GST Interplay On It-ITes Ecosystem

INFORMATION TECHNOLOGY AND INFORMATION TECHNOLOGY ENABLED SERVICES
INFORMATION TECHNOLOGY AND

INFORMATION TECHNOLOGY ENABLED SERVICE
March 25, 2022
1
TABLE OF CONTENTS
INTRODUCTION................................................................................................................ 4
WHAT IS IT & ITES ............................................................................................................ 5
IT & ITES IN THE ERSTWHILE LAWS ...................................................................................... 6
INTRODUCTION TO GST ..................................................................................................... 7
REGISTRATION ................................................................................................................ 8
• Centralized Registration vis a vis Multiple Registrations ................................................ 8
• In case of IT and ITES, how mandatory and called for is an ISD Registration? ..................... 9
• Are multiple ISD registration a viable option in case of a PAN India presence .................... 10
• In case of an SEZ operation - a separate registration mandated ..................................... 11
• Since STPI/SEZ benefits are no more available, should the Companies cancel the registration or
merge with the existing registration? ...................................................................... 12
• In case if the Company is participating in an Expo, does it have to obtain a onetime registration
or register itself as a casual taxable person? ............................................................ 13
RATE OF TAX ................................................................................................................ 14
• Tax Neutrality ................................................................................................... 14

TAXABILITY .................................................................................................................. 15
• Place of Supply ................................................................................................. 15
• Time of Supply ................................................................................................. 17
• Value of Supply................................................................................................. 20
• What construes as goods and what construes as services? ......................................... 21

VALUATION .................................................................................................................. 22
• Valuation in case of Stock transfer ......................................................................... 22
• Treatment of vehicles on lease .............................................................................. 24
• Treatment of Discount offered .............................................................................. 26
• Valuation on disposal of Assets ............................................................................ 27

INPUT TAX CREDIT ......................................................................................................... 28
• Eligibility of Input Tax Credit ................................................................................ 28
• Restriction on Input tax Credit .............................................................................. 29
• Blocked Credit .................................................................................................. 31
• Reversal Of Input Tax Credit ................................................................................. 33

ZERO RATED SUPPLIES AND REFUND ................................................................................ 37
• Export without payment of tax (with LUT) – Option 1 ................................................... 38
• Export with payment of tax (without LUT) – Option 2 ................................................... 39
• Treatment in case of Deemed Exports ..................................................................... 40
• Supply Of Goods or Services Or Both To A SEZ Unit/SEZ Developer ............................... 41
• Treatment in case of Export Of Services .................................................................. 42
2
• Implications of the amendment to Section 16 of the IGST Act: ....................................... 43
• Condition of Realisation of Forex ........................................................................... 45
• Supply from DTA to SEZ...................................................................................... 49
• Stock transfers & Valuation of the same .................................................................. 50

INVOICING .................................................................................................................... 51
• Invoicing In respect of Services: ............................................................................ 51
• Manner of Issuing Invoice .................................................................................... 52
• Self - Invoice .................................................................................................... 53
• E - Invoice ....................................................................................................... 54
• Bill of Supply.................................................................................................... 55
• Receipt Voucher................................................................................................ 56
• Refund Voucher ................................................................................................ 57
• Payment Voucher .............................................................................................. 58
• Revised tax invoice ............................................................................................ 59
• Credit or debit notes........................................................................................... 60
• E-way Bill ........................................................................................................ 61
• Invoicing Under Different Circumstances ................................................................. 62

TRANSACTIONS BETWEEN DEEMED DISTINCT PERSONS........................................................ 63
• The concept of Deemed Distinct Person .................................................................. 63
• Levy of GST on transaction between Deemed Distinct Persons ..................................... 64
• Input Tax Credit on the GST paid in transactions between Deemed Distinct Persons ........... 65
• Valuation Rules for transactions between distinct persons ........................................... 67
• Options available to the company .......................................................................... 68

TREATMENT OF INTERMEDIARY ........................................................................................ 69
• Background ..................................................................................................... 69
• Primary Requirements For Intermediary Services ...................................................... 70
• Place Of Supply for Intermediary Services ............................................................... 71
• Illustrations...................................................................................................... 72
3
INTRODUCTION
The Indian Information Technology (IT) and Information Technology Enabled Services (ITES) sector
has been ever evolving and expanding into different service lines. The sector's performance has
resulted in India firmly establishing itself in the sourcing strategies of big businesses all over the world.
So much so that the Special Economic Zone parameter of what should be the minimum area was
altered specifically with the IT/ITES sector in mind. The Sector has also become so critical to the Indian
service industry that it becomes the focal point of any Comprehensive Economic Partnership Agreement
that is discussed between India and other countries from a Free Trade Agreement perspective.
The pandemic has also majorly impacted the IT & ITES sector. Both start-ups and MNC’s have taken
a hit due to operational, workforce and supply chain changes that triggered financial stability of
Companies. The Pandemic has also driven the workforce majorly in this sector to Work From home
without disrupting the work outflow per se.
This note is to delves into the questions as to the issues being faced by IT/ITES companies from an
Indirect tax perspective be it cross border or domestic.
4
WHAT IS IT & ITES

Information technology (IT) is the application of computers to create, manage, store, retrieve, transmit
and manipulate data, often in the context of a business. It consists of study, design development,
implementation, support or management of computer based information system and it includes software
applications and computer hardware.
Information Technology Enabled Service (ITES) refers to those services that have been transformed
by using technology and communication, to digitize and code and application of the same in various
industries.
5
IT & ITES IN THE ERSTWHILE LAWS

Under the erstwhile service tax regime, the section 65(53a), Finance Act, 1994, defines Information
technology as-
“Information technology Service means any representation of instruction, data, sound or image,
including source code and object code, recorded in a machine readable form, and capable of being
manipulated or providing interactivity to a user, by means of a computer or an automatic data processing
machine or any other device or equipment.”
Section 65 (105) (zzzze) of the Finance Act, 1994 as amended defined taxable service as-
“Taxable Service” means any service provided or to be provided to any person, by any other person in
relation to information technology software, including-
(i) Development of Information Technology software

