
Clarification on Input Tax Credit (ITC) for Electronic Commerce Operators (ECO)
On December 31, 2024, the Central Board of Indirect Taxes and Customs (CBIC) issued Circular No. 240/34/2024-GST to address issues regarding the reversal of Input Tax Credit (ITC) by Electronic Commerce Operators (ECOs) under Section 9(5) of the Central Goods and Services Tax (CGST) Act, 2017. This clarification ensures uniformity in the implementation of GST provisions across field formations and resolves ambiguities related to ITC for specified services supplied through ECO platforms.
Background
Under Section 9(5) of the CGST Act, specific services, including restaurant services, are notified where the ECO is deemed liable to pay GST as if they are the supplier. Circular No. 167/23/2021-GST dated December 17, 2021, clarified that ECOs are not required to reverse ITC for restaurant services but must pay the entire tax liability in cash. Representations were later received regarding ITC reversal requirements for other notified services under Section 9(5).
Key Clarifications
S. No. | Issue | Clarification |
---|---|---|
1 | Whether ECOs liable to pay tax under Section 9(5) must reverse proportionate ITC on inputs and input services. | ECOs are not required to reverse ITC proportionately for supplies made under Section 9(5). |
2 | Tax payment mechanism for ECOs. | ECOs must pay the entire tax liability under Section 9(5) through the electronic cash ledger. |
3 | Utilization of ITC for tax liabilities. | ITC cannot be utilized to discharge tax liabilities under Section 9(5); however, it can be used for other tax liabilities of the ECO. |
Detailed Explanation
- Supplies by ECOs: ECOs make supplies under two categories:
- Specified Services Under Section 9(5): ECOs are liable to pay GST as if they are the supplier of these services.
- Own Services: ECOs supply their own services, such as platform fees or commissions, and avail ITC on inputs and input services used for such supplies.
- Principle from Circular No. 167/23/2021-GST:
- ITC reversal is not required for restaurant services under Section 9(5), and this principle extends to other notified services.
- Tax liability for Section 9(5) supplies must be paid entirely in cash, and ITC cannot be used to offset this liability.
- Prohibition on ITC Utilization for Section 9(5) Tax Liability:
- ITC availed by ECOs for inputs and input services related to facilitating supplies under Section 9(5) cannot be utilized for discharging tax liability for these supplies.
- ITC can only be used for tax liabilities arising from the ECO’s own supplies.
Illustrative Examples
Scenario 1: Restaurant Services (Notified Under Section 9(5))
Particulars | Details |
Input Services Availed | Platform maintenance, advertising |
ITC Reversal Requirement | Not required |
Tax Liability Payment Mechanism | Entirely through electronic cash ledger |
Scenario 2: Cab Aggregation Services (Notified Under Section 9(5))
Particulars | Details |
Input Services Availed | Marketing, customer support |
ITC Reversal Requirement | Not required |
Tax Liability Payment Mechanism | Entirely through electronic cash ledger |
Scenario 3: Platform Fee (ECO’s Own Services)
Particulars | Details |
Input Services Availed | Platform development, IT services |
ITC Utilization | Permitted for discharging tax liability |
Tax Liability Payment Mechanism | Can utilize ITC or cash ledger |
Impact on ECOs
- Simplified Compliance:
- ECOs do not need to calculate or reverse ITC proportionately for specified services under Section 9(5).
- Cash Flow Management:
- ECOs must ensure sufficient cash in the electronic cash ledger to discharge liabilities under Section 9(5).
- Operational Clarity:
- Clear distinction between ITC utilization for their own supplies versus notified services simplifies financial management.
Conclusion
The clarification in Circular No. 240/34/2024-GST provides much-needed relief and guidance for ECOs. By exempting ECOs from ITC reversal for notified services and specifying the payment mechanism, the CBIC has addressed key concerns while ensuring consistent implementation of GST provisions. ECOs are advised to align their accounting and compliance processes accordingly.
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