Himanshu SinhaPartner
Samyak JainSenior Associate
Shreetama GhoshAssociate
Key Developments
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Validity of goods and services tax notification extending time limit for passing adjudication orders relating to proceedings for FY 2017-18 upheld
The Allahabad High Court has upheld the validity of a goods and services tax (GST) notification dated 31 March 20231 (Notification), to the extent that it extended the limitation period under Section 73 of the Central Goods and Services Tax Act, 2017 (CGST Act) for issuing adjudication orders for the financial year (FY) 2017-18, till 31 December 2023.2 This limitation period had earlier been extended till 30 September 2023.3
Section 168A of the CGST Act empowers the government to extend limitation periods in case of force majeure events on the recommendation of the Goods and Services Tax Council (GST Council). The High Court held that further extending the limitation period under Section 73 was warranted, given the difficulties faced by the GST department during the COVID-19 period, and the recommendations of the 49th meeting of the GST Council. Accordingly, the High Court held the Notification to be a conditional legislation that fulfilled the conditions under Section 168A for granting such extension.
This decision will affect various writ petitions challenging the Notification before other High Courts. While the Allahabad High Court’s analysis and decision are limited to the extension of limitation period for the FY 2017-18, the impact on similar challenges for subsequent financial years remains to be seen.
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Clarification on valuation of import of services by related person where recipient is eligible to claim full input tax credit
The Central Board of Indirect Taxes and Customs (CBIC) had earlier issued clarifications regarding services provided between ‘distinct persons’, i.e., by an office of an entity in one state to another office of that entity in a different state. As per the clarifications, the value of supply declared in the tax invoice is deemed to be the open market value (OMV) for such services under the GST valuation rules, where the recipient is eligible to claim full input tax credit (ITC) in respect of such services. In such a case, if the supplier does not issue a tax invoice, the value of supply is deemed to be NIL.
With effect from 26 June 2024, this clarification has been extended to ‘related persons’ under the GST laws.4 Moreover, for import of services by a related person in India, where GST is payable on reverse charge basis, and self-invoices are required to be issued under the GST laws, the value of supply declared in such self-invoices is deemed to be the OMV, if the importer is eligible to claim full ITC. Accordingly, if no self-invoice is issued by the importer in such a case, the value of supply is deemed to be NIL.
This clarification provides relief to importers of services who are related persons of overseas suppliers of services and who are eligible to avail of full ITC in respect of the services imported, for instance, in cases involving secondment of employees to Indian subsidiaries from overseas parent companies.
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Loans provided to related persons are exempt from levy of goods and services tax
The CBIC has clarified that loans provided between related persons (including loans provided by overseas affiliates to their Indian affiliates), where no consideration is charged, other than in the form of interest or discount, are exempt from payment of GST.5
However, if any administrative/processing fees are charged for providing the loan, such fees will be the consideration for providing the loan, and GST will be payable on it. The CBIC circular thus carves out an exception from the deeming fiction that supplies between related persons do not require any consideration, as per Section 7(1)(c) read with Schedule I of the CGST Act.
This is a welcome move for Indian entities that receive intra-group loans from their overseas group entities, given that, as a general rule, no consideration is charged for such intra-group loans by the overseas group entities, other than interest on the loan amount.
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Limitation period for claiming input tax credit on self-invoices issued by recipients for supplies subject to reverse charge mechanism depends on financial year in which self-invoices were issued
The CBIC has explained that the time limit for claiming ITC in respect of supplies on which GST is payable on reverse charge basis is the financial year in which the self-invoice for such supplies is issued by the recipient.6 This is based on the consideration that Section 16(4) of the CGST Act links the time limit for claiming ITC with the financial year to which the relevant invoice pertains, and the recipient cannot claim ITC without being in possession of the relevant tax invoice. It has also been clarified that where such self-invoice is raised by the recipient after the time of supply, the recipient is required to pay the applicable interest on the delayed payment of tax made as per the self-invoice.
This issue has repeatedly been brought up before the tax authorities by taxpayers, especially in respect of supplies made by unregistered persons, which were thought to not be subject to GST at the time of supply, but upon which the recipient later paid GST and issued a self-invoice due to either a clarification by the GST department or a decision of a court of law. With this clarification, the taxpayers will finally be able to claim ITC in such situations. Further, taxpayers who were denied ITC in such situations prior to this clarification will now be able to reclaim such ITC.
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Stock options provided by company to employees through overseas holding company are not taxable
The CBIC has clarified that where Employee Stock Options (ESOP) or Employee Stock Purchase Plans (ESPP) or Restricted Stock Units (RSU) are provided to the employees of an Indian company, by way of allotment of shares by its foreign holding company, there is no supply under the GST laws, and GST is not leviable on such an activity.7 This is because:
- the allotment of shares is not a supply of goods or services under the GST laws, and
- ESOP/ESPP/RSU provided to employees in the course of or in relation to their employment is deemed to be a part of the remuneration paid to the employees, which is also not a supply under the GST laws.
Generally, in such situations, the foreign holding company is reimbursed by the Indian company, either on cost-to-cost basis, or on cost-plus-markup basis. If the reimbursement is on cost-to-cost basis, there will be no import of services into India and no GST will be leviable, since the transfer or allotment of securities is not a supply under the GST laws. However, if the reimbursement is on cost-plus-markup basis, the markup will be the consideration for the supply of services of facilitating or arranging the transaction in securities by the foreign holding company to the domestic subsidiary company, and GST will be payable on the markup by the Indian company, on reverse charge basis.
This clarity on the treatment of ESOP/ESPP/RSU issued to employees of the Indian company by allotment of shares of a foreign group company resolves the issues relating to the point at which GST would become payable in such a transaction.
[1]Notification No. 09/2023 - Central Tax
[2]Graziano Trasmissioni v Goods and Services Tax & Ors., TS-321-HC(ALL)-2024-GST
[3]Notification No. 13/2022 - Central Tax, dated 5 July 2022
[4]Circular No.210/4/2024-GST, dated 26 June 2024
[5]Circular No. 218/12/2024-GST, dated 26 June 2024
[6]Circular No. 211/5/2024-GST, dated 26 June 2024
[7]Circular No. 213/07/2024-GST, dated 26 June 2024