(ii) Study, Analysis, Design and programming of information Technology software
(iii) Adaptation, Upgradation, Enhancement, Implementation and other similar services related
to Information Technology
(iv) Providing Advice, Consultancy and Assistance on matters related to Information
Technology software, including conducting feasibility studies on implementation of a
system, specification for a database design, guidance and assistance during the star- up
phase of a new system, specifications to secure a database, advice on proprietary
information technology software
(v) Providing the right to use information technology software for commercial exploitation
including right to reproduce, distribute and sell information technology software and right to
use software components for the creation of and inclusion in other information technology
software products
(vi) Providing the right to use information technology software supplied electronically.
6
INTRODUCTION TO GST
The Goods and Service Tax was introduced and implemented in India, on 1st July 2017 and is said to
be one of the most transformational tax laws. It simplified the tax system to make redundant the gamut
of taxes and replace the same with one tax system effectively seeking to make it One Nation One Tax.
This measure was sought to reduce the cascading effects of tax and to ensure seamlessness in the
flow of credit for the Indian Industries. However, a change is a change, and this impacted India Inc and
the IT/ITES companies as part of the ecosystem.
Under the Service tax regime there was a lot of ambiguity and various issues that related to taxation in
the IT and ITES Industry, GST aimed to clarify and sort such ongoing issues with an aim to ease the
pressure of from the IT and ITES industry.
7
REGISTRATION
Centralized Registration vis a vis Multiple Registrations
From an IT/ITES perspective, under the erstwhile laws a Company had to obtain registration under the
legacy laws depending on which law was applicable to them. For an IT and ITES Company, they would
have taken registration under the Service Tax Law, and for one PAN, a single centralized registration
would have sufficed irrespective of the number of states it was operating or conducting business in.
And when it comes to the Value Added State Based Tax, they had to obtain registration in those States
they operated in.
Section 22 (1) of CGST Act, 2017 provides for registrations under the GST Act. Every supplier of goods
or services or both shall be liable to be registered under this Act in the State or Union territory, other
than special category States, from where he makes a taxable supply of goods or services or both, if his
aggregate turnover in a financial year exceeds twenty lakh rupees.
Thus, from the above we understand that the compliance has increased just in terms of the first step
that is registration. Where earlier, they had to just obtain one registration for one PAN, now they have
to mandatorily obtain GST registration in every state that they are operating in. This further increased
the compliance burden in terms of reporting (filing returns). With returns that would be required to file
in Monthly and the compliances to be adhered to in terms of GSTR 1 & GSTR 3B (not factoring any
other specific returns) to be filed monthly, the said Company’s registration based return filing
requirement would have shot up from 2 consolidated Service Tax returns in a year to a whopping 24
GSTR returns in one state. The more the PAN India presence, the same would have a multiplier effect.
Impact of Pandemic
The Covid Pandemic has led to restriction in movement of people due to precautionary measures and
employees started working from home and continues even today with companies slowly asking the
employees to return to office or adopting a hybrid model of both the work styles. Therefore, a clarity in
this regard should be issued especially when such Companies are located in SEZ’s or STPIs for that
matter, and that requires bonding/debonding of assets (laptops) when removed from premises. How
would rendering of services from employee’s residence be considered as exports. While the Revenue
had earlier issued a communication permitting the removal of assets, read as Laptops with the
employees for work from home perspective, the WFH may be here to stay and therefore, it is widely
expected and fervently hoped that the Revenue would issue notification to that extent that the removal
of bonded assets (could be a typical clearcut list) to ensure that WFH continues in those verticals
especially in IT and IT enabled sector to permit the same without injuring the benefits that would be
available to them otherwise.
8
In case of IT and ITES, how mandatory and called for is an ISD Registration?
An entity having offices in different states, having different GST registrations, and having transactions
between these offices, can opt for an ISD registration for the purpose of distribution of common credits
on GST paid on services that are procured by one office of the entity and used by other offices having
different GST registrations.
On obtaining an ISD registration would be benefit the entity with respect to simplification of claiming the
Input tax credit on GST paid on Input services which are to be distributed between different offices
having different GST registrations.
Under the ISD mechanism the GST paid on input services used by offices having GST registrations,
are charged directly to the office which is registered as an ISD which then removes the challenges of
reconciliation and mixing up of taxes paid on particular services and the services which are shared
between offices having different GST registrations, during time of availment of ITC on the taxes paid.
ISD mechanism also ensures timely distribution of credits as there is a compliance requirement to file
Form GSTR-6 before the prescribed time limit. This also ensure that the offices will not end up using
the credit which it is not entitled to i.e., credit that is attributable to another office of the entity having
different GST registration.
Essentially for an ISD mechanism to be applicable there must be an activity which is a service that
would amount to supply of that service which would be taxable under GST that is supplied between
Deemed distinct persons with the condition that the supply would have to be done where the recipient
is able to claim Input tax credit of the GST that is paid on procurement of the service and the invoice
value of such service should be the open market value of the service.
Although cross charge mechanism may be simpler than the ISD mechanism, it is susceptible to human
error which may lead to wrong availment and utilization on failure to maintain proper records of the
credits and cross charge on time. To this extent ISD mechanism for an IT company having a Pan India
presence would be desirable.
9
Are multiple ISD registration a viable option in case of a PAN India presence
A company that has a PAN India presence may have difference procurement sourcing patterns, while
it may be beneficial to have a single procurement office that procures services (since ISD operates only
for services per se) in terms of economies of scale as well as better control mechanism, it may also be
inevitable that the same may not lead to expected synergies. As it is well possible that companies may
choose to procure region wise. In which case, it is perfectly would be in alignment to have more than
one ISD operator for the same company in different (few) location. The same set of parameters as
discussed for an ISD is equally applicable here as well.
It is pertinent to mention that prudence needs to be exercised while opting for one or more ISD since
obtaining an ISD registration will lead to additional compliance in terms the credit accumulation and
distribution as well the returns to be filed.
10
In case of an SEZ operation - a separate registration mandated
In the GST ecosystem, a separate GST registration is mandated for an SEZ Unit even if it is part of the
same Corporate PAN number having yet another GST registration status. Special Economic Zone have
been governed by their own Act and Rules framed thereunder with fiscal benefits that have been
extended to them.
SEZ have been till recently entitled for special corporate tax benefits under Section 10AA of the Income
Tax Act. The said entitlement have been withdrawn for both the Special Economic Zones as well as the
SEZ Units operating under the zone over a period of time culminating the removal of the tax benefits
for the Units as on 31.03.2021. Any unit which has been set up post that date will not be entitled for
the SEZ corporate tax based benefits while unit set up before that date will continue to enjoy the benefit
for the period for 15 years as stipulated in terms of the SEZ act and rules framed thereunder.
In order to ensure that the benefits that an SEZ enjoys is not whittled down or diluted, the concept of
separate GST registration was mandated for SEZ units since at the time of inception of GST, SEZ were
in a position to avail the benefits. However, with the dilution of the corporate Tax benefits under 10AA
of the income tax Act, it doesn’t constitute a forceful case for the mandated separate registration of
SEZ. The exemption by way of Zero rating can be extended by way of furnishing of the LOP by an SEZ
or instead of offering an ab-inito exemption of the goods and services exemption to an SEZ, the same
can be converted as a faceless assessment based refund that is to be extended to an SEZ which will
remove the entire concept of separate registration requirement for an SEZ
11
Since STPI/SEZ benefits are no more available, should the Companies cancel the registration or
merge with the existing registration?
In case of an SEZ units, what has been taken away in terms of the sunset clause is the benefit that was
extended by way of Section 10AA of the Income Tax Act. The indirect tax benefits in the form of
Customs duty as well the GST benefits continue. The Promissory estoppel that has been extended is
that there would be no duty impact on the SEZ units, and it could be either by way of Ab initio exemption
of the duties or exemption by way of grant of refund claim for the SEZ.
One has to bear in mind that one of the major reasons for the removal of the corporate tax exemption
was that it construed a breach of what was considered as an unfair advantage that was exclusively
granted to the SEZ Units and a case accordingly was made out before the WTO which led to the removal
of the special benefits. However, as regards the indirect tax benefits to an SEZ is concerned, the same
doesn’t constitute a special benefit and it is only what is accorded to an exporter to nullify the import
duties and local taxes so that the same does not form part of the tax cost that would be exported if the
benefits is not given.
Given the above scenario, it could be reasonably construed that one way or the other namely either by
way of abinito exemption or exemption by way of grant of refund the indirect taxes that is incurred by
an SEZ would be refunded. Further since the long term lease would have already been signed up with
the Zone promoter and with the benefits namely for both corporate tax (for those set up before
31.03.2021) and the IDT benefits hinges on the adherence to being an SEZ, it may not make a
productive case for exit from an SEZ.
However, for those companies that have not opted for 10AA benefits and the duty cost being less in
terms of the duty having been saved, can seek to opt out of SEZ and consolidate their operations in a
DTA itself.
As regards an STPI unit is concerned, since it has been more than a decade since the 10A benefits
were extended, there is no typical compelling reasons to stay within the umbrella of an EOU unless
large scale capital goods expansion and consequent imports are envisaged.
12
In case if the Company is participating in an Expo, does it have to obtain a onetime registration
or register itself as a casual taxable person?
In IT & ITES sector it is very common to participate in exhibitions to promote their software, app,
products, and business in general. It is pertinent to note that a company may want to participate as part
of an Industrial Expo or Exhibition in order to show case their presence in India either to create a market
visibility strategy or even to look at sales through the said expo. It is a given that the company does not
have to a take a permanent GST registration in a State where there is no establishment or there is no
taxable supply of goods or services being rendered.
In case of participating in an expo where there is an intention to effect supply of services or goods,
“Casual Taxable” person based registration is an option that is available. The said registration requires
to be taken five days prior to commencing the business. He also has to make certain amount of advance
deposit of tax in terms of his estimate tax liability. The registration of the status of a casual taxable
person has a validity of 90 days which can be extended by another maximum period of 90 days.
13
RATE OF TAX
Tax Neutrality
Under the erstwhile service tax law, just prior to introduction of GST, the tax rate was at 15% (including
the cesses). While at a glance, it may be viewed that the tax rate of GST under 18% may be higher, it
is pertinent to mention that most of the IT products was also sought to be taxes (without getting into the
complications of whether it was right or otherwise) and the said VAT at a mean rate was on 15% at the
far end of the legacy system. The VAT also sought to impose a tax on the service tax paid therein
creating an unwarranted complication. There were also jurisdiction that said that IT (and at times the
enable services as well) was in fact a works contract and sought to impose a tax on the same. This led
to the confusion of 70:30 and 60:40 being levied which actually increased the taxed to more than the
hundred percent of the consideration.
The rate of tax under GST is 18% in case of IGST (interstate transactions) and 9% each of CGST and
SGST (intra state transactions) has in fact simplified with the single notion of supply irrespective of
whether the same is to be treated as goods or as services.
14
TAXABILITY
Place of Supply
The place of supply provisions that would be applicable to a generic IT/ITES company would be as
below:
Place of supply in respect of goods
1) In respect of supply of goods involving movement of goods: Place of supply shall be location of
goods where the movement of goods terminate for delivery to the recipient
2) In respect of supply made based on direction of a Third person (Bill to Ship to): The place of
supply shall be the location of the Third person giving direction.
3) In respect of supply of goods not involving movement of goods: Place of supply shall be the
location of such goods at the time of the delivery to the recipient
Place of supply in respect of services
1) General Services: Supplies made to a registered person – Place of supply shall be the location
of the recipient
2) General Services: Supplies made to an unregistered person – Place of supply shall be the
location of the recipient, provided that the address of the recipient is available in records. If
address is not available, Place of supply shall be the location of the supplier.
3) Services in relation to immovable property: Place of supply shall be the location of the
immovable property.
4) Restaurant and Catering Services: Place of supply shall be the location where the services are
actually performed
Based on the above: The tax that needs to be paid by a Company in different scenarios is tabulated
below:
Sl. Scenario Location of Place of Supply of GST Implications

No. Supplier Services
1 Sale of goods Location of the A combination of CGST

(Intrastate) recipient of goods + SGST is payable.
2 Sale of goods Location of the IGST is payable.

(Interstate) recipient of goods is
outside the state
15
Sl. Scenario Location of Place of Supply of GST Implications

No. Supplier Services
3 Supply of goods to Same state No GST requires to be

different branch paid as long as the depot
office in same State is part of the GST
registration number.
4 Supply of goods to Location of the DD IGST requires to be paid,

Deemed Distinct person which can be taken as a
person credit.
5 Supply of services Location of the DD IGST requires to be paid,

between Deemed person which can be taken as a
Distinct person credit.
6 Sale of Services by Customer cross If the sale is made under

Export border LUT, no duty needs to be
paid.
Without LUT, IGST

requires to be paid.
7 Import of Services Service Provider Location of the IGST is payable under

located outside Recipient of Service reverse charge
India
8 Procurements under Supplier of Place of supply The ITC would be

bill to ship to basis. goods. shall be the location available at the location
of person on whose giving direction.
direction goods are
The above-mentioned
delivered (If the
location is required to
direction for delivery
issue invoice for
is arising from a
transferring the input tax
state, the PoS shall
credit to branch to which
be that State)
the goods are delivered.
16
Time of Supply
The GST liability of a taxable person needs to be discharged at the time of filing GSTR-3B for the month
during which the taxable supply is affected. GSTR-3B needs to be filed on or before 20th of subsequent
month.
In order to determine when a taxable supply is made, it would be essential to analyse the provisions
relating to Time of Supply of goods and service provided in Section 12 and 13 of CGST Act respectively.
Sl. No. Scenario Invoicing Consideration Time of Supply

Date/Periodicity Receipt
1 Sale of goods Where movement Consideration Earlier of ‘Date of

of goods are paid before/after invoice’ or ‘due date for
required: On or supply of goods raising invoice’
before removal of
goods for supply
All other cases: On

or before delivery of
goods
2 Supply of services On or before 30 Consideration Date of receipt of

days from date if paid before payment
supply of services invoice date
3 Supply of services On or before 30 Consideration Date of invoice (if

days from date if paid after invoice invoice issued within
supply of services date due date)
Date of provision of
service (if invoice not
issued within due date)
4 Interest, late fee or - - Date of receipt of such

penalty for delayed addition in value
payment of any
consideration on
supply of goods or
services
17

4 Import of service Invoice issued after Consideration Earliest of date of entry

from related persons rendition of service. paid before/after in the books or date of
receipt of payment.
services.
5 Import of services / Invoice issued after Consideration Date of payment

Domestic rendition of Service paid before (earlier of - entry in the
procurement of receipt of books of account or
services under RCM services. debit in his bank
account)
6 Import of services or Invoice issued after Consideration Earliest of ‘date of

Domestic rendition of Service paid after receipt payment’ or ‘date
procurement of of services. immediately following
services under RCM 60 days from date of
Invoice’.
7 Procurement of Tax invoice issued Consideration Date of payment

goods attracting GST by the vendor after paid before (earlier of - entry in the
under domestic supply of goods or delivery of goods books of account or
reverse charge. services debit in his bank
account)
8 Procurement of Tax invoice issued Consideration Earliest of ‘date of

goods attracting GST by the vendor after paid after receipt receipt of goods’ or
under domestic supply of goods or of goods ‘date of payment’ or
reverse charge. services ‘date immediately
following 30 days from
date of Invoice’.
9 Supply of goods by Invoice issued at Consideration Date of Invoice.

way of transfer by the time of not paid by
H.O to branch. movement of goods branches
18

10 Supply of goods by Invoice issued after Consideration Due date by which

way of transfer by movement of goods not paid by invoice ought to have
H.O to branch. branches been issued
11 Supply of services Invoice to be issued Consideration  Date of issuance of

from H.O to branches on periodic basis not paid by HO invoice (in case
or vice versa to branches. invoice is issued
(Business Support within 30 days from
Services) the date of
completion of
service)
Date of provision of
service (if invoice is
not issued within 30
days).
19
Value of Supply
Section 15 of CGST Act read with relevant CGST Rules (Rule 27 to Rule 35), prescribes the manner
of determination of value for taxable supplies.
Section 15 of CGST Act prescribes that the value of a supply of goods or services or both shall be the
transaction value, which is the price actually paid or payable for the said supply of goods or services or
both where the supplier and the recipient of the supply are not related, and the price is the sole
consideration for the supply.
The value of supply shall include–––
(a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force
other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and
Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged
separately by the supplier.
(b) any amount that the supplier is liable to pay in relation to such supply, but which has been
incurred by the recipient of the supply and not included in the price actually paid or payable for
the goods or services or both.
(c) incidental expenses, including commission and packing, charged by the supplier to the
recipient of a supply and any amount charged for anything done by the supplier in respect of
the supply of goods or services or both at the time of, or before delivery of goods or supply of
services.
(d) interest or late fee or penalty for delayed payment of any consideration for any supply and
(e) subsidies directly linked to the price excluding subsidies provided by the Central
Government and State Governments.
20
What construes as goods and what construes as services?
In the legacy laws, one of the reasons for a seamless credit not being available was the point of taxation
being different for different kinds of taxes. Central Excise was on manufacture and clearance, VAT was
on sale of goods, Service tax was on rendition of services and so on. GST made it all simple in as much
as the point of taxation is on “Supply”. Whether it is supply of services or supply of goods or a
combination of both, the levy of GST is applicable on the same.
“Goods’’ means every kind of movable property other than money and securities but includes actionable
claims, growing crops, grass and things attached to or forming part of the land which are agreed to be
severed before supply or under a contract of supply but does not include money and securities. Further,
actionable claims are listed as neither good or services.
The very distinguishing subtlety between of supply of goods as opposed to supply of services will arise
only in terms of place of supply per se and therefore the whole issue of generic software vs customised
software has been minimised. For Instance, let’s take for example customised software that includes
certain number of licenses or key cards that may be treated as goods. The said customisation work
may be treated as a work contract service. In which case with the Works contract being deemed to be
a service per se in the GST Eco system, the supply of goods is only incidental to the supply of services.
Let us also take this logically to the next step. If a company in a State A is to do the work in State B
since the work is deemed to be a service, a position can be taken that it is a rendition of supply of
service from State A to State B and therefore the concept of Registration in State B can be dispensed
with since this is a supply of services that can be done from State A itself.
21
VALUATION
Valuation in case of Stock transfer
Stock transfers that are affected from a head office to a branch location (in this case branch refers to
units of the same entity located in different states or business verticals within the same state) are
deemed to be a supply between distinct persons even when there is no consideration involved, as per
the provisions of Section 7(1)(c) read with Schedule I of the CGST Act of 2017. Further, a supply that
is affected between distinct persons has to be specifically subjected to the valuation methodology as
prescribed in the GST Law.
Relevant Provisions that provide for transactions between distinct persons to be treated as a supply
even when made without consideration
The provisions that provide for transactions between distinct persons to be treated as a supply even
when there is no consideration has been encapsulated in the following table -
Sl. Particulars Legal Provisions

