Case Study on Banking and Financial Institution including NBFC

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June 9, 2026

On June 9, 2026

CASE STUDY 1

XYZ bank is engaged in the supply of services by way of accepting deposits and extending loans. The bank has branches in the states of Haryana, Uttarakhand, UP and Rajasthan with its head office in Delhi.

In addition to regular registrations the bank has also taken registration as an Input service Distributor in Delhi.

The following are the income sources of the bank:

S.No.	Nature of Income
1.	Interest on Loan
2.	Administrative Fees
3.	Rescheduling Fees
4.	Processing charges
5.	Late Payment Fees on processing charges
6.	Application Fees
7.	Repossession Cost
8.	Reimbursement of Stamp Duty and other Charges from customers assuming conditions of pure agent are fulfilled
9.	Reimbursement of expenses from customers assuming conditions of pure agent are not fulfilled

The turnover of all the branches has been provided below:

Rajasthan Branch, closed from 17-18, therefore no turnover.

Haryana Branch: Turnover of Rs. 25 crores in 18-19

Uttarakhand Branch: Turnover of Rs. 37.5 crores in 18-19

UP Branch: Turnover of Rs. 50 Crores in 18-19

Delhi Head Office: Turnover of Rs. 75 Crores in 18-19

Turnover Breakup:

States	Taxable Turnover	Exempt Turnover
Rajasthan	Nil	Nil
Haryana	7 Crores	18 Crores
Uttarakhand	12.5 Crores	25 Crores
UP	15 Crores	35 Crores
Delhi	20 Crores	55 Crores

The Delhi branch functions as an ISD also. ITC amounting to Rs. 25 lakhs (15 lakhs CGST & SGST and 10 lakhs IGST) have to be distributed among the branches for the month of January’19.

Further, out of these 25 lakhs, an invoice involving tax of Rs. 5 Lakhs pertains to consultancy services for UP branch.

The bank has opted for the option to avail credit of 50% of input tax. Total Input tax credit for the branch in UP amounts to Rs. 48 lakhs(excluding ITC to be distributed by ISD) which includes credit pertaining to:

Services availed from its distinct establishment i.e. from branch	2,00,000
Outdoor catering services received for its employees	1,50,000
Goods obsolete and value of which to be written off in books	1,00,000
Auditing services	5,00,000
Goods for personal use of employees	2,50,000
Stationery purchased	7,00,000
Xerox machine purchased	8,00,000
Other business-related ITC	21,00,000

Further, certain ITC pertaining to previous months amounting to Rs. 6,00,000 could not be availed in the month to which it related. Out of this an amount of Rs. 2,00,000 pertains to the earlier FY.

Above ITC of Rs. 6,00,000.00 is included in “Other business-related ITC”.

Further, XYZ has opted to avail 50% of the eligible ITC as per the provisions of Section 17(4).

Questions:

Is GST required to be paid on late payment fees in case of delay in payment of processing charges?
Comment on the taxability of the various income sources of the bank.
There is a supply of goods or services between registered branches of the bank on which GST is paid, will the branches be eligible for 50% credit of the GST charged on such supply as the bank has elected 50% option to avail input tax credit on inputs, capital goods and input services?
Calculate the amount of ITC to be distributed to various branches for the month of January’19.
Can the UP Branch avail the input tax credit of the previous months amounting to Rs.6,00,000 in the month of January2019, assuming that annual return for Financial Year 2017-2018 was not furnished till January2019?
Calculate the amount of eligible ITC for the state of UP to be availed in the month of January’19.
Certain customer availed numerous services from the bank. Whether the bank has to issue a tax invoice for each of the taxable service or a consolidated tax invoice can be issued?
What is the place of supply in case of Banking Company?
Would charges for late payment of dues on credit card outstanding be chargeable to GST?

Answer:

1. As per Section 15(2)(d) of CGST Act, 2017, the value of supply includes, interest or late fee or penalty for delayed payment of any consideration for any supply. Hence, late payment fees for default in payment of processing charges, which is subject to GST, will be includible in the value of such supply and therefore would be liable to GST.

