The October 2024 edition of our Indirect Tax Newsletter brings you key updates on recent developments in the indirect tax landscape. This edition features clarifications on various issues, including advertising services provided by Indian agencies to foreign clients, the availability of Input Tax Credit on demo vehicles, the place of supply for data hosting services provided by Indian service providers to cloud computing companies located abroad, and the regularization of IGST refunds availed in contravention of Rule 96(10) of the Central Goods and Services Tax Rules, 2017. Additionally, it offers a comprehensive overview of significant judicial rulings, including a recent Supreme Court judgment in the Safari Retreats case, as well as key judgments from various High Courts that impact indirect taxes.
UPDATES
Circulars
Circular No. 230/24/2024-GST dated September 10, 2024
Clarification on advertising services provided by Indian advertising agencies/companies to foreign clients in India
The Central Board of Indirect Taxes and Customs ('CBIC') has issued the following clarification in cases where foreign clients outsource the entire activity of advertising services by entering into a comprehensive agreement with advertising companies/agencies in India and such advertising companies/agencies further enter into an agreement with the media for implementing the media plan and procurement of media space for airing or releasing or printing advertisement:
(i) Whether the advertising company can be considered as an "intermediary" between the foreign client and the media owners under the Goods and Services Tax ('GST') laws: the CBIC has clarified that where the advertising company is involved in the main supply of advertising services (including resale of media space) to the foreign client on principal-to-principal basis, it does not act as an "intermediary" under the GST laws.
(ii) Whether the representative of a foreign client in India or the target audience of the advertisement in India can be considered as the "recipient" of the services: The CBIC has clarified that in the subject transactions, the foreign client is liable to pay the consideration to advertising company for the supply of advertising services and not the consumers or the target audience that watches the advertisement in India. Further, even if the representative of the foreign client is based in India (including a subsidiary) and is interacting with the advertising company on behalf of the foreign client, such representative cannot be considered to be the recipient of service. Consequently, as per the GST Laws, the recipient of the advertising services in such cases is the foreign client.
(iii) Whether the advertising services provided by the advertising companies to foreign clients can be considered performance-based services: The supply of advertising services does not require the physical presence of the recipient (foreign client or representative or a person acting on his behalf) with the advertising company for availing the said advertising services. Consequently, Section 13(3) of the Integrated Goods and Services Tax Act, 2017 ('IGST Act') (which provides for determination of place of supply of performance-based services) cannot be made applicable for determining the place of supply of the said advertising services. Accordingly, the place of supply of the said advertising service is to be determined as per the default provision, i.e., Section 13(2) of the IGST Act, i.e., the place of location of the recipient of the services.
CBIC has further clarified that in case where the agreement/contract for providing the media space and broadcast of the advertisement is directly between media owner and the foreign client and the advertising company is merely facilitating the provision of the services between the foreign client and the media owner, the advertising company in such cases acts as an "intermediary" under the GST Laws. Accordingly, the place of supply in respect of the said services is determinable as per section 13(8)(b) of the IGST Act (which provides for determination of place of supply of intermediary services), i.e. the location of the supplier (advertising company).
The present clarification is issued pursuant to the recommendations made by the GST Council in its 54th meeting and provides clear guidelines regarding treatment of advertising services rendered by Indian advertising agencies to foreign clients under GST. Despite the clarification, taxability in such cases will have to be ascertained on a case-to-case basis.
Circular No. 231/25/2024-GST dated September 10, 2024
Clarification on availability of Input Tax Credit on demo vehicles
CBIC has clarified that Input Tax Credit ('ITC') to the authorized dealers in respect of demo vehicles is not blocked under the GST Laws since authorized dealers use such demo vehicles to provide trial run and to demonstrate features of the vehicle to potential buyers, thereby helping the potential buyers to make a decision to purchase a particular kind of motor vehicle. Accordingly, since such vehicles promote sale of similar type of motor vehicles, they can be said to be used by the dealer for making 'further supply of such motor vehicles'.
The CBIC further clarified that ITC will not be available in cases where (a) motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver) are used by an authorized dealer for purposes other than for making further supply of such motor vehicles, for instance, the transportation of its staff employees/ management, etc. and/or (b) where the authorized dealer is merely providing marketing and/or facilitation services to the vehicle manufacturer as its agent and not making the supply of motor vehicles on his own account.