No.
1 Section 7(1)(c) of the CGST Act of “Section 7 - Scope of supply

2017 clearly sets out that activities
(1) For the purposes of this Act, the expression
specified in Schedule I are deemed to
"supply" includes-
be a supply
(c) the activities specified in Schedule I, made or
agreed to be made without a consideration; “
2 Schedule I of the CGST Act of 2017 “Schedule I – Activities to be treated as supply even
provides that a transaction between if made without consideration
distinct persons which is in the course
Supply of goods or services or both between related
or furtherance of business is treated
persons or between distinct persons as specified in
to be as supply even when there is no
section 25, when made in the course or furtherance
consideration
of business:
3 Section 25(4) of the CGST Act of “Section 25(4) -

2017 provides for the scenarios
A person who has obtained or is required to obtain
where 2 units of the same entity are
more than one registration, whether in one State or
to be treated as distinct persons
Union territory or more than one State or Union
territory shall, in respect of each such registration, be
treated as distinct persons for the purposes of this
Act.
22
From a combined reading of the provisions in the above table, it is clear that the company has to treat
a transaction of movement of goods between distinct persons as a supply and adapt the prescribed
valuation methodology whenever there is a movement of their goods from their premises in one State
to their locations in other States
Further, if the client wishes to differentiate their operations in a state where a unit is already located, by
establishing another unit in the form of a business vertical, then a stock transfer between those two
units should be treated as a supply even when there is no consideration attached to the transfer and
the valuation methodology as prescribed in the GST Law has to be applied.
23
Treatment of vehicles on lease
Companies in certain cases, provide perquisites to employees by way of reimbursing the lease rentals
that they pay to external service providers. It has to be seen whether the same has any implications to
the company from a GST perspective. The same has been discussed below.
• It has to be established first whether the activity of leasing the car to the employer by the
employee is a supply as per the provisions of the CGST act.
• Services by employee to employer in the course of or in relation to employment are out of ambit
of GST by virtue of Entry 1 of Schedule III of the CGST Act, 2017. Noteworthy, the services by
the employer to the employee are not excluded from GST levy.
• Employer and employee are related persons by virtue of explanation to Section 15 of the CGST
Act, 2017.
• Supplies between related persons, even if made without consideration are to be treated as
supplies when made in the course of furtherance of business by virtue of Entry 2 of Schedule I
of the CGST Act, 2017.
• Since the same is specifically covered in Entry 2 of Schedule I specified above, the same is a
supply even if made without consideration. Moreover, as employer and employee are related
persons, the valuation shall be arrived at as prescribed under the determination of value rules
of the CGST Rules, 2017. Now that the activity of leasing by the employee to the employer has
been established as a supply, it has to be determined as to who is liable to pay the tax.
• As per Section 9(4) of the CGST Act, which prevailed till October 13, 2017, any supplies from
an unregistered vendor were liable to GST on reverse charge basis. Regarding car leasing, if
the car leasing vendor is an unregistered person, the registered recipient shall be liable to pay
tax on the same from July 01, 2017, to October 13, 2017.
Even when the car is leased from the employee by the Company and extended as a facility to employee,
the employee leasing the car shall be treated as an unregistered vendor. Noteworthy that the car is not
being leased by the employee in the course of employment and employee is not acting as an employee
but in independent capacity of vendor.
We can reasonably conclude that since the employee acts in the capacity of a vendor and the lease
provided to the employer is not in course or relation to employment, the same shall therefore be a
supply liable to GST under RCM and the registered person, namely the employer shall be paying tax
as a recipient of supplies.
There is another variant to a perquisite that can be offered to an employee from a leasing perspective.
Under this model, the employer outsources the facility arranging for the car lease to employees based
on its internal criteria. In additions to tax positions set out for Point number 1, the following would apply.
From a GST perspective, as discussed in point no. 1, the supply of a service that an employer provides
to an employee in the course of or in relation to employment for a consideration is a supply liable to
GST.
24
It can be concluded that If the facility of leasing is extended to the employee without any cost as a
perquisite and forms part of the terms of employment and documented, the same will not be liable to
GST based on the exclusions specified in Entry 1, Schedule III of the CGST Act. Where the employer
is recovering a sum against the facility, the same should be subjected to GST at the applicable rates.
25
Treatment of Discount offered
Section 15(3) of the Central Goods and Services Tax Act, 2017 (CGST Act) states that—
“The value of the supply shall not include any discount which is given––
• before or at the time of the supply if such discount has been duly recorded in the invoice issued
in respect of such supply; and
• after the supply has been effected, if—
1. such discount is established in terms of an agreement entered into at or before the time of
such supply and specifically linked to relevant invoices; and
2. input tax credit as is attributable to the discount on the basis of document issued by the
supplier has been reversed by the recipient of the supply.”
A discount that has been agreed on before or at the time of supply is excluded at the time of computing
the value of a supply. Therefore, trade discount and volume discount (supra) that is being offered is
excluded from the value of the goods for the purpose of GST. This is required to be shown as a
deduction from the invoice for the respective supply of goods.
Post sales discount may or may not be pre-agreed at the time of making the supply. Based on the
aforementioned section, it can be deduced that post-sales discounts arising based on agreements
which are established at the before or at the time of making the supply would be excluded from the
value of supply. However, those post sales discounts based on agreements made after the supply has
affected would not affect the value of supply.
26
Valuation on disposal of Assets
One of the most vexating issues for an IT/ITES company is the longevity and usage of some of the fixed
assets meant for use before disposal. The laptops and some of the other assets are normally not used
for more than 3 years (on an average) before the disposal. There are various reasons and causes for
the same including the laptops becoming obsolete in terms of specific usage and better versions hitting
the market that would save more manhours than using the outdated laptops. It companies therefore
look for ways to dispose of the laptops within a period of say three years or four years.
The GST law mandates the life of fixed asset at 5 years in terms of Rules 44(1)(b). When the laptop is
to be disposed off before the said life period of the fixed asset, the GST leviable is in terms of the total
period of 60 months less the unused life period for which the GST is payable. It is to be borne in mind
that the disposal of the assets including laptops have to follow certain other environmental protection
laws and therefore the IT companies usually sell it a very nominal value or at times sell the same to the
employees as well. This leads to a situation where even though the transaction value at which the
laptops are sold are much less as compared to the depreciation methodology adopted or at the book
value of the assets as it is reflected, the IT company is still in unavailable position to pay more GST
than the transaction value which is much lesser than the deemed value on which GST is to be paid.
Industry needs to make a representation to ensure that the there has to be a positive list for laptops
and other assets that loses its value faster than the depreciation methodology that is set in terms of 60
months in the law to ensure that there is no unnecessary pay out of GST as long as the used assets
are sold to third parties where the price is the only consideration.
27
INPUT TAX CREDIT

Eligibility of Input Tax Credit
Any registered person would be entitled to take credit of Input tax paid on inputs, input services and
capital goods which are used or intended to be used in the course or furtherance of the business and
the said amount shall be credited to the electronic credit ledger of the Company.
The registered person is entitled to credit of any input tax in respect of any supply of goods and/or
services to him provided –
1) He is in possession of a tax invoice or debit note issued by a supplier registered under this Act,
or such other taxpaying document(s) as provided in Input tax credit Rules
2) He has received the goods and /or services
3) The tax charged in respect of such supply has been actually paid to the account of the
appropriate Government, either in cash or through utilization of input tax credit admissible in
respect of the said supply; and
4) He has furnished the return under Section 39.
Provided that where the goods against an invoice are received in lots or instalments, the registered
person shall be entitled to take credit upon receipt of the last lot or instalment.
If the recipient company fails to pay to the supplier, the amount towards the value of supply of services
or goods or both along with the tax payable thereon within a period of 180 days from the date of issue
of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added
to his output tax liability, along with interest thereon, in the manner as may be prescribed. In case part
of the consideration is paid to the supplier, The recipient company would be required to reverse only
the portion of ITC that is proportionate to the value not paid.
28
Restriction on Input tax Credit
Input tax credit is available on the condition that inward supplies are used or intended to be used in the
course or furtherance of the business.
The relevant Section aims to restrict the credit at its root level thereby preventing it from entering the
credit ledger. Provisions of Sec 17(1) to 17(3) are as below:
“(1) Where the goods or services or both are used by the registered person partly for the
purpose of any business and partly for other purposes, the amount of credit shall be restricted
to so much of the input tax as is attributable to the purposes of his business.
(2) Where the goods or services or both are used by the registered person partly for effecting
taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and
Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of
credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies
including zero-rated supplies.
(3) The value of exempt supply under sub-section (2) shall be such as may be prescribed and
shall include supplies on which the recipient is liable to pay tax on reverse charge basis,
transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II,
sale of building.
[Explanation. — For the purposes of this sub-section, the expression value of exempt supply
‘‘shall not include the value of activities or transactions specified in Schedule III, except those
specified in paragraph 5 of the said Schedule;]”
Analysis of Sec 17(1) to (3)