S. No.	Nature of Income	Taxability	Remarks
1.	Interest on Loan	Exempt	Notification no. 12/2017-CT(R)
2.	Administrative Fees	Taxable	Sec. 7 of CGST Act,2017
3.	Rescheduling Fees	Taxable	Sec. 7 of CGST Act,2017
4.	Processing Charges	Taxable (in relation to taxable income)	Sec. 7 of CGST Act,2017
5.	Late Payment Fees on processing charges	Taxable	Sec. 7 of CGST Act,2017
6.	Application Fees	Taxable	Sec. 7 of CGST Act,2017
7.	Repossession Cost	Taxable	Sec. 7 of CGST Act,2017
8.	Reimbursement of Stamp Duty and other Charges from customers assuming conditions of pure agent are fulfilled	Taxable (being part of processing fee)	Sec. 15 of CGST Act,2017
9.	Reimbursement of expenses from customers assuming conditions of pure agent are not fulfilled	Non-taxable being not part of value of supply	Sec. 15 of CGST Act,2017

3. No, 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.

4. Amount of ITC to be distributed to various branches:

- Out of 25 lakhs, 5 lakhs are attributable to UP and therefore will be transferred to UP only. The remaining 20 lakhs will be attributable to various branches.
- The Rajasthan branch was closed in 17-18 hence no operations were undertaken. Rajasthan will not be entitled to any credit as ITC is only distributed to those recipients who supply goods or services.
- Amount of ITC to be distributed to various branches:

Particulars	Amount (in crores)
Total Turnover	187.5
State wise Turnover :
Haryana	25
Uttarakhand	37.5
UP	50
Delhi	75
ITC to be distributed	0.2
ITC Distribution
Haryana – IGST (25/187.5*0.20)	0.03
Uttarakhand – IGST (37.5/187.5*0.20)	0.04
UP – IGST (50/187.5*0.20)	0.05
Delhi – IGST (75/187.5*20)	0.08
Total	0.20

5. As per section 16(4) of the CGST Act, 2017, availment of input tax credit can be deferred and availed up to 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.

Further, as per proviso of Section 16(4) inserted by Central Goods and Services Tax (Second Removal of Difficulties) Order, 2018, the registered person shall be entitled to take input tax credit after the due date of furnishing of the return under section 39 for the month of September, 2018 till the due date of furnishing of the return under the said section for the month of March, 2019 in respect of any invoice or invoice relating to such debit note for supply of goods or services or both made during the financial year 2017-18, the details of which have been uploaded by the supplier under sub-section (1) of section 37 till the due date for furnishing the details under sub-section (1) of said section for the month of March, 2019.

Hence, although in general circumstances, ITC of Rs. 4,00,000.00 would not have available. However, due to relaxation given by government vide Central Goods and Services Tax (Second Removal of Difficulties) Order, 2018, credit amounting to Rs. 4,00,000 can be availed by the UP branch in the GSTR-3B of January’19 assuming that the details of the same ITC invoices have been uploaded by the supplier under sub-section (1) of section 37 till the due date for furnishing the details under sub-section (1) of said section for the month of March, 2019.

6. Amount of eligible ITC for UP for the month of January’19:

Particulars	Amount of Eligible ITC (in lakhs)
Services availed from branches	2
Outdoor catering – Blocked	Nil
Obsolete Goods – Blocked	Nil
Auditing services	5
Goods for personal use	Nil
Stationery	7
Xerox machine	8
Other business-related expense	21
Amount of eligible ITC
100% of services availed from branches	2
Plus: 50% of other supplies	20.5
Total	22.5

In addition to the above ITC of Rs. 22.5 additional eligible ITC pertaining to ISD will also be eligible amounting to Rs..05.

Total eligible ITC = 22.5 + 0.05 = Rs. 22.55/-

7. As per the provisions contained in the first proviso to Rule 47 of the CGST Rules, 2017, 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 where the supplier of taxable service is an insurer or a banking company or a financial institution, including a non-banking financial company, the said supplier may issue a consolidated tax invoice or any other document in lieu thereof, by whatever name called for the supply of services made during a month at the end of the month.

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.

