Tax Insights

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1 PwC pwc.in

16 January 2023

CBIC issues circulars pursuant to 48

^th

GST Council Meeting recommendations on rate clarifications for goods and applicability of GST on services

In brief

In f urtherance of recent notifications and circulars issued pursuant to the announcements made at the 48^th GST Council Meeting, the CBIC has issued two more circulars¹ clarifying specific aspects of GST rates on certain goods and the applicability of GST on certain services. These clarifications are discussed below.

In detail

Clarification on GST rates

Particulars Clarification provided

Rab It has been clarif ied that although rab is a product of sugarcane and exists in semi-solid and liquid forms, it is not covered by Heading 1701. Moreover, in view of a decision by the Supreme Court², rab is also not identical to molasses. Theref ore, rab is appropriately classifiable under Heading 1702 attracting GST rate at 18%.

By-products of milling of dal or pulses such as chilka, khanda and churi or chuni

• Owing to uncertainty regarding the taxability of subject items, it has been clarified that the supply of the said by-products (irrespective of their end use) would be fully exempt with effect f rom 1 January 2023, vide S. No. 102C of schedule of

Notif ication No. 2/2017-Central Tax (Rate), dated 28 June 2017.

1 Circular No s. 189/01/2023-GST and 190/02/2023-GST dated 13 January 2023

2 Krishi Utpadan Mandi Samiti v. M/s. Shankar Industries and others [1993 SCR (1)1037]

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Particulars Clarification provided

• In addition to the previous clarification on the regularisation of matters on ‘as is’ basis, it has been further clarified that for the intervening period (date of issuance of Circular No.

179/11/2022-GST, dated 3 August 2022, till the date of coming into f orce of the said entry S. No. 102C), the matters are regularised on an ‘as is’ basis.

‘Carbonated beverages of fruit drink’ or

‘Carbonated beverages with fruit juice

• Previously, based on the 45^th GST Council recommendations, a specific entry was created in the rate notifications³. In this context, it is clarified that the six-digit HS code for the said items is 220299, and they would attract GST at the rate of 28% and compensation cess at the rate of 12%.

• It is further clarified that the said entries would cover all such carbonated beverages that contain carbon dioxide, irrespective of whether the carbon dioxide is added as a preservative, additive, etc.

Snack pellets manufactured through extrusion process (such as ‘fryums’)

It is clarif ied that the subject items which are manufactured through the process of extrusion are classifiable under HS code 19059030 which covers ‘extruded or expanded products, savoury or salted’, and 18% GST rate is applicable on the same.

Sports utility vehicles (SUVs) It has been clarif ied that compensation cess of 22% is applicable on motor vehicles falling under Heading 8703, which fulfil all the f ollowing four specifications:

• Popularly known as SUVs

• Engine capacity exceeds 1,500cc

• Length exceeds 4,000mm

• Ground clearance is 170mm and above

The clarif ication is confined to and applicable to SUVs only.

Certain goods imported for specified purpose (such as petroleum operations or coal bed methane operations)

• Pursuant to the 47^th GST Council Meeting recommendations, GST rate applicable on certain goods⁴ imported for the specified purpose (such as petroleum operations or coal bed methane operations) was increased from 5% to 12%.

• Given that some of the said goods are also eligible for the benef it of lower rate under other notifications, it has been clarif ied that the importer can avail the benefit of lower tax rate.

3 Notification No. 1/2017-Central Tax (Rate) dated 28 June 2017 and Notification No. 1/2017 Compensation Cess (Rate) dated 28 June 2017, vide S. No. 12B in Schedule IV and S. No. 4B in Schedule, respectively, with effect from 1 October 2021

4 Specified in the list annexed to Notification No. 3/2017-Integrated Tax (Rate) dated 28 June 2017

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Clarification on applicability of GST on certain services Accommodation services supplied by Air Force Mess to its personnel

• It is clarif ied that accommodation services supplied by Air Force Mess and other similar messes, to its personnel or any person other than a business entity, are exempt provided the services supplied by such messes qualify as services supplied by the Central Government, State Government, Union Territory or local authority⁵.

Incentive paid by MeitY to acquiring banks for use of RuPay debit cards or low-value BHIM-UPI transactions

• It is clarif ied that incentives paid by the Ministry of Electronics and Inf ormation Technology (MeitY) to acquiring banks under the incentive scheme for the promotion of RuPay debit cards and low-value BHIM- UPI transactions are in the nature of subsidy and thus not taxable under GST. In this regard, it has been explained that for a transaction done using RuPay debit cards or low-value BHIM-UPI transactions, the consideration is being paid to the acquiring bank by MeitY, a government agency, instead of being paid by the merchant or the user of the card. However, by virtue of the said payment by MeitY, it does not become a consideration for services supplied by the acquiring bank to the Central Government, and the said

consideration is in the nature of subsidy directly linked to the price of the service. It does not form part of the taxable value of the transaction in view of sections 2(31) and 15 of the Central Goods and Services Tax Act, 2017.

The takeaways

The CBIC has issued these circulars in furtherance of the recommendations made during the GST Council's 48^th Meeting. Evidently, the clarifications are aimed at bringing certainty and reducing potential litigation. The clarif ications pertaining to GST rates on the by-products of pulses, SUVs and goods imported for specified operations in the oil and gas space are particularly welcome (would certainly mitigate the risk of potential litigation). The clarification pertaining to the payment of incentive by MeitY to acquiring banks was also much required and explains an important differentiating aspect on subsidy vis-à-vis consideration for a supply. A few clarif ications with respect to GST rates on rab, fruit-based carbonated beverages, fryums, etc. may, however, have an adverse impact on the currently pending audit and litigation matters and may continue to be the bone of contention between the Revenue and the industry.

5 Basis coverage under entry in Sl. No. 6 of Notification No. 12/2017-Central Tax (Rate) dated 28 June 2017

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