Let us understand each of these provisions and its impact on the credit. This section predominantly
seeks to reverse the credit that is available but not eligible to the registered person in terms of the said
section. Sec 17(1) states that the credit shall be availed only if the same is used or is attributable to
business which means that any input that is consumed but is not in relation to the business shall not be
available as credit to the registered person. To understand what is used in business, it would be
pertinent to understand what business means. Business is defined under Sec 2(17) of the CGST Act,
2017 and needs to be read with Sec 17(1) to appropriately bifurcate the credits that is used for business
and other purposes.
Sec 17(2) restricts the availment of ITC to the extent of taxable supplies (including zero rated) but
excludes exempt supply and non-GST supplies.
Both these sections need to be read with Rule 42 of the CGST Act, 2017 which offers the manner of
determination of ITC in respect of inputs or input services and reversal of credit. Let us understand this
with the following flow chart-
29
Block of credit on inputs and input

services used
Sec 17(1) Sec 17(2)
Business Other 1.Taxable 1.Exempt

Purpose Purpose Supplies Supplies
2. Zero rated 2. Deemed
Supplies Exempt
Supplies
Credit Credit
Available restricted
Credit Credit
Available restricted
Thus, Rules 42 and 43 have to be conjointly read with Sec 17(1) and Sec 17(2), wherein the registered
taxpayer is expected to reverse the ITC that is attributable to non-business purpose, exempt supplies.
Sec 17(3) states that value of exempt supply shall include supplies on which the recipient is liable to
pay tax on RCM, transaction in securities, sale of land and building (except for when supplied prior to
completion certificate) which are neither supply of goods nor services as per Schedule III.
30
Blocked Credit
Sec 17(5) specifies certain category of goods and services on which the credit is blocked on the outset
and therefore will not be available to the registered person.
Sec 16(2) (aa) was recently included vide the Finance Act 2021, with effect from 28 March 2021. This
essentially puts a restriction on availment of such input tax credit to the extent of invoices furnished by
the supplier in his GSTR 1 which are communicated to the recipient via Form GSTR 2A/2B.
Sec 41 of the CGST Act, 2017 allows for provisional availment on self-assessment basis subject to the
conditions prescribed.
Rule 36(4) of the CGST Rules, 2017 (as amended) which offers these conditions and reads-
“Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details
of which have not been furnished by the suppliers under sub-section (1) of section 37 in FORM
GSTR-1 or using the invoice furnishing facility, shall not exceed 5 per cent. of the eligible credit
available in respect of invoices or debit notes the details of which have been furnished by the
suppliers under sub-section (1) of section 37 in FORM GSTR-1 or using the invoice furnishing
facility.”
The 5% percent for availment of credit came into effect from 1 January 2021 vide Notification No.
94/2020 dated 22nd December 2020.
This imposes a critical question on the enforceability of Rule 36(4) of the CGST Rules, 2017, as the
relevant clause is added to the enactment thereby constraining the availment of such credit, prior to
insertion of Sec 16(2) (aa).
The other conditions required to be satisfied for availment of ITC are as below:
1) the goods or services or both must have been received - such goods or services has been received
by the registered person. An explanation is inserted to clarify what construes as received the goods
or services. It is deemed that the goods and services have been received when-
a) where the goods are delivered by the supplier to a recipient or any other person on the direction
of a registered person, whether acting as an agent or otherwise, before or during the movement
of goods, either by way of transfer of documents of title of goods or otherwise.
b) Where services are provided by the supplier to any person on the direction of or on account of
such registered person.
Therefore, we understand that receipt of goods is not limited to physical possession. This is
especially relevant in the bill to ship to transactions.
2) the supplier has discharged his tax liability - from the reading of the provision we understand that
ITC shall be made available to recipient only if the tax charged on such supply has been
appropriately discharged to the government.
However, from a reading of Section 41 of the said act, provides for availment of ITC by a registered
person on a self-assessment basis. Furtherance to this Rule 86A was introduced vide Notification
31
no. 75/2019 with effect from 26 December 2019, which essentially empowers the revenue
authorities (not below the rank of Assistant Commissioner) to restrict the credit so availed by the
registered taxpayer if they have the reason to believe that ITC has been availed on the basis of
incorrect document, without receipt of goods or services, non-payment to the supplier, not in
possession of tax invoice.
Furnishing of return by the registered person-
To avail such credit the registered person must have filed his return under Sec 39 (GSTR-3B) of the
said act either monthly or quarterly.
In furtherance to the above the following must be noted.
1) Where the registered person receives the goods in lots or instalments, the registered person must
take the credit.
2) Where the registered person does not pay the supplier of goods/services within a period of 180
days from the date of invoice, an amount equal to the ITC shall be added to the taxpayer’s liability
along with interest. Please note that such interest will be computed from the date of availing the
ITC on such supplies till the date the ITC was added to output liability.
3) If depreciation is claimed on the tax component of the cost of capital goods and plant and
machinery, ITC shall not be availed on such goods.
32
Reversal Of Input Tax Credit
Reversal of Input tax credit with respect to Inputs or Input services
Section 17 of CGST Act provides that a registered person effecting taxable supplies including zero-rate
supplies (exports) and partly effecting exempt supplies, the amount of credit shall be restricted to so
much of the input tax as is attributable to the said taxable supplies.
Rule 42 of CGST Rules provides for manner of determination and reversal of input tax credit in respect
of inputs or input services. The provisions of rules are summarised in the following illustration.
Assumptions:
Total Input tax credit in respect of Inputs and Input services INR 1,000.
a. Exempt Turnover – INR 2,000

[Exempt supplies here include those activities in Schedule III mentioned specifically mentioned
in Sec 17(3)]
b. Total Turnover – INR 10,000
Particulars Amount
A. Total Input tax on Inputs and Input services in a tax period (T) 1,000
B. Amount of Input tax on inputs and input services exclusively used for purposes 100
other than business (T1)
C. Amount of Input tax on inputs and input services exclusively used for effecting 100
exempt supplies (T2)
D. Amount of Input tax on Inputs on which credit is not available (Ineligible) under sub- 100
section (5) of Section 17 (T3)
E. Amount of Input tax credit credited to the electronic credit ledger of registered 700
person (T4) E = A – (B+C+D+E)
F. Amount of Input tax credit attributable to inputs and input services used exclusively 500
in or in relation to taxable supplies including zero rated Supplies (assumed – 500)
G. Common Credits G = (E-F) 200
H. Amount of Input tax credit attributable to exempt supplies is 40

H = (Exempt TO/ Taxable TO) *G = [2,000/10,000] *200
[where the registered person does not have any turnover during the said tax period, or
the information is not available the value for the following computation shall be
calculated by taking values of the last tax period for which details of such turnover are
available.
33
a. Aggregate value of exempt supplies (all supplies other than taxable and zero 2,000
rated supplies, during the tax period)
b. Total turnover of the registered person during the tax period 10,000
I. Amount of credit attributable to non-business purposes if common inputs and input 10

services are used partly for business and partly for non-business purposes shall
be equal to 5% of common input credits (D2) = 5% of 200
J. Amount of common credit eligible as input tax credit attributable to the purposes of 150
business and effecting taxable supplies including zero rated supplies J = G – (H+I)
J = 200 – (40+10) [this amount shall be computed separately for input tax credit of
CGST, SGST/UGST and IGST]
K. The amount equal to H + I [Amount of Input tax credit attributable to exempt supplies + Amount
of credit attributable to non-business purposes if common inputs and input services are used
partly for business and partly for non-business purposes] shall be added to the output tax liability
of the registered person.
If the amount of input tax relating to inputs or input services which have been used partly for purposes
other than business and partly for effecting exempt supplies has been identified and segregated at
invoice level by the registered person, the same shall be included in ‘B’ and ‘C’, and the remaining
amount of credit on such input or input services shall be included in ‘F’.
 The input tax credit determination in the above manner shall be finally calculated for a financial
year before the due date for filing the return for the month of September (expected to be changed
to November 30th from a date to be notified) following the end of the financial year to which such
credit relates.
 Where the aggregate of the amounts calculated finally in respect of (H+I) exceeds the aggregate
of the amounts determined during every month, such excess shall be added to the output tax
liability of the registered person for a month not later than the month of September (to be changed
to end of November when the same is notified) following the end of the financial year to which
such credit relates and the said person shall be liable to pay interest on the said excess amount
at the rate specified in sub-section (1) of section 50 for the period starting from first day of April
of the succeeding financial year till the date of payment; or where the aggregate of the amounts
determined under sub-rule (1) in respect of H and I, such excess amount shall be claimed as
credit by the registered person in his return for a month not later than the month of September
following the end of the financial year to which such credit relates.
34
Reversal Of Input Tax Credit with Respect of Capital Goods
Input tax credit in respect of capital goods [Only when the registered person has not claimed
depreciation on the tax component of the cost of capital goods and plant and machinery under the
provisions of Income-tax Act, 1961] being partly used for the purposes of business and partly for other
purposes, or partly used for effecting taxable supplies including zero rated supplies and partly for
effecting exempt supplies, shall be attributed to the purposes of business or for effecting taxable
supplies in the following manner –
1) Input tax in respect of Capital goods used or intended to be used exclusively for non-business
purposes or used or intended to be used exclusively for effecting exempt supplies shall not be
credited to electronic credit ledger.
2) The amount of input tax in respect of capital goods used exclusively for effecting taxable supplies
including zero-rated supplies shall be credited to the electronic credit ledger in its entirety.
3) The amount of input tax on capital goods not covered under above two points denoted as ‘A’ shall
be credited to the electronic credit ledger and the useful life of such goods shall be taken as five
years.
If any capital goods earlier covered under Point 1 is subsequently moved to Point 3, the value of ‘A’
shall be arrived at by reducing the input tax at the rate of 5% points for every quarter or part thereof and
the amount of ‘A shall be credited to the electronic credit ledger.
Note: ‘quarter’ as defined under CGST Act mean a period comprising three consecutive calendar
months, ending on the last day of March, June, September and December of a calendar year
The aggregate amount of ‘A’ credited to the electronic credit ledger under point 3, to be denoted as ‘Tc’,
shall be the common credit in respect of capital goods for a tax period.
Where any capital goods earlier covered under Point 2 is subsequently covered under point 4, the value
of A arrived at by reducing the input tax at the rate of 5% points for every quarter or part thereof shall
be added to the aggregate value Tc.
The amount of input tax credit attributable to a Tx period on common capital goods during their residual
life, be denoted as ‘Tm’ and calculated as = Tm=Tc/60
The amount of input tax credit, at the beginning of a tax period, on all common capital goods whose
residual life remains during the tax period, be denoted as Tr and shall be the aggregate of Tm for all
such capital goods.
The amount of common credit attributable towards exempted supplies, be denoted as Te and calculated
as Te=(E/F) x Tr
Where,
E = aggregate value of exempt supplies, that is, all supplies other than taxable and zero rated supplies,
during the tax period, and
F = total turnover of the registered person during the tax period.
35
Provided that where the registered person does not have any turnover during the said tax period or the
aforesaid information is not available, the value of E/F calculated by taking values of E and F of the last
tax period for which details of such turnover are available, previous to the month during which the said
value of E/F is to be calculated.
Explanation: For the purposes of this clause, the aggregate value of exempt supplies and total turnover
shall exclude the amount of any duty or tax levied under entry 84 of List I of the Seventh Schedule to
the Constitution and entry 51 and 54 of List II of the said Schedule.
The amount Te along with applicable interest shall, during every tax period of the residual life of the
concerned capital goods, be added to the output tax liability of the person making such claim of credit.
The amount Te shall be computed separately for central tax, State tax, Union territory tax and integrated
tax.
36
ZERO RATED SUPPLIES AND REFUND

Zero rated supplies as defined under section 16 (1) of the IGST act include two kinds of supplies:
• Export of goods or services or both