8. 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. However, in case the location of recipient of services is not on the records of the supplier, the place of supply shall be the location of the supplier of services.

9. 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.

For reference, entry no. 27 is produced below:

The Central Government exempts the supply of services of description as specified below:

Services by way of:

(a) extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount (other than interest involved in credit card services),

(b)inter se sale or purchase of foreign currency amongst banks or authorised dealers of foreign exchange or amongst banks and such dealers.

CASE STUDY 2

ABC Ltd. is a systemically important non-deposit taking listed NBFC classified as “Infrastructure Finance Company (IFC)” by RBI. It is engaged in the business of making investments and providing financing solutions to companies with projects in the power sector and related areas across the entire energy value chain.

It also has a windmill in Jaisalmer (the state of Rajasthan), the outward supply from which is electricity which is exempt under Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017.Therefore, there is no registration for that state and sale of power takes place through the Delhi Registration.

Particulars	Debit	Credit
Income
Interest revenue <=1yr		1,25,00,000.00
Additional Interest revenue >5yr		18,50,000.00
Interest from Bank deposits-FDRs		10,50,000.00
Application Fees		50,00,000.00
Consultancy Fees		40,00,000.00
Foreclosure Fees		60,00,000.00
Income from Sale of Power-Windmill		12,50,000.00
Intt on Employee Loan		4,50,000.00
Sale of fixed asset		3,500.00
Restaurent Services-Lunch facility provided to Employee		10,500.00
Expenses
Renting of vehicles	90,000.00
Legal Charges	9,95,000.00
Committee Meeting Fee-Conveyance	45,000.00
Director Sitting Fees	3,60,000.00
Salary to Staff and directors	4,50,000.00
Hotel Charges	1,00,000.00
Repair & Maintenance-P&M(Windmill)	14,50,000.00

Remarks:

1.The company has a policy of selling the fixed asset at 10% of acquisition cost. Open market value on the date of sale is 7,500.

2. The company charges employees for the lunch facility.

3.Renting of vehicles include Rs.30000/- received from other than body corporate and cost of fuel is included in the consideration charged.

4. Mr. M went for a business trip to Vietnam, wherein he stayed for 5 days in Pullman Danang Beach Resort. The company booked the stay from xyz.com(registered office in India). The hotel charges do not include meals.

Questions:

1.Calculate Taxable Supplies.

2. Calculate Tax payable (Outward & RCM)

3. Calculate ITC (RCM & Other)

4.Blocked Credit, if any.

Answer:

Calculation of Taxable Supplies:-

Computation of Taxable Income& Tax
Particulars	Taxable Value	Tax @ 18%	Remarks
Interest revenue <=1Yr	1,25,00,000	–	Note 1
Additional interest income>5yr	18,50,000	–	Note 1
Interest from bank deposit-FDRs	10,50,000	–	Note 1
Interest on employee loan	4,50,000	–	Note 1
Income from sale of power -Windmill	12,50,000	–	Note 2
Sale of Fixed assets	3,500	630
Application Fees	50,00,000	9,00,000
Foreclosure Fees	60,00,000	10,80,000
Consultancy Fees	40,00,000	7,20,000
Particulars	Taxable Value	Tax @ 5%	Remarks
Restaurant services-Lunch facility provided to employee	10,500	525

Note 1: As per . 27(a) of N.N-12/2017 Central Tax(Rate) dated 28^th June,2017, the tax rate for following service is nil, namely;

Services by way of—

(a) extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount (other than interest involved in credit card services);

Therefore, interest income on loan or advances falls under the category of exempt supply in GST.

Note 2: As per SI. No. 104 of N.N. 2/2017 Central Tax(Rate) dated 28^th June,2017, the following goods are exempt, namely;

Electrical Energy

Therefore, sale of energy by windmill falls under the category of exempt supply in GST.

