any supply through an electronic commerce operator who is required to collect tax at source under section 52
• Registered persons engaged in supply of ice cream and other edible ice whether or not containing cocoa, pan masala, tobacco and manufactured tobacco substitutes
• Where more than one registered persons are having the same Permanent Account Number, union territory tax on supplies by all such registered persons is paid @6%
• The registered person shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax.
• Other conditions as applicable to casual taxable person engaged in supply of goods will also be applicable to supplier of service viz. the supplier will not issue tax invoice, declaration on bill of supply etc.
• The registered person under composition scheme shall pay tax on all inward supplies for which he is liable to pay tax under Reverse Charge Mechanism as per section 9(3) and 9(4) of CGST Act. So composition dealer is also liable to pay tax under reverse charge mechanism as applicable to regular category of tax payer.

It has also been clarified as part of explanation that supplies from the first day of financial year (i.e. 1st April, 2019) will be considered for the purpose of eligibility of the person to register under composition scheme. But for the purpose of determination of tax payable under this notification shall not include the supplies from the first day of April of a financial year to the date from which he becomes liable for registration under the Act.

GST Policy Wing, CBIC has issued three circulars on 18th February, 2019 as listed below in brief.

Circular No. 90/09/2019 – GST dated 18-02-19: 

All registered persons making supply of goods or services or both in the course of inter-State trade or commerce to specify the place of supply along with the name of the State in the tax invoice. Sections 10 and 12 of the Integrated Goods and Services Tax Act, 2017 deals with the place of supply in case of supply of goods and services respectively. Since, GST is a destination-based consumption tax, the tax paid by a registered person accrues to the State in which the consumption of goods or services or both takes place.

Contravention of the above shall attract penal action under the provisions of section 125 of the CGST Act i.e. penalty upto Rs.25,000/- 

Circular No. 89/08/2019 – GST dated 18-02-19: 

It has been brought to the notice of tax payers that mentioning details of inter-state supplies made to unregistered persons in Table 3.2 of FORM GSTR-3B and Table 7B of FORM GSTR-1 is mandatory even though not mentioning the same in section 3.2 of GSTR 3B will have not impact on tax computation. Since the apportionment of IGST collected on inter–State supplies made to unregistered persons in the state where such supply takes place is based on the information reported in Table 3.2 of FORM GSTR-3B by the registered person, reporting is very important.

Contravention of the above shall attract penal action under the provisions of section 125 of the CGST Act i.e. penalty upto Rs.25,000/- 

Circular No. 91/10/2019 – GST dated 18-02-19

It was clarified through circular No. 3/1/2018-IGST on 25^th May 2018 that from 1st of April, 2018, the supply of warehoused goods before their clearance from the warehouse would not be subject to the levy of integrated tax.

Supply of warehoused goods while deposited in custom bonded warehouses had the character of inter-State supply as per the provisions of IGST Act 2017. But, due to non-availability of the facility on the common portal, suppliers have reported such supplies as intra-State supplies and discharged central tax and state tax on such supplies instead of integrated tax. In view of revenue neutral position of such tax payment and that facility to correctly report the nature of transaction in FORM GSTR-1 furnished on the common portal was not available during the period July, 2017 to March, 2018, it has been decided that, as a one-time exception, suppliers who have paid central tax and state tax on such supplies, during the said period, would be deemed to have complied with the provisions of law as far as payment of tax on such supplies is concerned as long as the amount of tax paid as central tax and state tax is equal to the due amount of integrated tax on such supplies.