• Supply of goods or services or both to a SEZ unit/SEZ developer
Zero rating ensures that the entire chain of transactions is free from tax
Section 16 presently provides the following options to taxpayers making zero rated supplies:
• Refund of unutilised ITC on Exports under LUT without payment of tax [Clause (i) of the first
proviso to Section 54 (3) read with Section 54 (8) (b)]
• Refund of IGST paid on Exports without LUT on payment of tax [Section 54]
The taxpayer may choose to make zero rated supply with payment of IGST, as applicable, or may
choose to make such supplies without payment of IGST by obtaining a Letter of Undertaking (LUT).
Both the options are explained below:
Note: For ease of explanation, the supplier is assumed to have no domestic supplies, taxable or
otherwise.
37
Export without payment of tax (with LUT) – Option 1
Under this option, the taxpayer makes zero rated supply of goods or services without any payment of
tax under LUT and claim the eligible accumulated input tax credit in the manner prescribed. The input
tax credit for the purpose of the refund under this option is restricted to only inputs and input services.
As a result, the input tax credit accumulated on account of capital goods will become a tax cost for the
taxpayer.
However, Rule 96A requires the supplier of goods or services or both to pay tax along with interest
within a period of —
a. fifteen days after the expiry of three months from the date of issue of the invoice for export,
if the goods are not exported out of India: or
b. fifteen days after the expiry of one year from the date of issue of the invoice for export if
the payment of such services is not received by the exporter in convertible foreign
exchange.
The said rule also applies to a zero rated supply of goods or services or both to a Special Economic
Zone developer/unit without payment of integrated tax.
38
Export with payment of tax (without LUT) – Option 2
Under this option, the taxpayer opts to pay integrated tax on zero rated supply of goods or services and
claim the refund of such tax paid on the zero rated supplies in the manner prescribed. The taxpayer
can utilise the eligible input tax credit availed on inputs, input services and capital goods to set off the
outward liability, remaining amount if any needs to be discharged through Electronic Cash Ledger, i.e.,
payment in cash.
Even though there may be cash outflow, this option provides the taxpayer with a mechanism to utilise
the entire input tax credit available, including input tax credit on capital goods unlike the earlier option,
which does not allow refund of ITC on capital goods.
39
Treatment in case of Deemed Exports
Some supplies are deemed to be exports as per the provisions inserted vide Notification No. 48/2017
dated 18th October 2017 such as supplies to EOU, HTPI, STPI, supplies against EPCG or Advance
Authorisation. The supplier is required to pay taxes on supplying the Goods even though they are
deemed as exports, the taxes paid is available as a refund either to the supplier or the recipient of such
goods as per the provisions of Section 54 of the Act read with the third proviso to rule 89(1) and rule
89(4A) of the CGST rules, 2017.
The refund of taxes paid can be claimed in two ways on fulfilling certain conditions namely:
Supplier of Goods claims refund:
The refund of taxes paid by the supplier can be claimed where the application for such refund is to be
made in Form GST RFD-01 under the heading “Recipient of deemed export supplies/ Supplier of
deemed export supplies” and must be supplemented with the following documents:
• Acknowledgment by the jurisdictional Tax officer of the AA holder or EPCG holder, as the case
may be, that the said deemed export supplies have been received by the said AA or EPCG
holder, or a copy of the tax invoice under which such supplies have been made by the supplier,
duly signed by the recipient EOU that said deemed export supplies have been received by it.
• An undertaking by the recipient of deemed export supplies that no input tax credit on such
supplies has been availed of by him and that he shall not claim the refund in respect of such
supplies and the supplier may claim the refund.
Recipient of Goods claims refund:
The refund of taxes paid by the supplier can be claimed by the recipient where the application for such
refund is to be made in Form GST RFD-01 under the heading “Recipient of deemed export supplies/
Supplier of deemed export supplies” and must be supplemented with the following documents:
• An undertaking stating that refund has been claimed only for those invoices which have been
detailed in statement 5B for the tax period for which refund is being claimed and that no input
tax credit has been availed on such invoices.
• Declaration that the supplier has not claimed refund with respect to the said supplies.
• Declaration that procedure laid down in Circular No. 14/14/2017-GST dated 06.11.2017 with
respect to procurement of supplies of goods from DTA by EOU / EHTP Unit / STP Unit / BTP
Unit under deemed export are complied with.
The details of the transactions such as Invoice Date, Number, taxable value, and tax paid, mandated
as per Rule 89 (2) (g) is required to be filled in Statement 5B of Annexure 1 of the Form along with the
declaration.
40
Supply Of Goods or Services Or Both To A SEZ Unit/SEZ Developer
Supplies made to a SEZ unit or SEZ developer are zero rated supplies where the chain of transaction
are not to be taxed. The refund of the taxes paid on such supplies are to be made in Form GST RFD
01 under the head “On account of supplies made to SEZ unit/ SEZ developer (with payment of tax)”
In case the supplies to a SEZ unit or SEZ developer is made under an LUT then the accumulated
unutilised ITC can be claimed as a refund in Form GST RFD 01 under the head “On account of supplies
made to SEZ unit/ SEZ developer (without payment of tax)”
The details of the transactions such as Invoice Date, Number, taxable value, and Shipping bill/
Endorsed invoice details, mandated as per Rule 89 (2) (d) and Rule 89 (2) (e) is required to be filled in
Statement 4 and 5 of Annexure 1 of the Form.
Further a declaration as specified in Rule 89 (2) (f) has to be submitted stating that tax has not been
collected from SEZ unit or SEZ developer when supplies are made to them.
41
Treatment in case of Export Of Services
Sub-section 6 of section 2 of the IGST Act, 2017 defines “export of services”, as- “(6) “export of services”
means the supply of any service when, –
(i) the supplier of service is located in India;
(ii) the recipient of service is located outside India;
(iii) the place of supply of service is outside India;
(iv) 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; and
(v) 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;”
Unlike export of goods, for a supply of service to be qualified as export of service, the law prescribes
the above conditions that must be fulfilled.
Receipt of convertible foreign exchange is one of the mandatory conditions that needs to be fulfilled to
qualify as export of services. Convertible foreign exchange means foreign exchange which is for the
time being treated by the RBI as convertible foreign exchange for the purposes of FEMA. (Convertible
Foreign Exchange is not defined in FEMA, FERA, RBI, GST Acts, hence taken as what RBI treats as
convertible foreign exchange for FEMA. The same is different for receipts from different countries).
The GST law has not prescribed a time limit for receipt of such convertible foreign exchange. The
disclosure of such ‘export of services’ occurs on a monthly basis in GST Returns when the invoice is
raised irrespective of whether the payment is received or not. This shows the presumption of treating
services as ‘export’ even when payments are not received, on the grounds that the payment will be
received in the future. If no date is specifically set out for receiving of sale proceeds under the GST law,
reasonable inferences of the same need to be taken.
The fact that the eligibility to claim refunds through Rule 96A of CGST Rules is available to only those
services which receive forex, makes the situation clear. This rule requires forex to be received by a
person who is opting for Bond/LUT without payment of integrated tax, within a prescribed time limit.
This may be taken as an indication to state the latest time within which a service is treated as an ‘export’,
post which no such presumption exists. However, if the above date is not considered, other relevant
laws in existence on the matter such as FEMA and RBI Directions would be required to be considered.
The FEMA Regulations and RBI Directions with respect to the time limits prescribed are clearly provided
below.
42
Implications of the amendment to Section 16 of the IGST Act:
Extract of section 16 before the amendment:
“(3) A registered person making zero rated supply shall be eligible to claim refund under either
of the following options, namely:
(a) he may supply goods or services or both under bond or Letter of Undertaking, subject to
such conditions, safeguards and procedure as may be prescribed, without payment of
integrated tax and claim refund of unutilised input tax credit; or
(b) he may supply goods or services or both, subject to such conditions, safeguards and
procedure as may be prescribed, on payment of integrated tax and claim refund of such tax
paid on goods or services or both supplied, in accordance with the provisions of section 54 of
the Central Goods and Services Tax Act or the rules made thereunder.”
Amendment made in section 16:
The Finance Act has substituted sub-section (3) with the following sub-sections:
“(3) A registered person making zero rated supply shall be eligible to claim refund of unutilised
input tax credit on supply of goods or services or both, without payment of integrated tax, under
bond or Letter of Undertaking, in accordance with the provisions of section 54 of the Central
Goods and Services Tax Act or the rules made thereunder, subject to such conditions,
safeguards and procedure as may be prescribed:
Provided that the registered person making zero rated supply of goods shall, in case of non-
realisation of sale proceeds, be liable to deposit the refund so received under this sub-section
along with the applicable interest under section 50 of the Central Goods and Services Tax Act
within thirty days after the expiry of the time limit prescribed under the Foreign Exchange
Management Act, 1999 for receipt of foreign exchange remittances, in such manner as may be
prescribed.
(4) The Government may, on the recommendation of the Council, and subject to such
conditions, safeguards and procedures, by notification, specify–
(i) a class of persons who may make zero rated supply on payment of integrated tax and claim
refund of the tax so paid;
(ii) a class of goods or services which may be exported on payment of integrated tax and the
supplier of such goods or services may claim the refund of tax so paid”
With the above amendment made, there is no change in the option of refund in case of zero rated
supplies of goods or services or both, made without payment (with LUT). However, the option to make
zero rated supplies of goods or services or both, with payment of IGST (without LUT) and the eligibility
to claim refund, is being restricted to the following:
1. Certain class of persons
43
2. Certain class of goods or services
which are to be notified by the Central Government on recommendations of the Council.
As a result, the taxpayers who has accumulated the input tax credit on account of capital goods will no
longer be able to utilise the same, unless the taxpayers themselves or their goods or services which
are being exported or supplied to SEZ Developers / SEZ units are notified by the Central Government
as mentioned above.
It must also be noted that sub-section 4 clearly states that refund of tax paid can be claimed in case of
zero rated supply of goods or services or both only for those classes of persons and goods/services
specified. (This is the only mention of refund in the Act, in case of zero rated supply of services)
While the proviso to sub-section 3 above sets out that in case of non-realisation of sale proceeds within
the time limit of zero rated supply of goods, the refund received by way of unutilized input tax credit
(under bond/LUT), would have to be paid back to the Government along with interest within 30 days
from the expiry of time limit prescribed under FEMA. Whereas in case of services, there is no such time
limit prescribed for realisation of forex, Therefore, the time limit prescribed to claim refund of tax paid
(without LUT) becomes the time limit for receipt of forex.
44
Condition of Realisation of Forex
Non-Realisation of Forex –
In case of non-realisation of forex for an export of service, within the time limit prescribed above, the
export as allowed under bond/LUT would stand withdrawn and the amount of accumulated input tax
credit would be recovered from the supplier. This would result in qualifying the said service as an export
of service under LUT option.
It is interesting to note that a supplier would have an option to change the status of the export of service
– either with LUT or without LUT i.e., without payment of tax or with payment of tax
if the supplier did not receive the forex within the said time limit of one year, in a case where amendment
to the GST return is possible.
For example, where an export is made in the month of April of a financial year and the forex receipt for
the same has not been received till the month of March of the next financial year. Then there is a
possibility of amending the status of the export as above, before filing the annual return for the financial
year. However, this is not a possibility in all scenarios.
When the sale proceeds for such export of services are finally realised at a later point in time after the
prescribed time limit, there is no clarity on whether the refund (accumulated input tax credit taken) would
be allowed/ denied to such persons.
In such a scenario, the said supplier would have made a payment of tax after the time limit prescribed.
If refund of tax is allowed to the supplier and the same is restored after producing evidence, then the
earlier claim of accumulated input tax credit stands indistinct.
Unlike in the case of Option 2 (without LUT), wherein the refund of tax paid would be restored if the
supplier produces evidence about such realisation (within a period of 3 months of realisation) after the
time period prescribed.
45
FEMA REGULATIONS
FEMA vide Regulation 9 of “Foreign Exchange Management (Export of Goods & Services) Regulations,
2015 (Amended up to January 11, 2021)” prescribes the time limit within which the export value of
goods/software/services is to be realised as under:
The amount representing the full export value of goods/software/services exported shall
be realised and repatriated to India within nine months or within such period as may be
specified by the RBI, in consultation with the Government, from time to time, from the date
of export, provided –
(a) that where the goods are exported to a warehouse established outside India with the
permission of the RBI, the amount representing the full export value of goods exported
shall be paid to the authorised dealer as soon as it is realised and in any case within fifteen
months or within such period as may be specified by the RBI, in consultation with the
Government, from time to time from the date of shipment of goods.
(b) further that the RBI, or subject to the directions issued by that Bank in this behalf, the
authorised dealer may, for a sufficient and reasonable cause shown, extend the said
period.
The above underlined time periods were inserted vide ‘Notification No. FEMA 23(R)/ (3)/2020-RB dated
March 31, 2020, published in the Official Gazette of India, Extra Ordinary, Part III, Section 4 dated
March 31, 2020’, prior to which the time periods were ‘nine months’, ‘fifteen months’, ‘period of nine
months or fifteen months, as the case may be’ respectively.
46
RBI Directions
RBI vide “Master Direction – Export of Goods and Services (Updated as on January 08, 2021)”
prescribes the time limit for realization and repatriation of the full value of export of
goods/software/services to India as under:
(a) It has been decided in consultation with the Government of India that the period of
realization and repatriation of export proceeds shall be nine months from the date of export
for all exporters including Units in Special Economic Zones (SEZs), Status Holder
Exporters, Export Oriented Units (EOUs), Units in Electronic Hardware Technology Parks
(EHTPs), Software Technology Parks (STPs) & Bio-Technology Parks (BTPs) until further
notice.
(b) In view of the outbreak of pandemic COVID-19, it has been decided, in consultation with
the Government of India, to increase the period of realization and repatriation to India of
the amount representing the full export value of goods or software or services exported,
from nine months to fifteen months from the date of export, for the exports made up to or
on July 31, 2020.
This was inserted by ‘AP (DIR Series) Circular 27 dated April 01, 2020’.
(c) For goods exported to a warehouse established outside India, the proceeds shall be
realized within fifteen months from the date of shipment of goods.
47
Below is a gist of the time periods prescribed under FEMA and RBI with respect to realisation
of export proceeds:
Sl. No. Regulations Conditions set out Prescribed time periods
1. FEMA The amount of export value should (i) Within 9 months from the date
be realised – of export
(ii) Within 15 months from the
(i) In normal scenarios –
date of shipment (These time
(ii) In case of export to a
periods
warehouse outside India
are subject to extension by
RBI for sufficient cause)
2. RBI The amount of export value should (i) Within 9 months from the date
be realised – of export
(i) In normal scenarios –

