GST Council recommends changes in tax rates and clarification on issues including taxability of personal and corporate guarantee

This Tax Alert summarises the recent press release issued by the Ministry of Finance on various recommendations made by the Goods and Services Tax (GST) Council in its 52nd meeting held on 7 October 2023. The key recommendations are as follows:

• GST is not payable for providing personal guarantee where no consideration is paid by the company to the director
  
  
• Value of supply of providing corporate guarantee shall be 1% of the amount of such guarantee offered or the actual consideration, whichever is higher. This valuation will apply irrespective of whether full ITC is available to the recipient or not. 
  
  
• GST exemption to be granted to foreign flag foreign going vessel when it converts to coastal run subject to its reconversion to foreign going vessel in six months. 
  
  
• Bus operators organised as companies and supplying services through e-commerce operators (ECO) would be liable to pay GST. At present, the liability to pay GST is on ECO. 
  
  
• Suppliers to Special Economic Zone (SEZ) units/ developer can make such supplies with payment of tax and claim the refund of tax so paid. 
  
  
• Amnesty scheme for filing of appeal before Appellate Authority where appeal could not be filed against the demand order passed on or before 31 March 2023, or the appeal was rejected solely on the ground of being time-barred.

Comments

• RBI prohibits any payment by way of guarantee commission to the directors. Non taxability in such scenarios will align GST provisions with RBI guidelines and provide much needed relief to the industry. 
  
  
• Provision for valuation of corporate guarantee is likely to resolve a long-standing issue faced by the companies. Preferably, if the benefit of Nil value as per second proviso to Rule 28 is allowed for such guarantee, it may help in reducing working capital blockage.
  
  
• Amnesty scheme extending the timelines for filing appeal is a welcome move and would aid the ease of doing business agenda of the Government.
  
  
• IGST exemption to foreign flag vessel converting for coastal run is likely to boost the tourism industry in India.