2. Computation of Tax payable

On outward supplies-

=Rs.630+Rs.27,00,000+Rs.525= Rs.27,01,155/-

Under RCM

Computation of Tax payable under RCM
Particulars	Taxable Value	Tax	Remarks
Renting of vehicle	30,000	1,500	Note 3
Legal Charges	9,95,000	1,79,100	Note 4
Committee meeting Fee-Conveyance	45,000	8,100	Note 4
Director Sitting Fees	3,60,000	64,800	Note 4

Note 3

As per N.N-22/2019 dated 30^th Sept,2019, Serial no. 15 has been inserted under RCM notification related to services of renting of motor vehicles by other than body corporate to body corporate tax as per this Notification is payable under RCM @5%. The words of Notification as below-

Services provided by way of renting of a motor vehicle provided to a body corporate.

Any person other than a body corporate, paying central tax at the rate of 2.5% on renting of motor vehicles with input tax credit only of input service in the same line of business

Further this notification has been amended by N.N-29/2019 dated 31^st Dec,2019

Services provided by way of renting of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient, provided to a body corporate.

Any person, other than a body corporate who supplies the service to a body corporate and does not issue an invoice charging central tax at the rate of 6 per cent. to the service recipient.

Therefore, obtaining an understanding of the above notifications, tax shall be paid under reverse charge on vehicles rented from person other than body corporate and the rate of tax shall be 2.5% central tax.

Note 4

N.N-13/2017 dated 28^th June,2017 amended by various notification issued time to time states that-

As per SI.No. 2 Services supplied by an individual advocate including a senior advocate by way of representational services before any court, tribunal or authority, directly or indirectly, to any business entity located in the taxable territory, including where contract for provision of such service has been entered through another advocate or a firm of advocates, or by a firm of advocates, by way of legal services, to a business entity.

Therefore, legal services is covered under RCM as per above notification.

As per SI.No. 6Services supplied by a director of a company or a body corporate to the said company or the body corporate.

Therefore, Director Sitting fee and committee meeting fee conveyance covered under RCM.

3. Calculation of ITC:-

Computation of ITC	Amount (in INR)
RCM (A)	2,52,000
legal & Professional fee charges	1,79,100
Committee meeting Fee-Conveyance	8,100
Director Sitting Fees	64,800
Other Than RCM (B)	36,090
Repair & Maintenance-Others	18,090
Hotel Charges	18,000 *
Total (A+B)	2,88,090
Eligible ITC Restricted to 50% as per Sec 17(4) of CGSTAct,2017 (Note 5)	1,44,045

*As per the provision of Sec12(3) of IGST Act’17, the place of supply of services, by way of lodging accommodation by a hotel, inn, guest house, home stay, club or campsite, by whatever name called, and including a house boat or any other vessel shall be the location at which the immovable property or boat or vessel, as the case may be, is located or intended to be located.

Provided that if the location of the immovable property or boat or vessel is located or intended to be located outside India, the place of supply shall be the location of the recipient.

Thus, since the resort is outside India, the place of supply shall be location of recipient i.e. location of ABC Ltd. And shall be levied under GST provisions because place of supplier is also in India. Thus, ITC is available.

Note 5

Section 17(4) of CGST Act, 2017 states that

A banking company or a financial institution including a non-banking financial company, engaged in supplying services by way of accepting deposits, extending loans or advances shall have the option to either comply with the provisions of sub-section (2) of section 17, or avail of, every month, an amount equal to fifty per cent. of the eligible input tax credit on inputs, capital goods and input services in that month and the rest shall lapse:

Provided further that the restriction of fifty per cent. shall not apply to the tax paid on supplies made by one registered person to another registered person having the same Permanent Account Number.

Thus, ABC Ltd. Avails option provided in Sec17(4) by availing 50% of eligible ITC on inputs, capital goods and input services in case of banking company and financial institution including non- banking financial institution.

4.Blocked Credit

ITC on Repair & Maintenance of P&M(Windmill)

Section 17(5) of CGST Act, 2017 states that input tax credit shall not be allowed in following cases

(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.

Explanation—For the purposes of clauses (c) and (d), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;

Explanation— The expression “plant and machinery”

means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes—

(i) land, building or any other civil structures;

(ii) telecommunication towers; and

(iii) pipelines laid outside the factory premises.

In the given case repair & maintenance services though used for Plant and machinery, does not qualify for availment because it is used for exempt supply i.e supply of energy by windmill which is exempt as per N.N-2/2017, therefore ITC of input services used is not allowed.

