23 October 2019 Abhishek Kumar

GST Circulars Issued on 11th October, 2019 Clarifying Miscellaneous Issues under GST law

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Clarification i.ro. scope of services related to exploration, mining or drilling of petroleum crude or natural gas or both

Circular No. 114/33/2019-GST dt 11th October, 2019

 

Scope of following entries has been clarified as falling under Notification No. 11/2017- Central Tax (Rate)dated 28th June, 2017:

  • Heading 9986 - Services of exploration, mining or drilling of petroleum crude or natural gas or both

Scope of above entry shall be governed by the relevant explanatory notes to service codes 998621 (Support services to oil and gas extraction) and 998622 (Support services to other mining n.e.c) of the Scheme of Classification of Services adopted for the purposes of GST, which is based on the United Nations Central Product Classification (“Scheme”).

  • Heading 9983 - Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both

Scope of above entry shall be governed by the relevant explanatory notes to service codes 998341 (Geological and geophysical consulting services) and 998343 (Mineral exploration and evaluation) laid down under said Scheme.

  • Services other than the above entries:

Services which do not fall under said entries falling under heading 9983 and 9986 of said notification shall be classified in their respective headings and taxed accordingly.

 

Clarification i.ro. GST Applicability on Passenger Service Fee, User Development Fee and Collection Charges

Circular No. 115/34/2019-GST dt 11th October, 2019

 

Following clarifications have been provided regarding Passenger Service Fee (PSF), User Development Fee (USF) and collection charges:

 

  • Treatment of PSF and UDF in the hands of airline operator:

PSF and UDF being charges levied by airport operator for services provided to passengers, are collected by the airlines as an agent and is not a consideration for any service provided by the airlines. Thus, airline is not responsible for payment of Service Tax/GST on UDF or PSF provided the airline satisfies the conditions prescribed for a pure agent under Rule 33 of the CGST Rules. It is the licensee, that is the airport operator (AAI, DIAL, MIAL etc) which is liable to pay GST on UDF and PSF under forward charge.

  • Treatment of PSF and UDF in the hands of airlines:

Airlines may act as a pure agent for the supply of airport services in accordance with rule 33 of the CGST rules. Accordingly, the airline should separately indicate actual amount of PSF and UDF and GST payable on such PSF and UDF by the airport licensee, in the invoice issued by airlines to its passengers. The airline shall not take ITC of GST payable or paid on PSF and UDF. The airline would only recover the actual PSF and UDF and GST payable thereon by the airline operator. The amount so recovered will be excluded from the value of supplies made by the airline to its passengers and hence airlines shall not be liable to pay GST on PSF and UDF.

  • Treatment of PSF and UDF in the hands of registered passenger:

The registered passengers may avail ITC of GST paid on PSF and UDF on the basis of pure agent’s invoice issued by the airline to them.

  • Treatment of collection charges in the hands of airport operator:

Airlines receive collection charges from airport operator for collecting such charges from passengers. It is clarified that such collection charges are a consideration for the services provided by the airlines to the airport operator and airlines shall be liable to pay GST on the same under forward charge. Further, ITC of the same will be available with the airport operator.

 

Clarification i.r.o. Levy of GST on Service of Display of Name of the Donor in the Premises of Charitable Organisation Receiving Donation or Gifts from Individual Donors

Circular No. 116/35/2019-GSTdt 11th October, 2019

 

It is clarified that GST shall not be levied on donation or gift received by the recipient institution from individual donors, provided the following 3 conditions are satisfied:

  • The gift or donation is made to a charitable organization;
  • The payment has the character of gift or donation; and
  • The purpose is philanthropic (i.e. it leads to no commercial gain) and not advertisement

Some examples of cases where there would not be a taxable supply are below:

  • “Good wishes from Mr. Rajesh” printed underneath a digital blackboard donated by Mr. Rajesh to a charitable Yoga institution.
  • “Donated by Smt. Malati Devi in the memory of her father” written on the door or floor of a room or any part of a temple complex which was constructed from such donation.

In each of these examples, it may be noticed that there is no reference or mention of any business activity of the donor which otherwise would have got advertised.

 

Clarification on applicability of GST exemption to the DG Shipping approved maritime courses conducted by Maritime Training Institutes of India

Circular No. 117/36/2019-GST dt 11th October, 2019

 

It is clarified that Maritime Institutes are educational institutions under GST Law and the courses conducted by them are exempt from levy of GST. The exemption is subject to meeting the conditions specified at Sl. No. 66 of the notification No. 12/ 2017- Central Tax (Rate) dated 28.06.2017. Said entry provides for exemption on various services provided by educational institutions.

 

Clarification Regarding Determination of POS of software/design services i.r.o. Electronics Semi-conductor and Design Manufacturing (ESDM) Industry

Circular No. 118/37/2019-GST dt 11th October, 2019

 

Regarding supply of software/design services by using hardware kits, it is clarified that in contracts where service provider is involved in a composite supply of software development and design for integrated circuits electronically and testing of software on sample prototype hardware is often an ancillary supply, whereas, chip design/software development is the principal supply of the service provider. The service provider is not involved in software testing alone as a separate service. The entire activity needs to be viewed as one supply and accordingly treated for the purposes of taxation. Artificial vivisection of the contract of a composite supply is not provided in law. These cases are fact based and each case should be examined for the nature of supply contracted.

Therefore, place of supply of software/design by supplier located in taxable territory to service recipient located in non-taxable territory by using sample prototype hardware / test kits in a composite supply, where such testing is an ancillary supply, is the location of the service recipient as per Section 13(2) of the IGST Act. Provisions of Section 13(3)(a) of IGST Act (location of goods physically made available) do not apply separately for determining the place of supply for ancillary supply in such cases.

