Circular No. 172/04/2022-GST [C10-5X2]

Various representations have been received from the field formations seeking clarification on certain issues with respect to – i. refund claimed by the recipients of supplies regarded as deemed export; ii. interpretation of section 17(5) of the CGST Act; iii. perquisites provided by employer to the employees as per contractual agreement; and iv. utilisation of the amounts available in the electronic credit ledger and the electronic cash ledger for payment of tax and other liabilities.

2. In order to clarify the issue and to ensure uniformity in the implementation of the provisions of law across the field formations, the Board, in exercise of its powers conferred by section 168 (1) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “CGST Act”), hereby clarify the issues as under:

S. No. Issue Clarification

Refund claimed by the recipients of supplies regarded as deemed export

1. Whether the Input Tax Credit The refund in respect of deemed export supplies (ITC) availed by the recipient of is the refund of tax paid on such supplies. deemed export supply for However, the recipients of deemed export claiming refund of tax paid on supplies were facing difficulties on the portal to supplies regarded as deemed claim refund of tax paid due to requirement of exports would be subjected to the portal to debit the amount so claimed from provisions of Section 17 of the their electronic credit ledger. Considering this CGST Act, 2017. difficulty, the tax paid on such supplies, has been made available as ITC to the recipients

Circular No. 172/04/2022-GST

vide Circular No. 147/03/2021-GST dated 12.03.2021 only for enabling them to claim such refunds on the portal. The ITC of tax paid on deemed export supplies, allowed to the recipients for claiming refund of such tax paid, is not ITC in terms of the provisions of Chapter V of the CGST Act, 2017. Therefore, the ITC so availed by the recipient of deemed export supplies would not be subjected to provisions of Section 17 of the CGST Act, 2017.

2. Whether the ITC availed by the The ITC of tax paid on deemed export supplies, recipient of deemed export allowed to the recipients for claiming refund of supply for claiming refund of such tax paid, is not ITC in terms of the tax paid on supplies regarded as provisions of Chapter V of the CGST Act, 2017. deemed exports is to be Therefore, such ITC availed by the recipient of included in the “Net ITC” for deemed export supply for claiming refund of tax computation of refund of paid on supplies regarded as deemed exports is unutilised ITC under rule 89(4) not to be included in the “Net ITC” for & rule 89 (5) of the CGST computation of refund of unutilised ITC on Rules, 2017. account of zero-rated supplies under rule 89(4) or on account of inverted rated structure under rule 89(5) of the CGST Rules, 2017.

Clarification on various issues of section 17(5) of the CGST Act

3. Whether the proviso at the end 1. Vide the Central Goods and Service Tax of clause (b) of sub-section (5) (Amendment Act) 2018, clause (b) of of section 17 of the CGST Act sub-section (5) of section 17 of the is applicable to the entire clause CGST Act was substituted with effect

(b) or the said proviso is from 01.02.2019. After the said applicable only to sub-clause substitution, the proviso after sub-

(iii) of clause (b)? clause (iii) of clause (b) of sub-section (5) of section 17 of the CGST Act provides as under: “Provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.”

2. The said amendment in sub-section (5) of section 17 of the CGST Act was

Circular No. 172/04/2022-GST

made based on the recommendations of GST Council in its 28th meeting. The intent of the said amendment in sub- section (5) of section 17, as recommended by the GST Council in its 28th meeting, was made known to the trade and industry through the Press Note on Recommendations made during the 28th meeting of the GST Council, dated 21.07.2018. It had been clarified “that scope of input tax credit is being widened, and it would now be made available in respect of Goods or services which are obligatory for an employer to provide to its employees, under any law for the time being in force.”

3. Accordingly, it is clarified that the proviso after sub-clause (iii) of clause

(b) of sub-section (5) of section 17 of the CGST Act is applicable to the whole of clause (b) of sub-section (5) of section 17 of the CGST Act.