ITC on Renting of Vehicle

Section 17(5) of CGST Act, 2017 states that input tax credit shall not be allowed in respect of followings-

(b) the following supply of goods or services or both—

(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:

Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;

Provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.

Thus, ITC on renting of vehicles is blocked.

CASE STUDY 3

Rayala bank provide the following data pertaining to the month of January 2020. It provides various types of banking services to general public, corporates, and other banks. Data provided is related to New Delhi branch only.

Particulars	(Rs. In Lacs)
Details of Income:
Interest on Loans – Interest	20,10
Interest on Loans – Pre CoD Interest	1,11
Interest on Loans – Interest on Interest	50
Interest on FDs	2,17
Dividend on Mutual Funds	1,05
Interest on Floating Rate Deposits	22
Income on Invoice discounting	57
Income on CBLO transaction	80
Income from Commercial Paper	25.20
Income on Sale of Secured debts	15
Income on Sale of Foreign Exchange -to other banks 10.50 – general public 11.25	21.75
Charges for late payment of outstanding dues on credit card	10.15
*Total Income*	*27,21.10*
Details of Expenses:
Interest on Loan	18,50
Building Rent	1.2
Electricity Expenses	0.55
Depreciation on assets	1.25
Services received from RBI in relation to banking	2.20
Services received from Rayala Bank (Gurgaon Branch – at OMV)	5.70
Services received from Recovery Agents	2.57
Services received from Rayala bank (New York)	7.50
*Total Expenses*	*18,70.97*

Additional Information:

During the month, bank purchased bus costing Rs. 15,00,000 for giving pick n drop facility to its employees.
Building rent include rent paid for ATM shop adjacent to main bank branch.

Questions:

Discuss in brief the benefits and exemptions, if any, available to Rayala bank.
Whether income from Invoice discounting is exempt from GST?
Whether income CBLO transaction is leviable to GST?
Discuss the GST impact on Sale of Secured debts?
Is GST leviable on Income on Commercial Paper?
Can Rayala bank claim credit of GST paid on various goods and services procured by it?
Is there any special provision for services received from Rayala Bank (Gurgaon Branch)?
How much credit Rayala bank can claim? Discuss the workings.
Is bank required to issue invoice for every service on which GST is levied? Is there any time limit to issue invoice?
Discuss GST liability under RCM
Is Rayala Bank having any GST implication on services received from its foreign branch?
Will bank take credit of GST paid on motor vehicle as mentioned in additional information (1) above? If any, please explain with brief workings
How bank will compute GST liability for commission earned on exchange of foreign currency?
Compute the GST liability for Rayala Bank for the month of January 2020 assuming all outward and inward taxable supplies are intra-state, unless otherwise provided? Take the assumptions wherever required within the ambit of GST law. CGST and SGST rates are 9% and 9% respectively. Draft your solution assuming that Bank does not opt to for Section 17(4)

Answer:

Discuss in brief the benefits and exemptions, if any, available to Rayala bank.

Answer: As per the exemption CGST (R) Notification No. 12/2017 dated 28.06.2017 Entry No. 27,

Services by way of—

extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount (other than interest involved in credit card services);
inter se sale or purchase of foreign currency amongst banks or authorized dealers of foreign exchange or amongst banks and such dealers.

Hence, as per above notification, money lending activities for which consideration is interest is exempt from GST

2. Whether income from Invoice discounting is exempt from GST?

Answer: As per the premise of Entry 27 of Exemption Notification as discussed above, Invoice discounting is exempt from GST to the extend consideration is represented by way of discount as such discounting is a manner of extending credit facility or loan. Any fee in the nature of documentation or processing is subject to GST.

3. Whether income CBLO transaction is leviable to GST?

Answer: CBLO transaction are Collateralized Borrowing and Lending Obligations transactions in which 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 exempt from GST

4. Discuss the GST impact on Sale of Secured debts?

Answer: As per Section 2(52), “goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.