(ii) In case of exports made up
(ii) Within 15 months from the
to July 31, 2020
date of export (due to Covid-
(iii) In case of export to a
19)
warehouse outside India
(iii) Within 15 months from the
date of shipment
48
Supply from DTA to SEZ
A supply to Special Economic Zone Unit is considered as a Zero rated supply when made by a Domestic
Tariff Area based Unit or By an STPI as well. Zero rated supplies unlike exempted supplies means to
zero rate the entire supply chain costs so that the taxes and duties are either exempted abinito or
exempted through refund mechanism in the hands of an SEZ.
With effect from the Finance Act of 2021, the Act has been amended to the extent that zero rating of
supply of goods or services or both to a Special Economic Zone Unit is possible as long as the same is
for authorised operation of an SEZ.
The fact that there was no inherent condition inbuilt in section 16 of IGST Act to classify supplies to
SEZ Developers/ SEZ units for purposes other than authorised operations from zero rated supply
created ambiguity in the following:
Reversal of ITC under Section 17 of CGST Act on account of exempt supplies/non-business use.
As per section 17(2) of CGST Act, 2017, zero rated supplies are included in taxable supplies for the
purpose of ITC reversal computations. Prior to the change made to zero rated supplies, all supplies
made to SEZ Developers/ SEZ units where being considered as ‘zero rated supplies’ by majority of the
taxpayers.
The amendment sought by the Finance Bill, 2021 removes this ambiguity, or rather loophole, and
ensures that only supplies to SEZ Developers/ SEZ units for its authorised operations enjoy the benefit
of being included as taxable supply while computing ITC reversal on account of exempt supplies.
This is likely to increase the ITC reversal of taxpayers who are supplying exempted goods to SEZ
Developers/ SEZ units
49
Stock transfers & Valuation of the same
Stock transfers that are affected from a head office to a branch location (in this case branch refers to
units of the same entity located in different states or business verticals within the same state) are
deemed to be a supply between distinct persons even when there is no consideration involved, as per
the provisions of Section 7(1)(c) read with Schedule I of the CGST Act of 2017. Further, a supply that
is effected between distinct persons has to be specifically subjected to the valuation methodology as
prescribed in the GST Law.
50
INVOICING
Invoicing In respect of Services:
Section 31 of the Central Goods and Services Tax (“CGST”) Act, 2017 read with Rule 47 of CGST
Rules, 2017 requires a registered person supplying taxable services, to issue a tax invoice within a
period of thirty days from the date of the supply of service.
Tax invoice mentioned above should contain the following particulars, namely:
• Name, address and GSTIN of the supplier

• A consecutive serial number not exceeding sixteen characters, in one or
• Multiple series, containing alphabets or numerals or special characters-hyphen or dash and
slash symbolised as “-” and “/” respectively, and any combination thereof, unique for a financial
year
• Date of its issue
• Name, address and GSTIN or UIN, if registered, of the recipient
• Name and address of the recipient and the address of delivery, along with the name of State
and its code, if such recipient is un-registered and where the value of taxable supply is fifty
thousand rupees or more
and its code, if such recipient is un-registered and where the value of taxable supply is less
than fifty thousand rupees and the recipient requests that such details be recorded in the tax
invoice
• HSN code for goods or services
• Description of goods or services
• Quantity in case of goods and unit or Unique Quantity Code thereof
• Total value of supply of goods or services or both
• Taxable value of supply of goods or services or both taking into account discount or abatement,
if any
• Rate of tax (central tax, State tax, integrated tax, Union territory tax or cess)
• Amount of tax charged in respect of taxable goods or services (central tax, State tax, integrated
tax, Union territory tax or cess)
• Place of supply along with the name of State, in case of a supply in the course of inter-State
trade or commerce
• Address of delivery where the same is different from the place of supply
• Whether the tax is payable on reverse charge basis and
• Signature or digital signature of the supplier or his authorized representative.
• Quick Reference code, having embedded Invoice Reference Number (IRN) in it, in case invoice
has been issued in the manner prescribed under sub-rule (4) of rule 48.
51
Manner of Issuing Invoice
As per Rule 48(1) of CGST Rules, the invoice shall be prepared in triplicate, in case of supply of goods,
in the following manner:
• The original copy being marked as ORIGINAL FOR RECEIPIENT.

• The duplicate copy being marked as DUPLICATE FOR TRANSPORTER and
• The triplicate copy being marked as TRIPLICATE FOR SUPPLIER
Rule 48(2) states that the invoice shall be prepared in duplicate, in case of supply of services, in the
following manner: -
• the original copy being marked as ORIGINAL FOR RECEIPIENT and

• the duplicate copy being marked as DUPLICATE FOR SUPPLIER
52
Self - Invoice
As per Section 31(3) (f) of CGST Act, 2017, a registered person who is liable to pay tax under reverse
charge basis on account of goods or services procured from a person not registered under GST, shall
issue an invoice on the date of receipt of goods or services.
This invoice should have the same constituents as a Tax invoice mentioned.
53
E - Invoice
As per Rule 48(4) of CGST Rules, notified class of registered persons must prepare invoice by including
such particulars contained in FORM GST INV-01 after obtaining an Invoice Reference Number (“IRN”)
by uploading information contained therein on the Common GST Electronic Portal.
The IRP returns the e-invoice with a unique ‘Invoice Reference Number (IRN)’ after digitally signing the
e-invoice and adding a QR Code.
An invoice issued by a person required comply with e-invoicing, which does not adhere to the same
would not be treated as a valid GST invoice.
Because of the standard e-invoice schema (INV-01), ‘e-invoicing’ facilitates exchange of the invoice
document (structured invoice data) between a supplier and a buyer in an integrated electronic format.
After following above ‘e-invoicing’ process, the invoice copy containing inter alia, the IRN (with QR
Code) issued by the notified supplier to buyer is commonly referred to as ‘e-invoice’ in GST.
The e-invoicing has been live from October 01, 2020, for registered persons with an aggregate turnover
exceeding INR 500 Crore.
54
Bill of Supply
Section 31(3)(c) read with Rule 49 of CGST Rules prescribes that a registered person supplying
exempted goods or services shall issue, instead of a tax invoice, a bill of supply containing the following
details:
• Name, address and GSTIN of the supplier.

• A consecutive serial number not exceeding sixteen characters, in one or more multiple series,
containing alphabets or numerals or special characters -hyphen or dash and slash symbolised
as “-” and “/” respectively, and any combination thereof, unique for a financial year.
• Date of its issue.
• Name, address and GSTIN or UIN, if registered, of the recipient.
• HSN Code for goods or services.
• Description of goods or services or both.
• Value of supply of goods or services or both taking into account discount or abatement, if any
and
55
Receipt Voucher
Section 31(3)(d) of the CGST Act read with Rule 50 of CGST Rules, requires a registered person, on
receipt of advance payment with respect to any supply of goods or services, to issue a receipt voucher
containing the following particulars:

• A consecutive serial number, not exceeding sixteen characters, in one or multiple series,
containing alphabets or numerals or special characters hyphen or dash and slash symbolised
• Description of goods or services.
• Amount of advance taken.
• Rate of tax (central tax, state tax, integrated tax, union territory tax or cess).
• Amount of tax charged in respect of taxable goods or services (central tax, State tax, integrated
tax, Union territory tax or cess).
• Place of supply along with the name of State, in case of a supply in the course of inter-State
trade or commerce.
• Provided that where at the time of receipt of advance.
• The rate of tax is not determinable, the tax shall be at the rate of eighteen percent.
• The nature of supply is not determinable, the same shall be treated as inter-state supply.
Note: Though the requirement to pay tax on advances received in respect of goods have been removed,
the requirement to generate a Receipt voucher continues to remain.
56
Refund Voucher
Section 31(3)(e) read with Rule 51 of CGST Rules prescribes that where on receipt of advance payment
with respect to any supply of goods or services or both, the registered person issues a receipt voucher,
but subsequently no supply is made and no tax invoice is issued in pursuance thereof, the said
registered person may issue to the person who had made the payment, a refund voucher against such
payment containing details as below:

• A consecutive serial number not exceeding sixteen characters, in one or multiple series,
as “-” and “/” respectively, and any combination thereof, unique for a financial year
• Number and date of receipt voucher issued in accordance with provisions of sub-rule 50.
• Description of goods or services in respect of which refund is made.
• Amount of refund made.
• Rate of tax (central tax, State tax, integrated tax, Union territory tax or cess).
• Amount of tax paid in respect of such goods or services (central tax, State tax, integrated tax,
Union territory tax or cess).
57
Payment Voucher
Section 31(3)(g) read with Rule 52 of CGST Rules prescribes that a registered person who is liable to
pay tax under reverse charge basis shall issue a payment voucher at the time of making payment to
the supplier containing the details as below:
• Name, address and GSTIN of the supplier if registered.

as “-” and “/” respectively, and any combination thereof, unique for a financial year
• Name, address and GSTIN of the recipient.
• Description of goods or services.
• Amount paid
• Rate of tax (central tax, State tax, integrated tax, Union territory tax or cess).
• Amount of tax payable in respect of taxable goods or services (central tax, State tax, integrated
tax, Union territory tax or cess).
• Place of supply along with the name of State and its code, in case of a supply in the course of
inter-State trade or commerce and
Note: Payment voucher which represents the payment made to Supplies making supplies liable to
reverse charge is of high importance since the “Time of supply” for the supplies liable to reverse charge
is dependent of the date of payment made to the supplier. Apart from being compliant to the
documentation requirement of GST laws, maintenance of Payment voucher will enable a company to
have a better control on the date on which RCM liabilities needs to be discharged.
58
Revised tax invoice
Section 31(3)(a) of CGST Act prescribes that a registered person may, within one month from the date
of issuance of certificate of registration, issue a revised invoice against the invoice already issued during
the period beginning with the effective date of registration till the date of issuance of certificate of
registration to him.
Rule 53(1) of CGST Rules states that a revised tax invoice referred to in section 31 shall contain the
following particulars, namely:
• The word “revised tax invoice”, wherever applicable, indicated prominently.

