GST Circulars dated 27.10.2023

CBIC issued three important GST circulars on October 27, 2023, to provide clarity on various aspects of GST. You can also read more about the Notifications released on October 19, 2023. These notifications are aimed at addressing specific issues related to the export of services, the determination of the place of supply in different scenarios, and the taxation of personal and corporate guarantees under GST. Let's delve into the details of these circulars.

1. Export of services – sub-clause (iv) of the Section 2(6) of the IGST Act 2017

2. Determination of place of supply in various cases

3. Issues pertaining to taxability of personal guarantee and corporate guarantee in GST

Know about all the updates that were made for the month of October here.

Circular No. 202/14/2023-GST

This circular is related to clarification regarding the admissibility of export remittances received in the Special INR Vostro account. The question was whether export remittances received in the Special INR Vostro account, as permitted by RBI, for consideration of the supply of services will qualify as export of services as per the provisions section 2(6) of the IGST Act, 2017.

The export of services has been defined under clause (6) of section 2 of the IGST Act. As per the said definition, any supply of services needs to fulfill five conditions for it to qualify as an export of services.

“Export of services” means the supply of any service when–

1. The supplier of service is located in India

2. The recipient of the service is located outside India

3. The place of supply of service is outside India

4. The payment for such service has been received by the supplier of service in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India

5. The supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in Section 8

One of the conditions mentioned in sub-clause (iv) of Section 2(6) of the IGST Act is that the payment for such service has been received by the supplier of service in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India.

As per RBI’s A.P. (DIR Series) Circular No.10 dated 11th July 2022 regarding International Trade Settlement in Indian Rupees (INR), to promote the growth of global trade with emphasis on exports from India and to support the increasing interest of the global trading community in INR, it has been decided to put in place an additional arrangement for invoicing, payment, and settlement of exports/imports in INR.

In terms of Regulation 7(1) of Foreign Exchange Management (Deposit) Regulations, 2016, AD banks in India have been permitted to open Rupee Vostro Accounts.

Indian exporters, undertaking exports of goods and services through this mechanism, shall be paid the export proceeds in INR from the balances in the designated Special Vostro account of the correspondent bank of the partner country.

Also, Invoicing, payment, and settlement of exports and imports are also permissible in INR according to Foreign Trade Policy.

Therefore, it is clarified that when the Indian exporters, undertaking the export of services, are paid the export proceeds in INR from the Special Rupee Vostro Accounts of the correspondent bank(s) of the partner trading country, opened by AD banks, the same shall be considered to be fulfilling the conditions of sub-clause (iv) of clause (6) of section 2 of IGST Act, 2017, subject to the conditions/ restrictions mentioned in Foreign Trade Policy, 2023 & extant RBI Circulars and without prejudice to the permissions/approvals, if any, required under any other law.

Circular No. 203/15/2023-GST

This circular provides clarification regarding the determination of the place of supply in the following cases:

• Supply of service of transportation of goods, including through mail and courier

• Supply of services in respect of advertising sector

• Supply of the “co-location services”

1. Place of Supply of service of transportation of goods, including through mail and courier

   Section 13(9) of the IGST Act, 2017 has been amended w.e.f. 01-10-2023. It has omitted a provision that where the transportation of goods is to a place outside India, the place of supply shall be the place of destination of such goods. After the said amendment, doubts have been raised as to whether the place of supply in case of service of transportation of goods, including through mail and courier, in cases where the location of the supplier of services or location of the recipient of services is outside India, will be determined as section 13(2) of IGST Act or will be determined as per section 13(3) of IGST Act.

   Note that section 13(2) refers to the default rule of place of supply when none of the other sub-sections cover the said service. As per this section, the place of supply should be the location of the recipient of services. If it is not available, then it should be the location of the supplier of services.

   Section 13(3) deals with a place of supply in case of services supplied in respect of goods that are required to be made physically available by the recipient of services to the supplier of services. In such a case, the place of supply should be the location where the services are actually performed.

   It is clarified that after the said amendment to section 13(9) comes into effect i.e. 01.10.2023, the place of supply of services of transportation of goods, other than through mail and courier, in cases where the location of supplier of services or location of recipient of services is outside India, will be determined by the default rule under section 13(2) of IGST Act and not as performance-based services under sub-section (3) of section 13 of IGST Act. Accordingly, in cases where the location of the recipient of services is available, the place of supply of such services shall be the location of the recipient of services and in cases 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 supplier of services. The same provisions will apply to transportation of goods by mail or courier.

   It means, if an exporter avails the service of transportation of goods outside India, he will have to pay GST on such services.

2. Place of supply in case of supply of services in respect of advertising sector

   Advertising companies are often involved in procuring space on hoardings/ billboards erected and mounted on buildings/land, in different States, from various suppliers (“vendors”) for providing advertisement services to its corporate clients. There may be a variety of arrangements between the advertising company and its vendors as below:

   1. There may be a case wherein there is a supply (sale) of space or supply (sale) of rights to use the space on the hoarding/ structure (immovable property) belonging to the vendor to the client/advertising company for display of their advertisement on the said hoarding/ structure. What will be the place of supply of services provided by the vendor to the advertising company in such a case?