4. Whether the provisions of sub- 1. Sub-clause (i) of clause (b) of sub- clause (i) of clause (b) of sub- section (5) of section 17 of the CGST section (5) of section 17 of the Act provides that ITC shall not be CGST Act bar availment of ITC available in respect of following supply on input services by way of of goods or services or both— “leasing of motor vehicles, “(i) food and beverages, vessels or aircraft” or ITC on outdoor catering, beauty treatment, input services by way of any health services, cosmetic and plastic type of leasing is barred under surgery, leasing, renting or hiring of the said provisions? motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance: Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an

Circular No. 172/04/2022-GST

outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply”

2. It is clarified that “leasing” referred in sub-clause (i) of clause (b) of sub-section (5) of section 17 refers to leasing of motor vehicles, vessels and aircrafts only and not to leasing of any other items. Accordingly, availment of ITC is not barred under sub-clause (i) of clause

(b) of sub-section (5) of section 17 of the CGST Act in case of leasing, other than leasing of motor vehicles, vessels and aircrafts.

Perquisites provided by employer to the employees as per contractual agreement

5. Whether various perquisites 1. Schedule III to the CGST Act provides provided by the employer to its that “services by employee to the employees in terms of employer in the course of or in relation contractual agreement entered to his employment” will not be into between the employer and considered as supply of goods or the employee are liable for services and hence GST is not applicable GST? on services rendered by employee to employer provided they are in the course of or in relation to employment.

2. Any perquisites provided by the employer to its employees in terms of contractual agreement entered into between the employer and the employee are in lieu of the services provided by employee to the employer in relation to his employment. It follows therefrom that perquisites provided by the employer to the employee in terms of contractual agreement entered into between the employer and the employee, will not be subjected to GST when the same are provided in terms of the contract between the employer and employee.

Circular No. 172/04/2022-GST

Utilisation of the amounts available in the electronic credit ledger and the electronic cash ledger for payment of tax and other liabilities

6. Whether the amount available 1. In terms of sub – section (4) of section in the electronic credit ledger 49 of CGST Act, the amount available in can be used for making the electronic credit ledger may be used payment of any tax under the for making any payment towards output GST Laws? tax under the CGST Act or the Integrated Goods and Services Tax Act, 2017 (hereinafter referred to as “IGST Act”), subject to the provisions relating to the order of utilisation of input tax credit as laid down in section 49B of the CGST Act read with rule 88A of the CGST Rules.

2. Sub-rule (2) of rule 86 of the CGST Rules provides for debiting of the electronic credit ledger to the extent of discharge of any liability in accordance with the provisions of section 49 or section 49A or section 49B of the CGST Act.

3. Further, output tax in relation to a taxable person (i.e. a person who is registered or liable to be registered under section 22 or section 24 of the CGST Act) is defined in clause (82) of section

2 of the CGST Act as the tax chargeable on taxable supply of goods or services or both but excludes tax payable on reverse charge mechanism.

4. Accordingly, it is clarified that any payment towards output tax, whether self-assessed in the return or payable as a consequence of any proceeding instituted under the provisions of GST Laws, can be made by utilization of the amount available in the electronic credit ledger of a registered person.

5. It is further reiterated that as output tax does not include tax payable under reverse charge mechanism, implying thereby that the electronic credit ledger cannot be used for making payment of

Circular No. 172/04/2022-GST

any tax which is payable under reverse charge mechanism.

7. Whether the amount available As per sub-section (4) of section 49, the in the electronic credit ledger electronic credit ledger can be used for making can be used for making payment of output tax only under the CGST Act payment of any liability other or the IGST Act. It cannot be used for making than tax under the GST Laws? payment of any interest, penalty, fees or any other amount payable under the said acts. Similarly, electronic credit ledger cannot be used for payment of erroneous refund sanctioned to the taxpayer, where such refund was sanctioned in cash.

8. Whether the amount available As per sub – section (3) of section 49 of the in the electronic cash ledger can CGST Act, the amount available in the be used for making payment of electronic cash ledger may be used for making any liability under the GST any payment towards tax, interest, penalty, fees Laws? or any other amount payable under the provisions of the GST Laws.

3. It is requested that suitable trade notices may be issued to publicize the contents of this Circular.

4. Difficulty, if any, in implementation of this Circular may please be brought to the notice of the Board. Hindi version would follow.