CBIC issues Circulars pursuant to recommendations made in 52nd GST Council meeting

This Tax alert summarizes recent Circulars issued by Central Board of Indirect Taxes and Customs (CBIC) based on the recommendations made by the Goods and Services Tax (GST) Council in its 52nd meeting.

The key clarifications are:

• For personal guarantee provided by director, the open market value is zero and thus, no tax is payable. Corporate guarantee provided by a company to the bank/ financial institutions for providing credit facilities to its related person would be treated as a supply of service, even when made without any consideration. The taxable value of such supply will henceforth be determined as per Rule 28(2) of the Central Goods and Services Tax Rules, 2017. 
  
  
• The place of supply for service of transportation of goods, including through mail and courier, where location of supplier or location of recipient is outside India, will be the location of recipient of service and in absence of recipient’s location, it will be location of the supplier of services.
  
  
• In case of sale of space or grant of rights to use the space on hoarding/ billboard (immovable property) for display of advertisement, the place of supply will be the location where such immovable property is located.
  
  However, where vendor is providing advertisement services by providing visibility to the recipient’s advertisement for a specific period of time on structure possessed/taken on rent by the vendor at the specified location, the place of supply will be the location of the recipient. 
  
  
• Co-location services includes both making available the immovable property and various services related to hosting and IT infrastructure. Thus, the place of supply would be the location of recipient.
  
  However, where the scope of service is restricted to providing physical space on rent along with basic infrastructure, without components of hosting and IT infrastructure provisioning services, it will be considered as supply of renting of immovable property.

Comments

• The clarifications relating to place of supply of various services and fulfillment of export condition when consideration is received in INR through RBI permitted mechanism is likely to benefit trade and industry.
  
  
• Courier service providers who had earlier opted to pay GST in view of ambiguity in place of supply provisions, may now explore the possibility of claiming refund. 
  
  
• There is a view prevailing in the industry that provision of corporate guarantee is a shareholder’s activity basis Income tax rulings and thus, not a service. While the Circular clarifies it to be a supply of service and Rule provides for its valuation, one may still need to analyse its coverage under GST.  More clarity may emerge once the agenda and minutes of the Council meeting are released.
  
  
• While the provisions of new rule 28(2) are prospectively effective, its applicability to ongoing corporate guarantees may need to be evaluated in light of time of supply provisions. 
  
  
• It is relevant to note that rule 28(2) covers only the cases where the guarantee is offered to bank/ financial institutions. Taxpayers may need to analyse the relevant valuation provision where such guarantee is given to vendors, customers, or government departments. 
  
  
• While the rule provides for taxable value at 1% of the amount of guarantee offered, further clarity may be required on its periodicity, particularly, in case of multi-year guarantee arrangement.