Some Relevant FAQ’s for Banking Industries PART-1

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Some Relevant FAQ’s for Banking Industries PART-1:

Recently CBIC has released the FAQ on banking sector, compilation is as follows:

 Q-1 whether Banks are required to capture the details of ATMs in registration certificate as a ‘place of business’?

Ans: No. Banks are not required to provide the details of ATMs while applying for registration. For the purposes of registration, ATM on its own does not constitute a place of business, as defined in the CGST Act, 2017.

Q-2 As per RBI guidelines, Banks can use third party ATMs, Business Correspondents (BC), Customer Service Points (CSP) or third party warehouses. Are Banks required to include these third party places also in their GST registration?

Ans: No. Third party places are neither places of business nor fixed establishments from where Banks ordinarily carry on their business. These are independent service providers to the Bank which are subject to GST. Thus, these places are not required to be declared as place of business by the Bank.

Q-3 what will be the time of supply in respect of services rendered upto 30th June, 2017 where the invoices are raised or payments are received after 30th June, 2017?

Ans: Where the services are rendered upto 30th June, 2017 and invoices in respect thereof are also raised on or before 30th June, 2017, the point of taxation would be as per the earlier service tax law and the services will be subject to service tax.

Where the services are rendered upto 30th June, 2017 and the services are liable to be taxed under the reverse charge mechanism, the point of tax for such services as per the Point of Taxation Rules, 2011 shall be the date of payment. If the payment is made on or after 1st July, 2017, the supply of services shall be liable to GST.

Q-4 which tax is to be applied by the service provider on invoice issued on or after 1st July 2017 for services rendered up to 30th June 2017?

Ans: The time of supply being issuance of invoice under the CGST Act, 2017, the supplier of services must charge GST in this case. However, where the payment for such supplies has been made (prior to issuance of invoice) as advance before the 1st of July, 2017, the tax would be payable under the law prevalent prior to 1st July, 2017, as the point of taxation had arisen before this date to the extent of advance.

Q-5 Is it necessary for Banks / insurers to report the details of exempt and non-GST supplies in Table 8 of GSTR-1?

Ans: Yes. In the absence of any specific exemption to the Banks / insurers, the information is required to be provided in the said table.

Q-6 Is it necessary for Banks / insurers to report the details of invoices in Table 13 of GSTR-1?

Ans: Rule 54(2) of the CGST Rules, 2017 provides that in case of an insurer or a banking company or a financial institution, including a non-banking financial company, the tax invoice or any other document in lieu thereof, may not be serially numbered. But this does not mean that such document will not have any identification number which is required for the purpose of matching. The said entities are, therefore, required to provide the details in column 5 to 7 (but not in column 3 & 4) of the table 13 of FORM GSTR-1.

Q-7 It is envisaged that many customers may not provide the GSTIN to the Banks in time. In such cases the Banks / insurers would report the supply as B-to-C transactions in the returns filed by it. Later, in case the customer reverts with the GSTIN, how should this amendment be reflected?

Ans: A transaction once reported as B2C cannot be amended later to add GSTIN and convert the transaction as B2B.

Q-8 How should the turnover during the period from July 2017 to March 2018 be determined for the purposes of distribution of ISD credit?

Ans: As per the Explanation to Section 20 of the CGST Act, 2017, the relevant period on the basis of which the ratio of aggregate turnover for distribution of ISD credit will be determined has been defined to mean the last quarter, preceding the period for which credit is to be distributed, during which turnover for all recipients is available in cases where the turnover in States/Union Territories for the previous financial year is not available. Therefore, in such cases, for the quarters after July 2017 to September 2017, the State/UT-wise turnover for the purposes of ISD can be determined based on the turnovers for the quarter of July 2017 to September 2017. For the months of July, August and September, 2017, the turnover for the month of July, 2017 may be considered for the purposes of distribution of credit.

Q-9 Is the condition to make payment for the value of supply plus the GST thereon required to be complied with by the recipient to claim the input tax credit where supplies for services are made between distinct persons?

Ans: No, this condition is not required to be complied with by the recipient. As per the proviso to sub rule (1) of Rule 37 of the CGST Rules, 2017 the value of supplies made without consideration as specified in paragraph 2 of Schedule I of the CGST Act, 2017 shall be deemed to have been paid for the purposes of  the second proviso to sub-section (2) of Section 16 of the CGST Act, 2017.

