55th GST Implementation

55th GST Council Meeting circulars cover:

• GST implications on vouchers
• Input Tax Credit (ITC) eligibility for goods delivered under Ex-Works (EXW) contracts
• ITC eligibility for Electronic Commerce Operators (ECOs) supplying specified services through their platforms
• Place of supply (POS) for online services provided to unregistered persons

KRC has analysed and presented the key clarifications in these circulars as under:

GST Treatment of Vouchers
1. Classification of Vouchers as Supply of Goods or Services 

• A voucher can either be classified as “money” or an “actionable claim,” depending on its nature.
• If the voucher qualifies as a Pre-Paid Instrument (PPI) under RBI regulations and is used as consideration to settle obligations, it falls under the definition of “money.” Such vouchers are not liable to GST as they do not constitute a supply of goods or services.
• In other cases, vouchers serve as an obligation on the supplier to accept them as consideration or part-consideration. These vouchers:
  • Can be classified as an “actionable claim” under Section 2(1) of the CGST Act.
  • Are not included under “specified actionable claims” as per Section 2(102A) of the CGST Act.
  • Are not liable to GST under Entry 6 of Schedule III of the CGST Act.
• Conclusion: Regardless of whether the voucher qualifies as a PPI, it is merely an instrument creating an obligation on the supplier to accept it as consideration. Transactions involving vouchers themselves do not attract GST, but the supply of goods and services purchased using the vouchers may be taxable.

2. GST on Vouchers Sold by Distributors, Sub-Distributors, or Agents

• Principal-to-Principal (P2P) Distribution:
  • If vouchers are sold on a P2P basis, it is considered a pure trading activity and does not constitute a supply of goods or services. No GST is applicable.
• Commission/ Fee-Based Distribution:
  • If a distributor, sub-distributor, or agent sells vouchers on commission/fee basis without owning them, the GST will apply only to the commission/fee earned by them.

3. GST on Additional Services Like Advertising, Co-Branding, Marketing, etc.

• If distributors or agents provide advertising, co-branding, marketing, or technology support services to voucher issuers, such services will be subject to GST.

4. GST on Unredeemed Vouchers (Breakage Value)

• If a voucher remains unredeemed, the issuer does not receive any consideration from the redeemer for non-redemption.
• Conclusion: Breakage value (i.e., unredeemed vouchers) is not liable to GST since it does not constitute a taxable supply.
• This principle is in line with Circular No. 178/10/2022-GST dated 3 August 2022.

[Reference: Circular No. 243/37/2024-GST dated 31 December 2024]

ITC Eligibility for Goods Supplied Under Ex-Works (EXW) Contracts

• In EXW contracts, the ownership of goods transfers at the supplier’s factory gate when handed over to the transporter.
• A key issue has been whether dealers can claim ITC on goods at the time of dispatch or only upon physical receipt.
• CBIC has clarified that as per Explanation to Section 16(2)(b) of the CGST Act, dealers are deemed to have “received” the goods when they are handed over to the transporter.
• This principle applies to all EXW transactions where goods are handed over to a transporter or third party designated by the recipient.
• ITC eligibility is subject to Sections 16 and 17 of the CGST Act, ensuring that the goods are used for business purposes.
• If the goods are lost, stolen, destroyed, written off, or disposed of as gifts or free samples, ITC will not be available under Section 17(5)(h) of the CGST Act.

[Reference: Circular No. 241/35/2024-GST dated 31 December 2024]

ITC Reversal for Electronic Commerce Operators (ECOs) Paying GST Under Section 9(5)

• ECOs liable to pay GST under Section 9(5) (for restaurant services and other specified supplies) do not need to reverse ITC proportionately under Sections 17(1) or 17(2).
• GST liability on Section 9(5) supplies must be paid in cash, and ITC cannot be used to offset this liability.
• However, ITC can be used for the operator’s own taxable supplies.

[Reference: Circular No. 240/34/2024-GST dated 31 December 2024]

Place of Supply (POS) for Online Services Provided to Unregistered Persons

• As per Section 12(2) of the IGST Act, the POS for services supplied to unregistered recipients will be:
  • The location of the recipient (if available on record).
  • The location of the supplier (if recipient details are unavailable).
• Rule 46(f) of CGST Rules mandates that the state name of the recipient must be recorded on the invoice for all online services supplied to unregistered persons.
• This applies to all online services, including:
  • OTT platforms (e.g., Netflix, Amazon Prime).
  • E-newspapers and e-magazines.
  • Online telecom and subscription-based services.
• Suppliers must declare the POS in their outward supplies (GSTR-1/1A).

[Reference: Circular No. 242/36/2024-GST dated 31 December 2024]

KRC Insights on CBIC’s Clarifications

The recent CBIC circulars, issued in line with the 55th GST Council Meeting recommendations, provide significant clarity on GST-related issues where industry interpretations varied.

Key Takeaways:

• Clarity on GST applicability on vouchers, reinforcing that vouchers themselves do not attract GST, but services related to them do.
• ITC eligibility on EXW contracts, ensuring that ITC can be claimed at the point of dispatch rather than after physical receipt.
• Clarifications for Electronic Commerce Operators (ECOs) on tax liability and ITC eligibility under Section 9(5).
• Mandating correct Place of Supply (POS) declarations for online services, ensuring compliance in digital transactions.

Would you like further analysis on how these changes impact your business? Let us know.