Further, the availability of input tax credit on demo vehicles is not affected by capitalization of demo vehicles in the books of account of the authorized dealers, subject to other provisions of the Central Goods and Services Tax Act, 2017 ('CGST Act').
The present clarification is issued pursuant to the recommendations made by the GST Council in its 54th meeting. Previously, the Goa Authority for Advanced Ruling had held that the taxpayer can avail ITC on motor vehicles purchased for demonstration purposes since such vehicles are indispensable tool for promotion of sale. The present clarification aligns with the overall principle of GST, which is to allow seamless credit flow across the supply chain for business-related expenses.
Circular No. 232/26/2024-GST dated September 10, 2024
Clarification on place of supply of data hosting services provided by service providers located in India to cloud computing service providers located outside India
CBIC has clarified that the place of supply of data hosting services provided by service providers located in India to cloud computing service providers located outside India will be determined under the default provision i.e., Section 13(2) of the IGST Act (which provides that the place of supply of services shall be the location of the recipient of services, however, where the location of the recipient of services is not available in the ordinary course of business, the place of supply shall be the location of the supplier of services), owing to the following reasons:
(i) The data hosting service provider renders data hosting services to the cloud computing service provider on the principal-to-principal basis on his own account, as there is no contact between the data hosting service provider and the end user/ customer, and accordingly, does not act as a broker or agent for facilitating supply of service between cloud computing service providers and their end users/consumers. Consequently, such services cannot be considered as 'intermediary services', and place of supply provisions cannot be determined as per Section 13(8)(b) of the IGST Act;
(ii) Data hosting service provider owns premises for data center or operates data center on leased premises and independently handles, monitors, and maintains the premises, hardware and software infrastructure, personnel, etc. Thus, such services cannot be considered in relation to the goods "made available" by the said cloud computing service providers to the data hosting service provider in India, and therefore, the place of supply cannot be determined as per Section 13(3)(a) of the IGST Act;
(iii) Data hosting services are not passive supply of a service directly in respect of immovable property but are regarding supply of a comprehensive service related to data hosting which is essential for cloud computing service providers to provide cloud computing services to the end users/customers/subscribers. Therefore, the data hosting services cannot be considered as the services provided directly in relation to immovable property or physical premises and the place of supply of such services cannot be determined under Section 13(4) of the IGST Act.
The present clarification is issued pursuant to the recommendations made by the GST Council in its 54th meeting and resolves the conundrum around the place of supply in case of data hosting services rendered by Indian service providers to cloud computing service providers located outside India. Such services, owing to the clarification, may be treated as export of services, subject to the underlying contractual arrangement between the parties.
Circular No. 233/27/2024-GST dated September 10, 2024
Clarification on regularization of refund of IGST availed in contravention of Rule 96(10) of Central Goods and Services Tax Rules, 2017
CBIC has clarified that where the inputs were initially imported without payment of integrated tax and compensation cess by availing benefits under the relevant notifications, but subsequently, (a) IGST and compensation cess on such imported inputs were paid (along with interest) at a later date and (b) the Bill of Entry in respect of the import of the said inputs were reassessed to this effect, then the refund of IGST paid on exports of goods is not be considered to be in contravention of Rule 96(10) of the Central Goods and Services Tax Rules, 2017 ('CGST Rules') (which provides for a bar on availment of the refund of IGST paid on export of goods or services, if benefits of certain specified concessional/exemption notifications have been availed on inputs/raw materials imported or procured domestically).
The present clarification is issued pursuant to the recommendations made by the GST Council in its 54th meeting. The clarification provides for businesses to regularize their refund claims if they initially failed to comply with Rule 96(10) but subsequently addressed the issue by paying the IGST and compensation cess along with interest and got the Bills of Entry re-assessed. Interestingly, the GST Council in its 54th council meeting also recommended to prospectively omit Rule 96(10) of the CGST Act on account of difficulty being faced by the exporters due to restrictions in respect of refund on exports in cases where benefit of the specified concessional/ exemption notifications is availed on the inputs.
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