Further, as per Section 2(1), “actionable claim” shall have the same meaning as assigned to it in section 3 of the Transfer of Property Act, 1882. Where, as per Section 3 of Transfer of Property Act, 1882 “actionable claim” means a claim to any debt, other than a debt secured by mortgage of immoveable property or by hypothecation or pledge of moveable property, or to any beneficial interest in moveable property not in the possession, either actual or constructive, of the claimant, which the Civil Courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent.

Thus, secured debts are actionable claims.

As per Para 6 of Schedule III, Actionable claims, other than lottery, betting and gambling shall be treated neither as a supply of goods nor a supply of services.

Where sale, transfer or assignment of debts falls within the purview of actionable claims, the same would not be subject to GST.

5. Is GST leviable on Income on Commercial Paper?

Answer: As per Section 2(75) “money” means the Indian legal tender or any foreign currency, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveller cheque, money order, postal or electronic remittance or any other instrument recognized by the Reserve Bank of India when used as a consideration to settle an obligation or exchange with Indian legal tender of another denomination but shall not include any currency that is held for its numismatic value.

The transactions in Commercial Paper are in the nature of promissory notes. Consequently, they are included in the term ‘money’ and hence, are not chargeable to GST.

Since Commercial Paper is the instrument for lending or borrowing money wherein consideration is represented by way of a discount or subscription to Commercial Paper, the same would be covered by entry 27 and is not liable to GST.

6. Can Rayala bank claim credit of GST paid on various goods and services procured by it?

Answer: As per Section 16(1) of CGST Act, 2017,

Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of ‘input tax’ charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

Further, as per Section 17(2) of CGST Act, 2017

Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the IGST Act, and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.

Special Provision for banking company for claiming credit

As per Section 17(4) of CGST Act,

A banking company or a financial institution including a non-banking financial company, engaged in supplying services by way of accepting deposits, extending loans or advances shall have the option to either comply with the provisions of sub-section (2), or avail of, every month, an amount equal to 50% of the eligible ITC on inputs, capital goods and input services in that month and the rest shall lapse.

Provided that the option once exercised shall not be withdrawn during the remaining part of the financial year.

As per the above provisions, Rayala Bank has options either to take 50% of eligible credits of goods and services procured by it OR it needs to take proportionate credit for taxable services rendered by it.

7. Is there any special provision for services received from Rayala Bank (Gurgaon Branch)?

Answer: As per 2^nd Proviso to Section 17(4), restriction of 50% shall not apply to the tax paid on supplies made by one registered person to another registered person having the same PAN

8. How much credit Rayala bank can claim? Discuss the workings.

Answer: There are two options available to Rayala Bank

Option 1: Following Section 17(2), credit available only for those goods and services or both which are taxable supplies including zero-rated supplies. For this, working needs to be done following the Rule 42.

Option 2: Following Section 17(4), only 50% of the eligible ITC on inputs, capital goods and input services in that month and the rest shall lapse. For this, working needs to be done following the Rule 38.

Option 1: Working showing computation of reversal of ITC under Rule 42for the month of January 2020

Particulars	(Rs. In Lacs)
Exempt Turnover:
Interest on Loans – Interest	20,10
Interest on Loans – Pre CoD Interest	1,11
Interest on Loans – Interest on Interest	50
Interest on FDs	2,17
Dividend on Mutual Funds	1,05
Interest on Floating Rate Deposits	22
Income on Invoice discounting	57
Income on CBLO transaction	80
Income from Commercial Paper	25.20
Income on Sale of Secured debts (Note1)	–
Income on Sale of Foreign Exchange -to other banks	10.50
*Total of Exempt Turnover (E)*	*26,87.70*
Income on Sale of Foreign Exchange – general public	11.25
Charges for late payment of outstanding dues on credit card	10.15
*Total Turnover(F)*	*27,09.10*
Common Expenses for the purpose of Rule-42
Building Rent	1.2
Services received from Rayala Bank (Gurgaon Branch – at OMV)	5.70
Services received from Recovery Agents	2.57
Services received from Rayala bank (New York)	7.50
Total of Common Expenses (C2)	16.97
Total CGST + SGST paid (18%)	3.0546
Credit not allowed as per Rule 42D1 = (E÷F) X C2 Þ (2687.70÷2709.10) X 3.0546	3.0304

Note 1: As discussed in solution 4, Sale of Secured debt is sale of actionable claim and shall be treated neither as a supply of goods nor a supply of services.

