Analysis of Circular No. 167/23/2021 – GST dated 17.12.2021: Clarifications on ITC for ECOs under Section 9(5) of the CGST Act
Key Provisions of Section 9(5)
- Under Section 9(5) of the CGST Act, specific services are notified for which the tax liability shifts to the Electronic Commerce Operator (ECO), who is treated as the supplier of such services.
- Examples of services under Section 9(5):
- Transportation of passengers by a radio-taxi, motorcab, etc.
- Accommodation services (other than those provided through a registered supplier).
- Restaurant services.
Background and Issue Clarified
- Earlier clarification in Circular No. 167/23/2021:
- ECOs were not required to reverse Input Tax Credit (ITC) for restaurant services provided under Section 9(5).
- Tax liability under Section 9(5) had to be discharged fully in cash, and ITC could not be used for this purpose.
- New Representation:
- Clarification was sought on whether ECOs are required to reverse ITC proportionately for other notified services under Section 9(5).
Clarifications Provided in the Circular
- ITC Reversal Not Required:
- ECOs are not required to reverse ITC under Section 17(1) or Section 17(2) for inputs and input services proportionate to the supply of notified services under Section 9(5).
- Tax Payment under Section 9(5):
- Tax liability for supplies under Section 9(5) must be discharged only in cash via the electronic cash ledger.
- ITC availed by the ECO cannot be utilized for this liability.
- Usage of ITC:
- ITC availed for inputs and input services can be utilized for discharging tax liability for other services provided by the ECO (e.g., platform fees, commissions).
ECO’s Activities and Related ITC
- Supplies Notified under Section 9(5):
- ECO acts as a deemed supplier and pays tax on the notified services (e.g., restaurant services).
- Supplies on Own Account:
- ECO provides services directly to users, such as charging platform fees or commissions, for which ITC availed on inputs and input services can be used to pay tax.
Implications for ECOs
- ECOs benefit from retaining full ITC on inputs and input services without any reversal, provided the conditions in the Circular are met.
- ECOs must ensure proper segregation of tax liabilities:
- Taxes on Section 9(5) supplies paid only in cash.
- ITC utilized exclusively for liabilities arising from services provided on the ECO’s account.
- Adequate systems should be in place to track and report ITC and liabilities separately to comply with these provisions.
Implementation and Public Awareness
- Field formations are instructed to issue trade notices to disseminate this clarification widely.
- ECOs must adopt compliance processes to ensure correct ITC usage and avoid disputes or penalties.
This clarification simplifies compliance for ECOs by eliminating the need for proportionate ITC reversal for supplies under Section 9(5) while reinforcing the need to discharge related tax liabilities in cash.