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Summary of Circulars related to Guarantee, Place of Supply, Export issued on 27 October 2023

CBIC has issued three Circulars i.e. 202/14/2023, 203/15/2023 & 2014/16/2013. In this article, we will present the summary of all these circulars for ready reference.



a. GST on Personal Guarantee by the Directors

  • It is a Service in terms of Schedule-I even if it is without Consideration.

  • However, Open Market Value will be considered as Zero in terms of RBI Guidelines in this regard. Accordingly, it will not be taxable.

  • However, it has been clarified that in case of exceptional circumstances, in case, consideration is paid directly or indirectly, GST will be payable on such consideration.

Note: In our Opinion, Field Offices may still raise demands on this issue as it will be very hard to prove on paper that Directors are not paid any consideration for this directly or indirectly.


b. GST on Corporate Guarantee

  • It is a Service in terms of Schedule-I even if it is without Consideration.

  • New Valuation Rule for Corporate Guarantee has been notified by amending Rule 28 (vide N. No. 52/2023 dated 26.10.2023) where it has been notified that Value for Corporate Guarantee will be considered as 1% of Guarantee amount or actual consideration whichever is higher. (whether Full ITC is eligible or not)


Note: In our Opinion, there is major Lapse in this valuation Rule as it has mentioned that Value will be 1% of Guarantee Amount.


However, it has failed to clarify that whether it will be one time (1%) or on annual basis (1% p.a.).


Generally, Commission for Corporate Guarantee is being paid on annual basis (like 0.5% p.a.) as this is continuous service. In that case, how Rule will be implemented.

We think, this Rule will be amended for proper implementation.



This circular is related to Place of Supply (PoS)


a. Related to Transportation of Goods (where either of Service Provider or Service Recipient is outside India):


It has been clarified that determination of PoS will be governed by Section 13(2)(i.e. General Provisions i.e. PoS will be location of recipient of Service where it is available. In case it is not available, Location of Service Provider will be considered as PoS).


b. Related to Advertisement Service related to Hoardings, Bill boards erected and mounted on buildings/land


In Case Advertisement Companies purchases/taken on Rent the Hoarding Space from Vendors for advertisement, in that case, nature of service will be considered as service of Immovable Property, accordingly, PoS will be place of Immovable Property.


Note: It is very important to determine PoS because in case Advertisement Company is not registered in the State (where such service is availed; it will not be eligible for availing ITC on such service as vendor will raise Invoice of CGST & SGST.


For Example, if Company is registered in Delhi but Service is availed in Mumbai, it can only avail ITC if invoice is raised by Vendor of IGST)


In case, Advertisement Company purchase advertisement services from Vendor and Vendor is responsible for purchasing hoarding space, in that PoS will be location of Advertisement Company. Accordingly, it will be eligible for ITC on such services.


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


It is related to service where Co-location is a data center facility in which a business/company can rent space for its own servers and other computing hardware along with various other bundled services related to Hosting and information technology (IT) infrastructure is availed.

In this regards, it has been clarified that this service is not rental of immovable property but Hosting and information technology (IT) infrastructure provisioning services. Accordingly, PoS will be location of Service Recipient.


However, in case service agreement is restricted to Rental of Immovable Property, then in that case, PoS will be location of such data Centre.



If Exporter of Service received consideration in Special Vostro Account in INR, it will be considered that Exporter has satisfied the condition of Export of Service related to (Section 2(6)(iv)) i.e.


"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"


*****



Disclaimer: We have taken due care to the best of our knowledge while explaining the provisions of Circulars purely for informational/academic purpose. It should not be considered as professional advice or consultancy to be relied upon. While due care has been taken by Fab Gyan in preparing this article, certain mistakes and omissions may creep in. The Fab Gyan or its Author does not accept any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.



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