Q-10 A customer may avail numerous services from the Bank / insurer in a given taxable period. Is it mandatory for Banks to issue a tax invoice for each transaction or can the Bank issue a consolidated invoice for the service rendered during the tax period?

Ans: As per the provisions contained in the first proviso to Rule 47 of the CGST Rules, 2017 an insurer, a banking company or a financial institution, including a NBFC may issue invoices within 45 days from the date of supply of service. Further, sub-rule (2) of rule 54 of CGST Rules, 2017 provides that such entities may issue any other document in lieu of the tax invoice. Accordingly, such entities may issue a consolidated statement/ invoice/ advice to the customer at the end of the month, with the details of all the charges levied during such month and GST payable thereon.

Q-11 when a banking company is not required to serially number its invoices / document for supply of its services, how will the service recipient get credit for GST on the services provided by the bank?

Ans: Under Rule 54(2) of the CGST Rules, 2017 a banking company or a financial institution including a NBFC or an insurer can issue an invoice or any other document in lieu thereof whether or not serially numbered and whether or not containing the address of the recipient but containing other information as mentioned under Rule 46. There is no restriction on the invoice/document being a consolidated invoice/document but it must bear an identification number, which need not necessarily be serially numbered. The recipient of service will get the credit for GST so long as the bank, etc. uploads the details  of the invoice / document under that number with GSTIN of the recipient in its statement if FORM GSTR-1.

Q-12 Is the registered person procuring goods or services from a supplier outside India required to raise a self-invoice, debit note or credit note in respect of the price or value of services  and adjustments thereto? When should the details of such transactions be reported in the GSTR returns?

Ans: As per clause (f) of sub-section (3) of Section 31 of the CGST Act, 2017 read with section 20 of the IGST Act, 2017 a registered person liable to pay tax under sub- section (3) or sub-section (4) of Section 9 of the CGST Act, 2017 (or sub-section (3) or (4) of section 5 of the IGST Act, 2017) shall issue an invoice in respect of goods or services or both received by him from the supplier who is not registered on the date of receipt of goods or services or both. Therefore, in case of goods or services, the registered person procuring goods or services from an unregistered person located in India or services from a person located outside India is required to raise a self-invoice on the date of receipt of such supplies.

Banks / insurers may raise a self-invoice, debit note or credit note for each such supply. This invoice, debit note or credit note for each such supply should be reported in the GST return of the month in which the supply takes place as per the provisions of section 12(3) or 13(3) of the CGST Act, 2017. As the import of goods would be under the cover of a bill of entry, there is no need to raise a self-invoice.

It may, however, be noted that section 9(4) of the CGST Act, 2017 / section 5(4) of the IGST Act, 2017 has been suspended vide notification No. 38/2017-Central Tax, as amended from time to time.

Q-13 For supply of taxable services, can a digitally signed invoice be issued in duplicate, with the original being marked as “Original” and the duplicate copy being marked as “Duplicate”?

Ans: In the context of digitally signed documents, the requirement of issuing original and duplicate invoices does not arise. A digitally signed invoice can be retained by the supplier and also be made available to the recipient.

Q-14 Is there a requirement to issue a ‘payment voucher’ at the time of making payment to the foreign supplier? When should the  details of such transactions be reported in the GSTR returns?

Ans: Section 31(3)(g) of the CGST Act, 2017 mandates issuance of a payment voucher in such cases and the same is therefore required to be issued at the time of making payment to the foreign supplier of services. It would be reflected in the GSTR return of the tax period in which the supply takes place as per the provisions of section 13(3) of the CGST Act, 2017.

Q-15 Banks deploy various equipment such as Point of Sale machines or ATMs at various locations. At times, the equipment is required to be moved between locations for the purpose of repairs, encryption, etc. Will such movement constitute a supply for the purpose of the GST law?

Ans: Procedure prescribed under Section 143 of the CGST Act, 2017 and Rule 55 of the CGST Rules, 2017 may be followed in such cases. Movement of equipment for the purpose of repairs, etc. does not constitute a supply. The equipment may be moved by the Banks to the location of the third party service providers and after repairs, the equipment may be moved to a central / regional location for the purpose of programming, encryption, reconfiguration, etc. and thereafter to that place of business from where the equipment had been sent earlier. The equipment can be moved between such locations on the basis of a ‘delivery challan’.

Q-16 Is a “Bill of Supply” to be issued by a bank for exempt services like interest on loans and advances, inter-se sale or purchase of foreign currency amongst banks?

