4 Important GST circulars Dated 10 September 2024 to clarified GST issues

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CBIC issued 4 New GST circular to clarify the various issues under GST

1. Clarification on Advertising Services Provided to Foreign Clients – Circular No. 230/24/2024-GST

On September 10, 2024, the CBIC issued Circular No. 230/24/2024-GST to address ambiguities in GST treatment concerning advertising services provided by Indian companies to foreign clients. Several issues have arisen due to varying interpretations in field formations regarding place of supply and eligibility for export benefits, prompting the need for uniformity and clarity.

Key Issues Addressed in the Circular:

Determination of Intermediary Status
Indian advertising companies that provide comprehensive advertising services to foreign clients, including media planning, procurement of media space, and content creation, are not considered “intermediaries” under Section 2(13) of the IGST Act. This is because the services are provided on a principal-to-principal basis, with two distinct agreements: one with the foreign client and one with the media company. Since the advertising agency is directly responsible for these services, they are not merely facilitating a supply, but providing it on their own account. As a result, the place of supply cannot be linked to the location of the supplier under Section 13(8)(b).
Recipient of Services
The foreign client, who pays for the advertising services, is considered the “recipient” under Section 2(93) of the CGST Act, not any representative in India or the target audience. Even if a representative or subsidiary of the foreign client interacts with the advertising company in India, the agreement and payment are between the foreign client and the advertising agency, making the foreign entity the recipient.
Performance-Based Services
The advertising services provided do not fall under performance-based services as defined in Section 13(3) of the IGST Act, as there is no physical presence of goods or individuals required during the delivery of advertising services. Therefore, the place of supply cannot be determined under this provision.
Place of Supply
Since the advertising services provided to foreign clients are not covered under other sub-sections of Section 13, the place of supply is determined under Section 13(2), which refers to the location of the recipient of services. As the recipient is located outside India, the services qualify as exports, provided the conditions in Section 2(6) of the IGST Act are fulfilled.
Advertising Companies Acting as Intermediaries
In cases where an Indian advertising company merely facilitates a contract between the foreign client and a media owner (without providing services on its own account), the company would be considered an intermediary. In such cases, the place of supply would be the location of the advertising company in India, as per Section 13(8)(b).

2. Clarification on ITC on Demo vehicles – Circular No. 231/25/2024-GST

The Central Board of Indirect Taxes and Customs (CBIC) has issued Circular No. 231/25/2024-GST dated September 10, 2024, clarifying the availability of input tax credit (ITC) on demo vehicles used by authorized motor vehicle dealers. Demo vehicles are typically maintained for trial runs and demonstration purposes at sales outlets, and the dealers purchase them from manufacturers.

Here are the key clarifications provided:

1. ITC on Demo Vehicles (Passenger Vehicles with Seating Capacity of up to 13 Persons):

As per Section 17(5)(a) of the CGST Act, ITC on motor vehicles is restricted, except when used for:
- Further supply of such motor vehicles.
- Transportation of passengers.
- Imparting training on driving such vehicles.
Demo vehicles are used for promoting the sale of similar vehicles by allowing potential buyers to test the vehicles and learn about their features. This qualifies as “further supply of such motor vehicles,” which means ITC is not restricted under Section 17(5)(a). Therefore, dealers can claim ITC on demo vehicles.
However, if the dealer uses the demo vehicle for purposes other than promoting sales (e.g., transporting staff or management), ITC will not be available in such cases.

2. ITC on Demo Vehicles Capitalized in Books of Accounts:

Capitalization of demo vehicles in the dealer’s books of account does not affect the eligibility for ITC. The vehicles are still considered capital goods used in the course or furtherance of business, allowing dealers to claim ITC.
However, if the dealer claims depreciation on the tax component of the cost of demo vehicles under the Income-tax Act, ITC on that component will not be allowed.
When demo vehicles are sold after use, dealers must comply with Section 18(6) of the CGST Act, which mandates payment of tax on the sale value or the input tax credit amount, whichever is lower.

3. Clarification on POS of data hosting services – Circular No. 232/26/2024-GST

The CBIC has issued Circular No. 232/26/2024-GST dated September 10, 2024, clarifying the place of supply for data hosting services provided by Indian service providers to cloud computing service providers located outside India. Here’s a summary of the key clarifications:

1. Place of Supply Determination:

There was confusion on whether the place of supply for such services is the location of the service provider in India or the location of the cloud computing service provider abroad, impacting their eligibility as export of services.
Clarification: The place of supply should be based on the location of the recipient (the cloud computing service provider), as per Section 13(2) of the IGST Act, meaning the place of supply is outside India.

2. Intermediary Status:

Query: Whether the data hosting service provider qualifies as an intermediary between the cloud computing service provider and its end users under Section 2(13) of IGST Act.
Clarification: The data hosting service provider is not an intermediary, as it provides services on a principal-to-principal basis and is not involved in arranging or facilitating the main supply of services between the cloud computing service provider and its customers.

3. Goods Physically Made Available (Section 13(3)(a)):

Query: Whether the service involves goods made physically available by the cloud computing service provider to the data hosting service provider.
Clarification: The data hosting provider uses its own infrastructure and premises, and even if hardware is provided by the recipient (cloud provider), the services are not provided in relation to those goods. Hence, Section 13(3)(a) does not apply.

4. Relation to Immovable Property (Section 13(4)):

Query: Whether the data hosting services are provided directly in relation to immovable property.
Clarification: Data hosting services are not directly related to immovable property, as they involve complex operations beyond the use of premises. Therefore, Section 13(4) does not apply.

5. Export of Services:

The place of supply for these services is determined based on the location of the recipient, i.e., the overseas cloud computing service provider. Hence, the supply can be classified as an export of services if it meets other conditions outlined in Section 2(6) of the IGST Act.

Conclusion:

This clarification ensures that data hosting services provided to cloud computing providers outside India qualify as export of services, eligible for zero-rated supply under GST.

4. Clarification on IGST Refund – Circular No. 233/27/2024-GST

The CBIC, through Circular No. 233/27/2024-GST dated September 10, 2024, issued a clarification on the regularization of IGST refunds, specifically when exporters had imported certain inputs without payment of integrated tax (IGST) and compensation cess, contrary to rule 96(10) of the CGST Rules, 2017.

Key Points:

Rule 96(10) of CGST Rules:
- This rule bars exporters from availing IGST refunds on exported goods if they have availed certain exemptions/concessions on imported/domestically procured inputs.
- The exemptions in question are primarily from Notification No. 78/2017-Customs and Notification No. 79/2017-Customs dated 13.10.2017.
Issue Raised:
- Clarification was sought on whether the IGST refund can be regularized in cases where exporters initially imported inputs without paying IGST and compensation cess but later paid these along with interest.
CBIC’s Clarification:
- An Explanation inserted in Rule 96(10) (vide Notification No. 16/2020-CT dated 23.03.2020, retrospectively effective from 23.10.2017) indicates that if the importer pays the IGST and compensation cess later, it would be deemed as if they did not avail the benefit of the exemptions for the purpose of Rule 96(10).
- Therefore, exporters can claim IGST refunds on exports, even if they initially availed the input exemptions, provided they later pay the due IGST and compensation cess, with interest, and get their Bill of Entry reassessed.
Conclusion:
- Refund of IGST on export goods, where IGST and compensation cess were paid later on imported inputs, would not be considered as contravention of Rule 96(10) of CGST Rules, 2017.