• Name, address and GST in of the supplier.
• Date of issue of the document.
• Name, address and GSTin or UIN, if registered, of the recipient.
• Name and address of the recipient and the address of delivery, along with the name of state
and its code, if such recipient is un-registered.
• Serial number and date of the corresponding tax invoice or, as the case may be, bill of supply.
59
Credit or debit notes
Section 34(1) of CGST Act prescribes that where one or more tax invoices have been issued for supply
of any goods or services or both and the taxable value or tax charged in that tax invoice is found to
exceed the taxable value or tax payable in respect of such supply, or where the goods supplied are
returned by the recipient, or where goods or services or both supplied are found to be deficient, the
registered person, who has supplied such goods or services or both, may issue to the recipient one or
more credit notes for supplies made in a financial year containing the particulars below.
Section 34(3) of CGST Act prescribes that where one or more tax invoices have been issued for supply
of any goods or services or both and the taxable value or tax charged in that tax invoice is found to be
less than the taxable value or tax payable in respect of such supply, the registered person, who has
supplied such goods or services or both, shall issue to the recipient one or more debit notes for supplies
made in a financial year containing the particulars below.
Rule 53(1A) of CGST Rules states that a credit or debit note referred to in section 34 shall contain the
following particulars, namely: -
• Name, address and Goods and Services Tax Identification Number of the supplier.
• Nature of the document.
containing alphabets or numerals or special characters-hyphen or dash and slash symbolised
as "-" and "/" respectively, and any combination thereof, unique for a financial year.
• Date of issue of the document.
• Name, address and Goods and Services Tax Identification Number or Unique Identity Number,
if registered, of the recipient.
and its code, if such recipient is un-registered.
• Serial number(s) and date(s) of the corresponding tax invoice(s) or, as the case may be, bill(s)
of supply.
• Value of taxable supply of goods or services, rate of tax and the amount of the tax credited or,
as the case may be, debited to the recipient and
• Signature or digital signature of the supplier or his authorised representative.
60
E-way Bill
Rule 138E of the CGST Rules was inserted by way of Notification No 74/2018 – Central Tax and had
recently been notified by way of Notification No 22/2019 – Central Tax to be effective from 21st
November 2019 as amended.
RULE 138E OF CGST RULES 2017
“138E. Restriction on furnishing of information in PART A of FORM GST EWB-01.- Notwithstanding

anything contained in sub-rule (1) of rule 138, no person (including a consignor, consignee, transporter,
an e-commerce operator or a courier agency) shall be allowed to furnish the information in PART A of
FORM GST EWB-01 in respect of a registered person, whether as a supplier or a recipient, who, —
• being a person paying tax under section 10, has not furnished the returns for two consecutive
tax periods or
• being a person other than a person specified in clause (a), has not furnished the returns for a
consecutive period of two months.
Provided that the Commissioner may, on sufficient cause being shown and for reasons to be recorded
in writing, by order, allow furnishing of the said information in PART A of FORM GST EWB 01, subject
to such conditions and restrictions as may be specified by him.
Provided further that no order rejecting the request of such person to furnish the information in PART
A of FORM GST EWB 01 under the first proviso shall be passed without affording the said person a
reasonable opportunity of being heard.
Provided also that the permission granted or rejected by the Commissioner of State tax or
Commissioner of Union territory tax shall be deemed to be granted or, as the case may be, rejected by
the Commissioner.
Explanation: – For the purposes of this rule, the expression “Commissioner” shall mean the jurisdictional
Commissioner in respect of the persons specified in clauses (a) and (b).”
61
Invoicing Under Different Circumstances
The issuance and manner of invoice can be divided as below based on the activities:
• Core Activities:
o Sale of goods
o Supply of Services
o Supply of Goods between branches
o Business Support Services by Branch to HO
• Non-core activities
• Domestic procurement of goods or services liable under Reverse charge - From Unregistered
supplier
• Domestic procurement of goods or services liable under Reverse charge - From Registered
supplier
• Import of Services
• Supply of gifts to employees exceeding value INR 50,000
62
TRANSACTIONS BETWEEN DEEMED DISTINCT PERSONS

The concept of Deemed Distinct Person
When there are transactions between two offices of the same entity, the concept of Deemed Distinct
Person arises. The GST act sets out provisions to explain as to how the offices of an entity would be
considered as distinct persons, as follows:
Section 25 (4) of the CGST Act, 2017, deals with the concept of deemed distinct persons and states
that:
“A person who has obtained or is required to obtain more than one registration, whether in one
State or Union territory or more than one State or Union territory shall, in respect of each such
registration, be treated as distinct persons for the purposes of this Act.”
The implication of this provision would mean that an entity having same PAN and bank account but
different GST registrations in different states would be considered as distinct persons under the act.
Further, Section 25 (5) of the CGST Act, 2017, sets out the provisions for establishments which states
that:
“Where a person who has obtained or is required to obtain registration in a State or Union
territory in respect of an establishment, has an establishment in another State or Union territory,
then such establishments shall be treated as establishments of distinct persons for the
purposes of this Act.”
As stated above where a person has registrations with respect to establishments in different states then
such establishments shall be treated as establishments of distinct persons under the act.
63
Levy of GST on transaction between Deemed Distinct Persons
Taxability of supplies undertaken between Distinct Person needs to be examined by understanding the
definition of supply and taxable supplies read with the respective schedules as under:
Section 7 of the CGST act, 2017 defines Supply as,
“(1) For the purposes of this Act, the expression “supply” includes––
….
(c) the activities specified in Schedule I, made or agreed to be made without a consideration;
and…”
Subsection 108 of Section 2 of the CGST act, 2017 defines “taxable supply” as a supply of goods or
services or both which is leviable to tax under this Act.
The supply of goods, services or both would be taxable supply in general unless the same falls under
the categories of exemptions that have been provided by the act under Section 2(47) and the respective
notifications, which include non-taxable supplies.
Where in relation to section 7(1)(c) mentioned supra, Schedule I, under item (2) states that the following
supplies would be included in supply even if made without consideration
“Supply of goods or services or both between related persons or between distinct persons as
specified in section 25, when made in the course or furtherance of business:
Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an
employer to an employee shall not be treated as supply of goods or services or both.”
From a combined reading of the provisions mentioned above, it is clear that the company has to treat
a transaction of movement of goods between distinct persons as a supply and adapt the prescribed
valuation methodology whenever there is a movement of their goods from a premises in a State to a
premises in another State or States.
Further, if the client wishes to differentiate their operations in a state where a unit is already located, by
establishing another unit in the form of a business vertical, then a stock transfer between those two
units should be treated as a supply even when there is no consideration attached to the transfer and
the valuation methodology as prescribed in the GST Law has to be applied.
64
Input Tax Credit on the GST paid in transactions between Deemed Distinct Persons
From the above, we understand that the transactions between offices, having different GST
registrations, of the same entity would be considered as taxable supplies. Hence, it is necessary that
the Credit of GST paid on the supply of Goods or services between the distinct persons must also be
passed on to the respective office of the entity that is consuming the goods or services.
The apportionment of Credit of GST paid on supplies of goods and services is to be understood in
categories:
• The credit of GST paid on the supply of Goods between the Offices having different
registrations is to be apportioned on the basis of the Goods consumed at each of the offices.
This basis follows the concept that the credit of the GST paid on supply of goods must follow
the goods i.e., Goods being tangible, the transfer of the goods can be tracked and the credit on
the same can be apportioned in the same basis.
• Whereas, in the case of supply of services, which is intangible in nature, the apportionment of
Credit of GST paid is more difficult than in the case of goods.
To understand the basis and the apportionment of Credit of GST paid on Supply of services, the
following are to be examined:
What is an activity?
An activity under GST includes transaction of Goods, Services, or both. Trading of Goods or services,
either with or without consideration, as the case maybe, would amount to an activity. Schedule II of the
GST Act has classified various activities as goods or services under GST.
Is the activity a service?
Section 2(102) of the Central Goods & Service Tax Act, 2017 (‘CGST Act’) defines “services” as
“anything other than goods, money and securities but, includes activities relating to the use of money
or its conversion by cash or by any other mode, from one form, currency or denomination to another
form, currency or denomination for which a separate consideration is charged.”
It is also important in this context to understand that for an activity to be considered as a service, the
recipient of service must have an intention to procure the service.
This implies that any activity involving a transaction between registered persons, which excludes
transaction in goods, money and securities but includes currency exchange translation would be
considered as a service.
Once the activity is determined to be a service, it is to be a supply of service which is taxable under
GST, which has been explained Supra.
Upon conjoint reading of the above provisions, an activity which is a service would be considered as
supply of service under GST when the same has been undertaken for a consideration (except in cases
as specified in Schedule I of the act) and in course of furtherance of business, as specified in Schedule
65
II of the act, except for certain activities specified in Schedule III of the act. And hence, it can be said
that the services which are common in nature and expensed at an Office and apportioned to the offices
having different registrations, which shall be deemed it to be treated as ‘supplies’, even if the same is
made without any consideration.
Therefore, the credit of the GST paid on services that are being used by more than one office of the
entity having different GST registration is to be apportioned between the same
66
Valuation Rules for transactions between distinct persons
Rule 28 of the CGST Rules 2017 governs the valuation methodology to be adopted for transactions
between distinct persons. The same has been extracted below -
“Value of supply of goods or services or both between distinct or related persons, other than through
an agent. -The value of the supply of goods or services or both between distinct persons as specified
in sub-section (4) and (5) of section 25 or where the supplier and recipient are related, other than where
the supply is made through an agent, shall-
(a) be the open market value of such supply;
(b) if the open market value is not available, be the value of supply of goods or services of like kind and
quality;
(c) if the value is not determinable under clause (a) or (b), be the value as determined by the application
of rule 30 or rule 31, in that order:
Provided that where the goods are intended for further supply as such by the recipient, the value shall,
at the option of the supplier, be an amount equivalent to ninety percent of the price charged for the
supply of goods of like kind and quality by the recipient to his customer not being a related person:
Provided further that where the recipient is eligible for full input tax credit, the value declared in the
invoice shall be deemed to be the open market value of the goods or services”.
67
Options available to the company
From the provisions stated in the above paragraph, the company has 4 options with respect to valuation
of their products that are transferred to other branches–
1) Charge a price that Is equal to the market value that is charged when the products are sold to
unrelated customers. Since the market value of the product is easily available, the option stated in
sub-rule (b) of Rule 28 i.e., value of supply of goods or services of like kind and quality can be
eliminated.
2) Charge a price that is equal to 110% of the cost of acquisition of the products. However, this method
would require maintenance of a robust costing system in order to arrive at the correct cost of
acquiring each product. Further, if there is a variety of products, this method shall lead to
complexities in terms of arriving at the correct price.
3) Charge a price that is equal to 90% of the resale price charged by the recipient branch when the
products are further sold to unrelated persons by the recipient branch
4) Any value declared on the invoice can be taken as the appropriate value provided that the recipient
is entitled for the full ITC.
The concept of full ITC has not been defined in the GST Law and is a matter that is open to
interpretation. It is to be seen whether the eligibility check of full ITC should be considered only for that
particular invoice (after considering the eligibility criteria for availing credit as per the provisions of
Section 16(2) of the CGST Act of 2017 and not being a blocked credit as per Section 17(5)) or whether
an entity-wise check is to be conducted, i.e. if there are any reversals of the credit availed on account
of the recipient effecting both taxable and exempt supplies due to effect of Rule 42 of CGST Rules 2017
which mandates a reversal of credit if that particular input is used for effecting both taxable and exempt
supplies.
68
TREATMENT OF INTERMEDIARY
Background
The issue of “intermediary” in GST has been quite vexating for the last few years. While by and large
the Service tax provisions were brought into GST ecosystem, the Revenue authorities sought to either
issue a Show Cause notice and challenge the position of an export as that of an intermediary and hence
as not liable to be treated as exempted and went a step ahead in demand notices for tax payments, on
the other hand, we had various instances where the refund claims of genuine exporters rejected simply
on the grounds of being an Intermediary. Some of the rejection orders went one step to simply say the
exporter was an intermediary and rejected the refund claims without any reasonable speaking order in
fact.
An intermediary is a person acting as a broker, an agent or such other person who arranges or facilitates
supply between two parties and does not include a person supplying on his own account. While the
intermediary has been defined in the IGST Act, there has been lot of different views on the interpretation
of the scope of Intermediary services.
Circular dated 20th September issued in the matter pertaining to Intermediary, In response to the
representations made at the council meeting on the ambiguity caused in the interpretation of the scope
of “Intermediary services” under the GST regime, the Ministry of Finance has now issued a clarification
on the matter vide Circular No. 159/15/2021-GST dated 20th September 2021 setting out the primary
requirements listed below.
69
Primary Requirements For Intermediary Services
The Circular as part of clarification on the interpretation of the scope of Intermediary services has now
provided prerequisites for a service to qualify as an Intermediary Service:
➢ The transaction involving an intermediary service must include a minimum of Three Parties
namely, the principal supplier, the recipient and the intermediary who facilitates or arranges
supply (ancillary service) between the supplier and the recipient.
The circular sets out the instance very clearly that the natural corollary of intermediary services
is that the arraignment requires a minimum of three parties and that an activity involving only
two parties cannot be considered as an intermediary service.
➢ The circular also refers to the concept of two distinct supplies in caser of provisions of
intermediary services namely (i) Main Supply and (2) Ancillary supply.
There must necessarily be two supplies namely:
❖ Main Supply: The main supply is between two principals which can be a supply of
goods or services.
❖ Ancillary Supply: that this service is a service of facilitating or arranging the main supply
between two principal and that this ancillary supply is supply of intermediary supply
and is clearly identifiable and distinguished from the main supply. The supply of
intermediary services which is the ancillary service of facilitating or arranging the main
supply between the Supplier and the Recipient.
➢ A person supplying the main supply of Goods, services or both or Securities, either in part or
in full, on his own account, on principal to principal basis, shall not be considered as an
intermediary.
➢ It is also pertinent to note that the Circular clarifies the role of intermediary to set out the
explanation that an intermediary must arrange or facilitate some other supply and doesn’t
himself provides the main supply. In this context the intermediary is expected to provide a
supportive role.
➢ The definition of intermediary services does not include a person who supplies such gods or
services or both or securities on his own account. The circular in an amazing move to benefit
many companies of India Inc sets out that the use of word “such” refers to the main supply of
goods or services or both between two or more persons which are arranged or facilitated by
the intermediary. In the implication it is sets out that wherein the person supplies the main
supply, either fully or partly7 on principal to principal basis, the said supply cannot be covered
under the scope of an intermediary. This this becomes critical since even in the event of three
persons in the picture that would demand the trigger of an intermediary concept, as long as the
supply is made on a principal to principal basis, intermediary concept does not get mandated.
➢ Intermediary services does not include services of sub-contract i.e., a sub-contractor provides
the main supply of the principal supplier on his behalf and cannot be considered as an
intermediary. This would be a major relief since it has been set out explicitly as part of the
circular.
70
Place Of Supply for Intermediary Services
In addition to addressing the scope of Intermediary services the circular has clarified that the provisions
for Place of Supply specified under Section 13 (8) of the IGST Act shall be invoked only when either
the location of supplier of intermediary services or location of the recipient of intermediary services is
outside India. The relevant extract of the Section for reference:
“The place of supply of the following services shall be the location of the supplier of services, namely:
––(a) services supplied by a banking company, or a financial institution, or anon-banking financial