Ans: As per clause (c) of sub-section (3) of section 31 of the CGST Act, 2017 read with Rule 49 of the CGST Rules, 2017, there is a requirement for issuance of bill of supply for supply of exempt services by Banks. It may be noted, however, that there is no need to issue a separate bill of supply in case any invoice or document has already been issued in accordance with the provisions of any other law. Further, in view of the provisions contained in sub-rule (5) of rule 54 of the CGST Rules, 2017, banks may issue any other document in lieu of bill of supply.

Q-17 would Input Tax Credit (ITC) be available to a GST registrant though the services procured from third party vendor are also directly used by various ‘distinct persons’?

In such cases, is distribution of ITC required to be done mandatorily through Input      Service Distributor mechanism?

 Ans: Yes. Input Tax Credit (ITC) can be availed by a GST registrant in respect of the services procured in a consolidated manner from third party vendor which are directly used in the course or furtherance of business in more than one State, e.g. statutory audit fees, advertisement and marketing expenses, consultancy fees etc. The same needs to be appropriately invoiced or distributed through the ISD mechanism to the “distinct persons” who have actually used such services.

Q-18 Where a Bank takes a separate registration for a separate business vertical, say for Bullion business, whether the requirement for reversal of 50 percent will also apply to bullion purchased by the Bank?

Ans: In terms of Section 2(94) read with Section 25(4)&(5) of the CGST Act, 2017, a person required to obtain more than one registration within a State or more than one State shall be treated as a distinct person for each such registration. Section 17(4) of the CGST Act, 2017 is applicable qua each registration and not for the Bank as a whole, provided each of the business verticals is separately registered. Therefore, a bank engaged in trading in bullion may not opt for 50 percent reversal in respect of its purchases of bullion, where it is separately registered as a business vertical.

Q-19 where there is a supply of goods or services between registered branches of a banking company on which GST is paid, will the recipient branch/office be eligible for 100% credit of the GST charged on such supply where the bank elects the 50% option to avail input tax credit on inputs, capital goods and input services?

Ans: Yes, the recipient branch / office will be eligible for 100% credit. The second proviso to section 17(4) of the CGST Act, 2017, expressly provides that the restriction of 50% shall not apply to the tax paid on supplies made by one registered person to another registered person having the same Permanent Account Number.

Q-20 whether for the services received from a related person / distinct person outside India, the recipient of services would be eligible for full input tax credit?

Ans: In terms of the second proviso to section 17(4) of the CGST Act, 2017, the restriction of reversal of 50% credit would not apply to the tax paid on supplies made by one registered person to another registered person having the same PAN. The non-applicability of 50% reversal is only to the extent of inter-branch services between registered branches having the same PAN in India.

Thus, tax paid on services received from a related person / distinct person located outside India would be liable to 50% reversal.

Q-21 whether the provision of section 18(6) for reversal of input tax credit availed on capital goods be applicable to banks only to the extent of the input tax credit availed?

Ans: Yes. The provisions of section 18(6) of the CGST Act, 2017 for reversal of input tax credit availed on capital goods would be applicable to banks only to the extent of the input tax credit availed by it. In case the Bank opts to avail input tax credit to the extent of 50% in terms of the second proviso to Section 17(4) of the CGST Act, 2017, reversal of credit would be in proportion to the actual credit availed by the Bank i.e. only with reference to 50% of the input tax credit availed by it on capital goods.

Q-22 Can a Bank / insurer defer the availment of input tax credit for a month or quarter and avail of the same in subsequent months?

Ans: Yes. As per section 16(4) of the CGST Act, 2017, availment of input tax credit can be deferred and availed upto the due date of furnishing of return for the month of September following the end of financial year to which relevant invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier.

Q-23 which address should be considered for determining the ‘place of supply’ in the case of banking / insurance services?

Ans: As per Section 12(12) of the IGST Act, 2017, the place of supply of banking and other financial services, including stock broking services to any person shall be the location of the recipient of services on the records of the supplier of services. Address available on the records of the Bank or Financial Institution or stock broker, which is ordinarily used for communication with the customer, may be considered as the ‘Place of Supply’.

As per Section 12(13) of the IGST Act, 2017 the place of supply of insurance services shall be the location of registered person if services are provided to a registered person and the location of the recipient of services on the records of the supplier of services if services are provided to an unregistered person. Address available on records of the insurance company, which is ordinarily used for communication with the customer, may be considered as the ‘Place of Supply’.