 

Clarification i.r.o. Taxability of Supply of Securities Under Securities Lending Scheme, 1997

Circular No. 119/38/2019-GST dt 11th October, 2019

 

The above-mentioned circular has been issued to provide the following clarifications i.r.o. applicability of GST on lending of securities:

 

  • The activity of lending of securities is not a transaction in securities as it does not involve disposal of securities.
  • In this case, the lender temporarily lends the securities held by him to a borrower and charges lending fee for the same from the borrower. The borrower of securities can further sell or buy these securities and is required to return the lended securities after stipulated period of time. The lending fee charged from the borrowers of securities has the character of consideration and this activity is taxable in GST since 1st July, 2017.
  • Further, the activities of the intermediaries facilitating lending and borrowing of securities for commission or fee are also taxable separately.
  • The supply of lending of securities under the scheme is classifiable under heading 997119 and is leviable to GST@18% as per Notification No. 11/2017- Central Tax (Rate) dated 28th June, 2017.
  • For the period 1st July, 2017 to 30th September, 2019, GST is payable under forward charge by the lender. The nature of tax payable shall be IGST. However, if the lender has already paid CGST / SGST / UTGST treating the supply as an intra-state supply, such lenders shall not be required to pay IGST again in lieu of such GST payments already made.
  • With effect from 1st October, 2019, the borrower of securities shall be liable to discharge IGST under reverse charge mechanism (RCM).

 

Clarification i.r.o. effective date of explanation pertaining to scope of the term “business”

Circular No. 120/39/2019- GST dt 11th October, 2019

  • Scenario:
  • GST @ 12% had been notified for construction services provided to Government i.r.t. to civil structures meant predominantly for use other than for commerce, industry, or any other business or profession vide Notification No. 24/2017-Central Tax (Rate) dt 21st September, 2017.
  • Thereafter, an Explanation clarifying the term “business” had been inserted whereby ‘business’ shall not include any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as pubic authorities. This had been inserted vide Notification No. 17/2018- Central Tax (Rate) dt 26th July, 2018 to be effective from 27th July, 2018.
  • Clarification:
  • It has now been clarified that the Explanation having been inserted under section 11(3) of the CGST Act, 2017 is effective from the inception of the entry in notification No. 11/2017- CTR dated 28.06.2017, i.e., dt 21st September, 2017.

 

Clarification i.r.o. GST on License Fee Charged By the States For Grant of Liquor Licenses to Vendors

Circular No. 121/40/2019-GST dt 11th October, 2019

 

  • Service by way of grant of alcoholic liquor licence, against consideration in the form of licence fee or application fee by State Government has been notified as neither a supply of goods nor a supply of service as per Notification No. 25/2019-Central Tax (Rate) dated 30th September, 2019.
  • It is clarified that, such special dispensation applies only to supply of service by way of grant of liquor licenses by the State Governments as an agreement between the Centre and States and has no applicability or precedence value in relation to grant of other licenses and privileges for a fee in other situations, where GST is payable.

 

Clarifications i.r.o. Classification and GST Rates Applicable on Certain Goods and Services

Circular No. 113/32/2019-GST dt 11th October, 2019

 

Clarifications have been provided i.r.o. classification and GST rates applicable i.r.o. certain goods and services. Key highlights of the same has been captured below:

 

A.Exemption on imported stores by the Indian Navy

It is seen that Indian Naval ship stores are exempted from import duty in terms of section 90(1) of the Customs Act, 1962. Further, as per section 90(2), goods “taken on board a ship of the Indian Navy” shall be construed as exported to any place outside India.  Also, section 90(1) and 90(3) of the Customs Act, 1962 provides that imported stores for the use of a ship of the Indian Navy and stores supplied free by the Government for the use of the crew of a ship of the Indian Navy in accordance with their conditions of service will be exempted from duty.

Accordingly, it has been clarified that imported stores for use in navy ships are entitled to exemption from GST.

 

B.Clarification regarding taxability of goods imported under lease

 

As per notification No. 50/2017-Customs dated 30th June, 2017, goods imported on temporary basis e.g. rigs and ancillary items imported for oil or gas exploration, vessels, ships taken on lease/imported under lease, by the importer for use after import are exempt from levy of IGST provided, the importer by the execution of bond to pay IGST on supply of services covered under item 1(b)[1] or 5(f)[2] of Schedule II of the CGST Act, 2017.

Accordingly, it has been clarified that the expression “taken on lease/imported under lease” (in notification No. 50/2017-Customs dated 30th June, 2017) covers imports under an arrangement so as to supply services covered by item 1(b) or 5(f) of Schedule II of the CGST Act, 2017 to avoid double taxation. Further, such clarification also holds for transactions effected in the past.

 

C.Applicability of GST rate on parts for the manufacture of solar water heater and system

 

It is clarified GST at the rate of 5% would be levied on parts including Solar Evacuated Tubes falling under chapter 84, 85 and 94, used in manufacture of solar water heater and system.

 

D.Applicability of GST on the parts and accessories suitable for use solely or principally with a medical device

It is clarified that 12% IGST would be applicable on the parts and accessories suitable for use solely or principally with a medical device falling under heading 9018, 9019, 9021 or 9022 in terms of chapter note 2 (b). Thus, parts of ophthalmic equipment suitable for use solely or principally with an ophthalmic equipment should be classified with the ophthalmic equipment only and shall attract 12%.

 

 

[1] Item 1(b) of Schedule II - Any transfer of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of services

[2] Item 5(f) of Schedule II - Transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration

Item 1(b) of Schedule II - Any transfer of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of services

[1] Item 5(f) of Schedule II - Transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration