The document summarizes several hot button topics under the Goods and Services Tax (GST) in India, including: 1) Export and import of services, and difficulties with claiming refunds of input tax credits against foreign inward remittances realized. 2) Supply of services to Special Economic Zones, and issues with determining place of supply and obtaining required endorsements on receipts. 3) Transactions with employees, between distinct and related parties, and claiming input tax credits on employee-related expenses. 4) Reversal of wrongly availed transitional input tax credits under GST.

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HOT BUTTON TOPICS UNDER GST

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Index
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01 Export and import of services
02
Domestic supply of services
• Export of services where consideration is not received or is received in Indian currency
• Transaction between Indian Company and its overseas branch
• Difficulties in filing of refund claim of ITC against FIRC realised
Supply to SEZ unit/developer
• Place of supply in case of SEZ
• Requirement of endorsement on the receipts by an SEZ
• Difficulties in showing supply to SEZ which is not meant for the authorized operations in
GSTR-1
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• Transactions with employees
• Transaction between distinct & related parties
• Input tax credit on expenses incurred for employees
• Reversal of wrongly availed Transitional credit
• Reimbursement of expenses incurred for supply
• Input Service Distributor registration

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01
Export of services where consideration is not received
or is received in Indian currency
To qualify as export of services following conditions are required to be met:
• the supplier of service is located in India;
• the recipient of services is located outside India;
• the place of supply is outside India;
• the payment for such services has been received by the supplier of service in
convertible foreign exchange;
• the supplier of service and the recipient of service are not merely
establishments of a distinct person
Where condition mentioned are not fulfilled then it is not export of service and
accordingly not a zero rated supply. In such case even if the place of supply is
outside India still such transactions will be liable to IGST in the hands of supplier of
service in terms of Section 13 read with Section 7 and Section 5 of IGST Act

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Transaction between Indian Company
and its overseas branch
In terms of explanation provided under Section 8 of IGST Act, 2017, an
establishment in India & any other establishment outside India shall be treated as
establishment of distinct person. Accordingly, branch & subsidiaries will be treated
as distinct persons
• Any cash remittance other than loan & advance to branch may get treated
as import of services
• Netting off of the transactions may get questioned
• Allocation of expenses by parent company to subsidiary/branch or visa a versa

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01
Difficulties in filing of refund claim of ITC against FIRC
realised
• Wrongly showing export under domestic supply while filing GSTR-3B
• FIRC realised after post GST against invoice issued in pre GST period
• Multiple FIRCs received against one invoice
• GST authorities are non following standard procedures in sanctioning refunds
• Delay in receiving respective refund of CGST or SGST from the respective
authorities after same is sanctioned by the jurisdictional authorities of the
assessee

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02 Place of supply in case of SEZ supply
• In terms of Section 7 (5)(b) of IGST Act, 2017, supply of goods or services or both
to or by an SEZ unit or developer will be treated as inter State supply.
Accordingly IGST would be chargeable
• Where SEZ unit/developer’s registration status is updated as SEZ then GSTN will
automatically determine nature of supply as inter-State supply and option to
pay under LUT or on payment of IGST is available in the GSTR-1 Return
• As per Karnataka Advance Ruling Authorities nature of supply of hotel
accommodation and restaurant services provided to SEZ within the premises of
the hotel, to the employees and guests of SEZ units will be treated as intra State
supply and CGST & SGST would be chargeable

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02 Requirement of endorsement on the receipts by an SEZ
• As per the proviso to Rule 89 of CGST Rules, 2017, every supplier is required to
get his supply endorsed by the specified officer so as to substantiate that such
supply is meant for authorized operations
• Many SEZ unit/developers officer are not endorsing the invoices
• Where SEZ unit/developers registration status is not updated as SEZ then GSTN
will not allow the supplier to show their supply as supply to SEZ in GSTR-1 Return
which will result into such transaction not getting considered as zero rated
supply

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Difficulties in showing supply to SEZ which is not meant
for the authorized operations in GSTR-1
• Any supply to SEZ for other than supply authorised operation will be taxable as
normal supply
• GSTR-1 does not allow to show such supplies separately between meant for
authorised and those meant other than for authorised operations
• Therefore, any supply to SEZ which is not meant for authorised operation also
will be treated as zero rated supply

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03 Transactions with employees
• In terms of Schedule I of CGST Act, 2017, any supply without a consideration
between employer and employee will be treated as supply
• Till 13 oct 2017, reverse charge mechanism was there and accordingly ambiguity
for following transactions is still there
 Reimbursement of expenses
 Payment to employees for services other than employment (e.g. referral bonus
etc)
• Recovery from employees
 Facilities (Canteen services, bus services, corporate insurance etc)
 Penalty or charges (Notice pay recovery, penalty for damages or breach etc )

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03 Transaction between distinct & related parties
Separate registration obtained for location having same PAN will be treated as
distinct person. Further, any transaction between distinct or related parties will be
treated as supply under GST. In this regard taxability of following transaction
needs to be considered from GST perspective
• Valuation
• Documentation
For example procurement of goods at common location and transferring it to
respective locations, Cross charge of expenses etc

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03 Input tax credit on expenses incurred for employees
Under GST law ITC on input and input services used for personal consumption is not
allowed. Therefore expenses incurred for employees whether it will be treated as
used for personal consumption or used for business purposes
• Household items;
• Employee gatherings;
• Uniforms & safety shoes; etc

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03 Reversal of wrongly availed Transitional credit
No functionality for reversal of wrongly availed transitional credit only in CGST or
SGST account
• GSTN will auto-populate same figure in corresponding tax column e.g. transitional credit of
Rs.2,0,9116 was wrongly availed in CGST credit ledger. Now while reversing the said wrongly
availed credit in CGST column GSTN will auto-populate same amount in SGST column also
• Further, reversal is allowed only upto the credit availed during the month and not the whole
amount which was wrongly availed and which is forming part of opening balance

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03 Reimbursement of expenses incurred for supply
• In terms of Section 15(2)(c) of the CGST Act, 2017 any incidental expenses made by
the supplier shall also form part of the transaction value unless the said expenses
are incurred in the capacity of pure agent
• The term ‘Pure agent’ is defined under Rule 33 of the CGST Rules, 2017
(a) enters into a contractual agreement with the recipient of supply to act as his
pure agent to incur expenditure or costs in the course of supply of goods or
services or both;
(b) neither intends to hold nor holds any title to the goods or services or both so
procured or supplied as pure agent of the recipient of supply;
(c) does not use for his own interest such goods or services so procured; and
(d) receives only the actual amount incurred to procure such goods or services in
addition to the amount received for supply he provides on his own account.

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03 Input Service Distributor (ISD)
• In case of procurement of common services separate ISD registration is
compulsory to distribute credit on such common services to respective distinct
persons
• Option of cross charge instead of ISD registration may be questioned due to
input tax credit provisions e.g. recipient should receive service etc
• ISD cannot pay GST under reverse charge mechanism, in that case tax to be
paid under normal GST registration at such location and such location to raise
an invoice on ISD for further distribution of the said credit received on payment
of tax under reverse charge mechanism

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Thank You !
Optitax’s
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Raveendra Pethe
Senior Advisor
Mobile : +91 9823 010 562
Email : ravi@optitaxsconsulting.com
Nilesh Mahajan
Consultant
Mobile : +91 8087040710
Email : nilesh@optitaxsconsulting.com