company, to account holders.
(b) intermediary services.
(c) services consisting of hiring of means of transport, including yachts but excluding aircrafts and
vessels, up to a period of one month.”
Therefore, when either the location of supplier of intermediary services or location of the recipient of
intermediary services is outside India the Place of supply shall be the location of the supplier of
Intermediary Services.
Further, in cases where both the location of supplier and recipient of the Intermediary Services are in
India, the general place of supply provisions under section 12 of the IGST shall be applicable.
71
Illustrations
The circular sets out illustrations for ease of understanding but also states that the illustrations are
generic and interpretations of scope of supply of intermediary services must be made based on the
prerequisites mentioned Supra. In addition to the illustrations that has been brought about in the circular,
we have also for ease of convenience brought in few more illustration to set out the instances where an
activity would be treated as Intermediary or otherwise.
Illustrations where services cannot be considered as Intermediary Services:
1. Outsourcing of Main Supply:

Software company ‘A” which develops software for the clients as per their requirement, having
a contract with ‘B’ for providing some customized software for its business operations. ‘A’
outsources the task of design and development of a particular module of the software to ‘C’, for
which “C’ may have to interact with ‘B’. Since ‘C’ is providing main supply of service of design
and development of software to ‘A’ on a principal to principal basis, ‘C’ does not qualify as an
intermediary.
‘A’ is a manufacturer and supplier of computers based in USA and supplies its goods all over
the world. As a part of this supply, ‘A’ is also required to provide customer care service to its
customers to address their queries and complains related to the said supply of computers. ‘A’
decides to outsource the task of providing customer care services to a BPO firm, ‘B’. ‘B’
provides customer care service to ‘A’ by interacting with the customers of ‘A’ and addressing /
processing their queries / complains. ’B’ charges ‘A’ for this service. Since ‘B’ is involved in
supply of main service ‘customer care service’, ‘B’ shall qualify as an intermediary.
2. Sub-Contracting:
‘B’ enters into a contract with ‘A’ for Annual Maintenance of tools and machinery. ‘A’
subcontracts a part or whole of it to ‘C’. Accordingly, ‘C’ provides the service of annual
maintenance to ‘B’ on behalf of ‘A’. ‘C’ shall not be providing Intermediary services as he is
providing the main supply of Annual Maintenance Service on his own account.
In addition to the above illustration, The Circular bearing no. 107/26/2019-GST, which was later
withdrawn vide Circular bearing no. 127/46/2019-GST, included an illustration where it was clarified
that:
➢ Supply on own account Services in the form of back-end services to the client on its own
account or even the client’s customer, does not qualify as an “intermediary.” i.e., When “A”
supplies services on its own account to his client “B” or to B’s customer “C.”
72
Illustrations where services qualify as Intermediary Services:
1. ‘A’ is a manufacturer and supplier of a machine wants to sell the machine. ‘C’ helps ‘A’ by
identifying client ‘B’ who wants to purchase this machine and helps in finalizing the contract of
supply of machine by ‘A’ to ‘B’. ‘C’ would qualify as an intermediary as he facilitates a main
supply of machine between ‘A’ and ‘B’ and charges ‘A’ for his services.
2. An insurance company ‘P’, located outside India, wants to outsource the work of processing
insurance claims to any other firm. ‘P’ approaches ‘Q’, located in India, for arranging service
providers in India. ‘Q’ contacts ‘R’ to perform the outsourced work of ‘P’. ‘Q’ who charges ‘P’ a
commission or service charge of 1% of the contract value of insurance claims processing
service provided by ‘R’ shall qualify as an intermediary as he only facilitated the main supply of
outsourcing insurance claims processing service between ‘P’
Other illustrations:
1. Party A (outside India) and Party B (within India) entered into a Design and development
Services Agreement in terms of which, Party B is required to develop software code along with
allied services to Party A. This service includes code development, quality assurance,
integration services and customer support. Further, in the course of providing such services,
Party B is obliged to hire and use services from third party consultants for rendering the services
set out in the Contract between A and B, with whom Party A had no privity of contract.
The above case does not speak of another party to whom Party A is making supplies, hence it
appears that the services from B to A does not qualify as an intermediary service due to the
lack of the third party. However, if these services provided by B is facilitating a supply between
A and a third party, then the service between B and A may qualify as Intermediary service.
Greater significance should be assigned to what is the actual circumstances as opposed to how
the contracts are framed. Though contract often provides a reasonable indication whether a
service is an intermediary or not.
2. Company Ain India is a fully owned subsidiary of A us Inc. Ain provides IT and support services
to customers located outside India. It further provides a platform for the customers to transact
by integrating with major banks in the US to provide customers ability to transact or move
money between accounts.
The place of service is outside India and person liable for payment is A us Inc. for the supplies
made by Ain India. Based on the prerequisites, Ain India is not an agent or broker providing
service rather is directly providing such services to customers located outside India on a
principal-to-principal basis and therefore is not an intermediary
73

GST Interplay On It-ITes Ecosystem

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

GST Interplay On It-ITes Ecosystem

Uploaded by

Copyright:

Available Formats

INFORMATION TECHNOLOGY AND INFORMATION TECHNOLOGY ENABLED SERVICES

INFORMATION TECHNOLOGY AND

March 25, 2022

• Centralized Registration vis a vis Multiple Registrations ................................................ 8

• In case of an SEZ operation - a separate registration mandated ..................................... 11

• Tax Neutrality ................................................................................................... 14

• Place of Supply ................................................................................................. 15

• Time of Supply ................................................................................................. 17

• What construes as goods and what construes as services? ......................................... 21

• Valuation in case of Stock transfer ......................................................................... 22

• Treatment of vehicles on lease .............................................................................. 24

• Treatment of Discount offered .............................................................................. 26

• Valuation on disposal of Assets ............................................................................ 27

• Eligibility of Input Tax Credit ................................................................................ 28

• Restriction on Input tax Credit .............................................................................. 29

• Blocked Credit .................................................................................................. 31

• Reversal Of Input Tax Credit ................................................................................. 33

• Export without payment of tax (with LUT) – Option 1 ................................................... 38

• Export with payment of tax (without LUT) – Option 2 ................................................... 39

• Treatment in case of Deemed Exports ..................................................................... 40

• Supply Of Goods or Services Or Both To A SEZ Unit/SEZ Developer ............................... 41

• Treatment in case of Export Of Services .................................................................. 42

• Implications of the amendment to Section 16 of the IGST Act: ....................................... 43

• Condition of Realisation of Forex ........................................................................... 45

• Supply from DTA to SEZ...................................................................................... 49

• Stock transfers & Valuation of the same .................................................................. 50

• Invoicing In respect of Services: ............................................................................ 51

• Manner of Issuing Invoice .................................................................................... 52

• Self - Invoice .................................................................................................... 53

• Refund Voucher ................................................................................................ 57

• Payment Voucher .............................................................................................. 58

• Revised tax invoice ............................................................................................ 59

• Credit or debit notes........................................................................................... 60

• E-way Bill ........................................................................................................ 61

• Invoicing Under Different Circumstances ................................................................. 62

• The concept of Deemed Distinct Person .................................................................. 63

• Levy of GST on transaction between Deemed Distinct Persons ..................................... 64

• Valuation Rules for transactions between distinct persons ........................................... 67

• Options available to the company .......................................................................... 68

• Primary Requirements For Intermediary Services ...................................................... 70

• Place Of Supply for Intermediary Services ............................................................... 71

WHAT IS IT & ITES

IT & ITES IN THE ERSTWHILE LAWS

(i) Development of Information Technology software

In case of an SEZ operation - a separate registration mandated

Place of supply in respect of goods

Place of supply in respect of services

Sl. Scenario Location of Place of Supply of GST Implications

1 Sale of goods Location of the A combination of CGST

2 Sale of goods Location of the IGST is payable.

Sl. Scenario Location of Place of Supply of GST Implications

3 Supply of goods to Same state No GST requires to be

4 Supply of goods to Location of the DD IGST requires to be paid,

5 Supply of services Location of the DD IGST requires to be paid,

6 Sale of Services by Customer cross If the sale is made under

Without LUT, IGST

7 Import of Services Service Provider Location of the IGST is payable under

8 Procurements under Supplier of Place of supply The ITC would be

Sl. No. Scenario Invoicing Consideration Time of Supply

1 Sale of goods Where movement Consideration Earlier of ‘Date of

All other cases: On

2 Supply of services On or before 30 Consideration Date of receipt of

3 Supply of services On or before 30 Consideration Date of invoice (if