ATM on its own does not constitute a place of business under GST Act; ITC of Krishi Kalyan Cess cannot be carried forward - CBIC issues much-awaited FAQ
Published: Jun 04, 2018
By TIOL News Service
NEW DELHI, JUNE 04, 2018: IT was reported by the pink papers some time back that the Directorate General of Goods and Services Tax Intelligence had sent notices to many banks to pay taxes on "free" or bundled services provided to account-holders abiding by the minimum balance norms of respective banks.
The total demand of Tax raised could exceed Rs 6,000 crore and would certainly eat up into the profits, if any, made by the banks, one daily quipped.
Interestingly, the demands extended their reach for the years 2012-13 onwards (during the service tax regime) till the present day.
Thankfully, perhaps, before the adjudication process resulted into confirmed demands, the CBIC was quick to come out with a 32 pages, 91 point FAQ clarifying in detail the various interpretational issues faced under the new GST regime by the Banking, Insurance and Stock Brokers sector.
Kindly follow this link .
Incidentally, this FAQ does not contain any disclaimer which usually accompanies such publications.
Nonetheless, it is safe to presume that the disclaimer could be-
The information in this booklet is intended only to provide a general overview and is not intended to be treated as legal advice or opinion. For greater details, you are requested to refer to the respective CGST/SGST/UTGST/IGST Acts.
Be that as it may, the efforts of the CBIC in coming out with this much-awaited clarification in the form of FAQ (91 in all) will certainly get a thumbs up from the trade concerned.
Some of the pertinent FAQ and their answers are –
Banking Sector
Q.27. Would services provided by banks to RBI be also taxable?
Answer. Yes. Services provided by banks to RBI would be taxable as these are not covered by any of the exemptions or excluded from the purview of GST under the CGST Act, 2017 or under the IGST Act, 2017.
Q.31. Are services supplied without consideration to a recipient other than 'related party' / 'distinct person' taxable?
Answer. Section 7 of the CGST Act, 2017 read with Schedule I thereto provides that services supplied without consideration to related persons or distinct persons only would qualify as 'supply'. Also import of services by bank from a related person or from any of its establishments outside India in the course or furtherance of business will be supply even if imported without consideration. Therefore, where the services are supplied by a supplier without consideration to an unrelated recipient or a person other than a related or distinct person, the same would not amount to supply and not liable to GST.
Q.32 Can value of services be enhanced by invoking the CGST Rules in case of services provided by banks at a concessional / differential rate to a recipient other than 'related party' / 'distinct person'?
Answer. Banks provide various services to customers for a charge. However, at times, account holders / customers are provided services free or at a concessional / differential rate. The free or concessional / differential rate is offered considering factors such as credit rating and stability of the customer, size of relationship, expected future business or the opportunity presented in the market elsewhere etc. As a result, the charges for the same service may differ from customer to customer.
Such services provided to persons who are not related persons will be taxable on the transaction value, that is, the value of the services charged or recovered from the customers or account holders as per section 15 of the CGST Act, 2017. Thus, in case of services provided at a concessional / differential rate to a recipient other than 'related party' / 'distinct person', there is no requirement for enhancing the value of services by invoking the CGST Rules, 2017.
Q.36 Would 'future contracts' be chargeable to GST?
Answer. Future contracts are in the nature of financial derivatives, the price of which is dependent on the value of underlying stocks or index of stocks or certain approved currencies and the settlement happens normally by way of net settlement with no actual delivery.
Since future contracts are in the nature of derivatives these qualify as 'securities' as defined in Section 2(101) of the CGST Act, 2017. As securities are neither 'goods' nor 'services' as defined in the CGST Act, 2017, future contracts are not chargeable to GST. But where the future contracts have a delivery option and the settlement of contract takes place by way of actual delivery of underlying commodity/currency, then such forward contracts would be treated as normal supply of goods and liable to GST.
Further, if some service charges or service fees or documentation fees or broking charges or such like fees or charges are charged, the same would be a consideration for supply of service and chargeable to GST.
Q.42 If any service charges or administrative charges or entry charges are recovered in addition to interest on a loan, advance or a deposit, would such charges be also a part of the exemption?
Answer. No. The services of loans, advances or deposits are exempt in so far as the consideration is represented by way of interest or discount. Any charges or amounts collected over and above the interest or discount would represent taxable consideration and hence liable to GST.
Q.45 Is GST required to be paid on additional interest charged in case of default in instalment payment by the customer?
Answer. As per Section 15(2) of CGST Act, 2017, the value of supply includes, inter alia, interest for delayed payment of any consideration for any supply. Additional Interest charged for default in payment of instalment in respect of any supply, which is subject to GST, will be includible in the value of such supply and therefore would be liable to GST.
Q.46 Would charges for late payment of dues on credit card outstanding be chargeable to GST?
Answer. Yes. The exemption from levy of GST on interest specifically excludes interest charged on outstanding credit card balances as per serial no. 27 of the table of notification No. 12/2017-Central Tax (Rate) dated 28th June, 2017, as amended.
Q.49 Would imposition of a fine or penalty for violation of a provision of law be a consideration for the activity of breaking the law, making such activity as service?
Answer. No. Fines and penalties are imposed for breaking the law by a person. They are not in the nature of a consideration for an activity and hence, would not constitute a supply of service.
Q.53 What is the manner of dealing with various services provided by banks and other financial institutions?
Answer. Banks and financial institutions provide a bouquet of financial services relating to lending or borrowing of money or investments in money and other related services. For such services invariably a variety of instruments are used in the financial markets. Transactions in such instruments have to be examined on the touchstone of definition of 'supply' given in Section 7(1) of the CGST Act, 2017 to see whether such transactions would be chargeable to GST. Broadly, the following legal provisions would have a bearing on determining the taxability of such transactions.
The definition of 'goods' and 'services' in Section 2(52) and Section 2(102) of the CGST Act, 2017 specifically excludes money and securities respectively. 'Money' has been defined in Section 2(75) of the CGST Act, 2017 to include instruments like cheques , drafts, pay orders, promissory notes, letters of credit, etc.
Therefore, activities that are only transactions in such instruments would be outside the definition of service...
Q.62 Will GST be charged in transactions, where loan of one bank is taken over by another bank?
Answer. GST will be chargeable on any transaction processing fees levied for such takeover of loans, but not on the interest component (as interest is exempted).
Q.63 Whether GST will be levied on sale of re-possessed asset?
Answer. Sale of repossessed asset falls within the scope of supply and will be chargeable to GST.
Insurance Services
Q.72 Can the input tax credit of KrishiKalyan Cess be carried forward?
Answer. No. It is not permitted in terms of section 140(1) of the CGST Act, 2017 read with Rule 117(1) of the CGST Rules, 2017.
Q.75 Whether ITC will be allowed on motor garage services used by insurance company for claim settlement?
Answer. Yes, ITC will be allowed on services of motor garage used by an insurance company for claim settlement.
Stock Broking Services
Q.91 Whether GST will be levied on the exit-load on mutual funds?
Answer. Exit load in the form of a fee (whether or not as a fixed percentage of the investment) is liable to GST. Even if the exit load is in the form of units in the fund, it may be concluded that the consideration received in money was later converted to NAV units.
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