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The Central Board of Indirect Taxes and Customs (CBIC) recently
issued a few circulars, in addition to those issued on 26 June
2024, to provide clarity on the recommendations made in 53rd GST
Council meeting. Please find below a summary of the important
clarifications issued vide such circulars:
A) Circular No. 224/18/2024-GST
Sr. No.
Issue
Clarification
1
Guidelines for recovery of outstanding dues
in cases wherein the first appeal has been disposed of till the
Appellate Tribunal comes into operation. Whether any amount paid
towards the demand but inadvertently through Form DRC-03 be
adjusted against the pre-deposit for filing an appeal before the
Commissioner (Appeals) or Appellate Tribunal?
Guidelines for recovery of outstanding
dues:
In cases where the First Appellate Authority has confirmed the
demand partially or fully, the taxpayers are not able to file an
appeal before the Appellate Tribunal. As a result, some tax
officers are resorting to initiating recovery proceedings after
completion of the stipulated period of 3 months under the pretext
that there is no stay against such recovery.
Given the above, it has been clarified that taxpayers desirous
of filing an appeal before the Appellate Tribunal can make payment
of pre-deposit by navigating to the Electronic Liability Ledger
(ELL) Part II using the "Payment towards demand" route
from his dashboard.
The amount so paid and mapped against the selected order will
reduce the demand in the ELL and will subsequently be adjusted
against the pre-deposit once the appeal is filed in the
Tribunal.
Taxpayers are also mandated to file an undertaking/declaration
with the jurisdictional officer to intimate the desire to file an
appeal before the Tribunal. Basis this, the recovery of the
remaining amount of confirmed demand will stand.
Failure to pay the pre-deposit or furnish the
declaration/undertaking can lead to the initiation of recovery.
Further, failure to file the appeal within the prescribed timeline
will result in the recovery of the remaining amount as per the
provisions of law.
Adjustment of amounts paid inadvertently through Form
DRC-03:
Form DRC-03A has been introduced vide Rule 142(2B) of CGST
Rules vide Notification No. 12/2024-CT dated 10 July 2024, to
adjust the amount paid vide Form DRC-03 towards the demand. Upon
furnishing such form, the amount so paid earlier vide Form DRC-03
will be considered as if the payment was made towards the demand on
the date of Form DRC-03.
The same form shall be used to adjust the amounts paid
inadvertently through DRC-03 for any pre-deposits.
The functionality has not yet been activated on the GST portal.
Until then, taxpayers can furnish an intimation with the proper
officer about the payment made through DRC-03 in order to stay the
recovery of the remaining amount payable.
However, once the functionality to file Form DRC-03A is
activated, the said application should be filed at the earliest;
any failure to do so may result in the initiation of recovery
proceedings.
Our Comments
The said Circular certainly brings clarity for taxpayers
desirous of filing appeals with the Tribunal and will save these
taxpayers from the undue pressure of the tax authorities who
initiate recovery proceedings. However, the Tribunal is still far
from functional and the suspense over the commencement of its
operation still persists. In such a situation, asking taxpayers to
block their money in pre-deposit may seem slightly taxing. This is
further aggravated by the fact that the recommendation placed
in the 53rd GST Council meeting to reduce the pre-deposit mandate
from 30% to 20% has still not been implemented, thereby leading to
confusion for taxpayers on the amount of deposit to be made
here.
At the same time, the implementation of Form DRC-03A is truly
welcoming and will ease the process of litigation as well as
adjustments of tax demands culminating from audits and
investigations.
B) Circular No. 225/19/2024-GST
This Circular aims to provide further clarity on the valuation
of service in the nature of providing Corporate Guarantee (CG)
between related persons subsequent to the insertion of
Rule 28(2) of the CGST Rules and the recently added proviso to
the said sub-rule. Additionally, the Circular clarifies the
taxability of transactions that occurred before the insertion of
this Rule.
Sr. No.
Issue
Clarification
1
Whether Rule 28(2) of CGST Rules will apply to the CGs
issued prior to 26 October 2023 (date of insertion of said
Rule)?
Also, whether taxpayers would be liable to pay GST on "1%
of the amount of such guarantee offered" on the intra-group
CGs issued prior to 26 October 2023 and is still in force
today.
Services of providing CG to any banking company or
financial institution by a supplier to a related recipient were
taxable even before the insertion of Rule 28(2) of CGST Rules.
Rule 28(2) of CGST Rules was inserted only to determine the
value of such services, not to decide the taxability thereof.
Such services were to be valued as per the provisions of Rule
28 of CGST Rules, which existed before the sub-rule was
inserted.
Thus, the taxability of CG services would be as under:
CG issued or renewed on or before 26 October 2023 –
valuation as per Rule 28, as it existed then (or any value if the
recipient is able to claim full ITC).
CG issued or renewed after 26 October 2023 - valuation as per
Rule 28(2), i.e., 1%.
2
What will be the value of the supply of CG in cases where only
part amount is availed as a loan or in cases where a loan is not
availed at all?
Also, would the recipient be eligible to avail of full Input Tax
Credit (ITC) even before the total loan is disbursed?
The service element in CGs is not the actual disbursal of the
loan to the recipient but that of taking the risk of default.
Thus, the value of service while providing CG is calculated
based on the amount guaranteed and not on the amount of loan
disbursed.
Further, the recipient of CG services shall be eligible to
avail full ITC (subject to fulfilment of other customary conditions
in GST law), irrespective of the time and value of the loan
disbursed against the guarantee.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