Q-24 With respect to registered customers, whether the Bank / insurance company is required to ascertain the place of consumption of service or whether the Bank can rely upon the GSTIN provided by the Customer?

Ans: The Bank / insurance company can rely upon the GSTIN provided by the customer.

Q-25 would intermediary services provided to an offshore client and services provided by a banking company to its offshore account holders be treated as an intra-State supply or an inter-State supply for payment of GST?

Ans: Under clause (b) of section 13(8) of the IGST Act, 2017 the place of supply of such services is the location of the provider of services. As the location of supplier and place of supply are in same State, such supplies will be treated as intra-State supply and Central tax and State tax or Union territory tax, as the case may be, will be payable.

Q-26 who is the ‘supplier’ of service of purchase or sale of foreign currency?

Ans: The ‘supplier’ of service of purchase or sale of foreign currency is the Authorised Dealer or authorized moneychangers who are getting the commission. For example, in case of a purchase or sale of foreign currency between a Bank and a Corporate, the bank is the ‘supplier’ of the service.

Q-27 would services provided by banks to RBI be also taxable?

Ans : 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-28  Whether    a     Bank/                 insurer is required   to    charge GST on the taxable services provided to United Nations or a specified international organization or, services provided for official     use of a foreign diplomatic mission or consular post in India or for personal use or for the use of the family members of diplomatic agents or career consular officers posted therein?

Ans: Yes, the bank / insurer is required to charge GST in such cases. However, as per section 55 of the CGST Act, 2017, subject to such conditions and restrictions as may be prescribed, such service recipients would be entitled to claim a refund of taxes paid on the notified supplies of services received by them.

 Q-29 who is liable to comply with GST on charges levied by Overseas Correspondent Banks facilitating trade and other cross border transactions?

Ans: In this case, there are two supplies namely, from bank in India to the importer/exporter and one from the overseas correspondent banks to the bank in India. So the liability to discharge GST on such supplies will be required to be determined accordingly.

Q-30 Will the second proviso to Rule 28 apply in the case of a banking company that selects the 50% option to avail input tax credit set out in section 17(4) of the CGST Act, 2017?

Ans: The second proviso to Rule 28 of the CGST Rules, 2017 states that where the recipient is eligible for full input tax credit, the value as declared in the Invoice shall be deemed  to  be  the  Open  Market  Value  of  the  goods  or  services.  In view of the second proviso to section 17(4) of CGST Act, 2017, Banks claiming input tax credit under the 50% option will be covered under the scope of the second proviso to Rule 28 relating to valuation, where services are provided between the branches of the bank.

Q-31Are services supplied without consideration to a recipient other than ‘related party’ / ‘distinct person’ taxable?

Ans: 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’?

Ans: 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-33 In the case of Banks which are not availing the reversal of ITC at 50%, how should inter-branch services be valued where open market value of services of like kind and quality is not available?

Ans: In such cases, banks can adopt any reasonable basis consistent with Rule 30 and 31 of the CGST Rules, 2017.

Q-34 whether a ‘derivative’ is included within the meaning of ‘securities’ in Section 2(101) of CGST Act, 2017 and whether derivatives are liable to GST?

Ans: Section 2(101) of the CGST Act, 2017 provides that ‘securities’ shall have the same meaning as assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (SCRA). ‘Derivatives’ are included in the definition of ‘securities’ under section 2(h)(ia) of the SCRA. In terms of section 2(ac) of SCRA, “derivative” includes—

(A)   a security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security;

(B)   a contract which derives its value from the prices, or index of prices, of underlying securities. The definition of ‘derivatives’ in SCRA is an inclusive definition. As ‘derivatives’ fall  in  the  definition  of  securities,   they   are   not   liable   to   GST. However, 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 provision of service and chargeable to GST.

Q-35 what is the nature of income / expenditure on Collateralized Borrowing and Lending Obligations (CBLO) transactions?

Ans: In CBLO transaction, the borrowing bank pays an amount as consideration to the lending bank for funds provided by it for a short term. Such amount would qualify as ‘consideration represented by way of interest or discount’ and hence, would not be subject to GST [serial no. 27 of the table of notification No. 12/2017-Central Tax (Rate) dated 28th June, 2017, as amended]. However, if any charges or fees are levied for such transactions. The same would be a consideration and would be chargeable to GST.


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