      Ans:

      • The hoarding/structure erected on the land should be considered as an immovable structure or fixture as it has been embedded in the earth.

      • Further, the place of supply of any service provided by way of supply (sale) of space on an immovable property or grant of rights to use an Immovable property shall be governed by the provisions of section 12(3)(a) of the IGST Act.

      • As per section 12(3)(a) of the IGST Act, the place of supply of services directly in relation to immovable property, including services provided by architects, interior decorators, surveyors, engineers, and other related experts or estate agents, any service provided by way of grant of rights to use immovable property or for carrying out or co-ordination of construction work shall be the location at which the immovable property is located.

      • Therefore, the place of supply of service provided by way of supply of sale of space on hoarding/ structure for advertising or for grant of rights to use the hoarding/ structure for advertising in this case would be the location where such hoarding/ structure is located.

   2. There may be another case where the advertising company wants to display its advertisement on hoardings/billboards at a specific location availing the services of a vendor. The responsibility of arranging the hoardings/ billboards lies with the vendor who may himself own such a structure or may be taking it on rent or rights to use basis from another person. The vendor is responsible for the display of the advertisement of the advertisement company at the said location. During this entire time of display of the advertisement, the vendor is in possession of the hoarding/structure at the said location on which the advertisement is displayed and the advertising company is not occupying the space or the structure. In this case, what will be the place of supply of such services provided by the vendor to the advertising company?

      • In this case, as the service is being provided by the vendor to the advertising company and there is no supply (sale) of space/ supply (sale) of rights to use the space on hoarding/structure (immovable property) by the vendor to the advertising company for display of their advertisement on the said display board/structure, the said service does not amount to sale of advertising space or supply by way of grant of rights to use immovable property.

      • Accordingly, the place of supply of the same shall not be covered under section 12(3)(a) of the IGST Act. The vendor is in fact providing advertisement services by providing visibility to an advertising company’s advertisement for a specific period of time on his structure possessed/taken on rent by him at the specified location.

      • Therefore, such services provided by the Vendor to advertising companies are purely in the nature of advertisement services in respect of which Place of Supply shall be determined in terms of Section 12(2) of the IGST Act.

      • Section 12(2) is the default rule for the place of supply when the service is not covered elsewhere in the section. It says that if the service is provided to a registered person, the place of supply should be the location of the recipient of the service. If the recipient is unregistered, but his address is available on record, such address will be the Place of supply. If the address is not available, it will be the location of the supplier of service.

      • Therefore, in this case, if the advertising company is registered, POS will be the location of the advertising company. Otherwise, the address of the advertising company is POS if available. If the address is not recorded, POS will be the location of the vendor.

3. Place of supply in case of supply of the “co-location services”

   Co-location is a data center facility in which a business/company can rent space for its own servers and other computing hardware along with various other bundled services related to Hosting and information technology (IT) infrastructure. A business/company that avails the co-location services primarily seeks security and upkeep of its server/s, storage, and network hardware; operating systems, and system software and may require to interact with the system through a web-based interface for the hosting of its websites or other applications and operation of the servers. In this respect, various issues have been addressed as to:

   Whether supply of colocation services are renting of immovable property service (as it involves renting of space for keeping/storing company’s hardware/servers) and hence the place of supply of such services is to be determined in terms of provision of section 12(3)(a) of the IGST Act which is the location where the immovable property is located or section 12(2) which is default rule?

   Ans:

   • The Co-location services are in the nature of “Hosting and information technology (IT) infrastructure provisioning services” (S.No. 3 of Explanatory notes of SAC-998315).

   • Such services do not appear to be limited to the passive activity of making immovable property available to a customer.

   • The arrangement of the supply of colocation services not only involves providing a physical space for server/network hardware along with air conditioning, security service, fire protection system, and power supply but it also involves the supply of various services by the supplier related to hosting and information technology infrastructure services like network connectivity, backup facility, firewall services, and monitoring and surveillance service for ensuring continuous operations of the servers and related hardware, etc. which are essential for the recipient business/company to interact with the system through a web-based interface relating to the hosting and operation of the servers.

   • In such cases, the supply of colocation services cannot be considered as the services of the supply of renting of immovable property.

   • Therefore, the place of supply of the colocation services shall not be determined by the provisions of Section 12(3)(a) of the IGST Act but the same shall be determined by the default place of supply provision of Section 12(2) of the IGST Act i.e. location of the recipient of co-location service.

   • However, in cases where the agreement between the supplier and the recipient is restricted to providing physical space on rent along with basic infrastructure, without components of Hosting and Information Technology (IT) Infrastructure Provisioning services and the further responsibility of upkeep, running, monitoring and surveillance, etc. of the servers and related hardware is of the recipient of services only, then the said supply of services shall be considered as the supply of the service of renting of immovable property. Accordingly, the place of supply of these services shall be determined by the provisions of Section 12(3)(a) of the IGST Act which is the location where the immovable property is located.

Conclusion

These CBIC GST circulars provide valuable guidance on complex issues within the GST framework. They offer clarity on export remittances, the place of supply in various scenarios, and the taxation of personal and corporate guarantees under GST.