CBIC issues Circulars pursuant to recommendations made in 50th GST Council meeting

This Tax Alert summarizes recent Circulars issued by the Central Board of Indirect Taxes and Customs (CBIC) based on the recommendations made in the 50th Goods and Services Tax (GST) Council meeting held on 11 July 2023.

The key clarifications are as follows:

• In respect of common input services procured by the head office (HO), which are attributable to other branch offices (BOs), HO has an option to distribute input tax credit (ITC) by following input service distributor (ISD) mechanism or by issuing tax invoices to the concerned BOs.
  
• In case of internally generated services by HO where full ITC is available to BOs, and HO has not issued a tax invoice, the deemed Nil value may be considered as open market value of such services in terms of second proviso to Rule 28 of the Central Goods and Services Tax Rules, 2017. 
• Further, for valuing internally generated services, the salary cost of employees is not mandatorily required to be included, whether or not BO is entitled to full ITC.  
• In case where multiple e-commerce operators (ECOs) are involved in a single transaction, compliances under Section 52 of the Central Goods and Services Tax Act, 2017 is to be done by the ECO making final payment to the supplier.
• Warranty replacement of parts by dealers against credit note issued by manufacturer is not exigible to GST.

Comments

• Recently, Supreme Court in case of Tata Motors Ltd [2023-TIOL-66-SC-CT-LB] held that warranty replacement by dealers against credit note issued by manufacturer was exigible to sales tax. Clarity issued by CBIC on issuance of credit notes in similar circumstances will avoid any further litigation under GST. 
  
• In the past, department had raised GST demand on internally generated services by HO, even if the BOs were eligible for full ITC on the same. The present clarification that “Nil” value can be considered as open market value in such cases may put to rest the said disputes.
• Clarification regarding inclusion of employee cost in the value of services to distinct person being not mandatory, is likely to provide much needed relief as there were divergent views prevailing in the industry on the said issue.