Hence, it is neither exempt turnover nor included in total turnover.

Option 2: Working showing computation of eligible ITC as per Rule 38 for the month of January 2020

Particulars	Amount	Eligible %	Eligible ITC
Building Rent	1.2	50	0.6
Services received from Rayala Bank (Gurgaon Branch – at OMV)	5.70	100	5.7
Services received from Recovery Agents	2.57	50	1.285
Services received from Rayala bank (New York)	7.50	50	3.75
Total Expenses	16.97		11.335
Total CGST + SGST credit allowed (18%)			2.0403

9. Is bank required to issue invoice for every service on which GST is levied? Is there any time limit to issue invoice?

Answer: As per Section 31(2) read with Rule 46, A registered person supplying taxable services shall, before or after the provision of service but within a prescribed period(30 days), issue a tax invoice, showing the description, value, tax charged thereon and such other particulars as may be prescribed:

Provided that the Government may, on the recommendations of the Council, by notification and subject to such conditions as may be mentioned therein, specify the categories of services in respect of which–

(a) any other document issued in relation to the supply shall be deemed to be a tax invoice; or

(b) tax invoice may not be issued.

Rule 46A of CGST Rules, 2017: Invoice-cum-bill of supply-

Notwithstanding anything contained in rule 46 or rule 49 or rule 54, where a registered person is supplying taxable as well as exempted goods or services or both to an unregistered person, a single “invoice-cum-bill of supply” may be issued for all such supplies.

As per Proviso to Rule 47 of CGST Rules, 2017: Time limit for issuing tax invoice.

where the supplier of services is an insurer or a banking company or a financial institution, including a non-banking financial company, the period within which the invoice or any document in lieu thereof is to be issued shall be 45 days from the date of the supply of service.

10. Is company liable to pay GST on all goods and services or both to its vendors?

Answer: As per Section 9(3) read with IGST Notification No. 4/2017(R) and CGST Notification No. 13/2017 both dated 28.06.2017, Rayala Bank (New Delhi) is liable to discharge GST on the following services on reverse charge basis (i.e. Rayala bank will deposit GST directly to Govt.)

Services supplied by a recovery agent to a banking company or a financial institution or a non-banking financial company [CGST Notification No. 13/2017]
Service received from Rayala Bank (New York) [IGST Notification No. 4/2017(R)]

11. Is Rayala Bank having any GST implication on services received from its foreign branch?

Answer: Yes, as per Section 9(3) read with IGST Notification No. 4/2017(R) dated 28.06.2017, Rayala Bank (New Delhi) is liable to discharge GST on the services received from its foreign branch under reverse charge mechanism. Relevant provision in this regard are as follows:

Section 9(3) of CGST Act, 2017: The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.

Entry No. 1 of IGST Notification No. 4/2017(R) dated 28.06.2017: It provides that, any service supplied by any person who is located in a non-taxable territory to any person GST will be discharge by person receiving those services in taxable territory.

Time of Supply in above case: As per 2^nd Proviso of Section 13(3), supply by associated enterprises, where the supplier of service is located outside India, the time of supply shall be

(a) the date of entry in the books of account of the recipient of supply or

(b) the date of payment,

whichever is earlier.

(12) Will bank take credit of GST paid on motor vehicle as mentioned in additional information (1) above? If any, please explain with brief workings

As already discussed in solution 2, section 16(1) allows to take credit of inputs, input services and capital goods but as Rayala bank is also involved in providing exempt services so it has option to take credit either as per Section 17(2) read with Rule 43 or as per Section 17(4) read with Rule 38. Further, motor vehicles for transportation of persons having capacity of more than 13 persons are outside the ambit of section 17(5) i.e. block credit.

Option 1: Working showing computation of eligible ITC as per Rule 38 for the month of January 2020

CGST + SGST paid on motor vehicle (Rs. 15,00,000 X 18%) Rs. 2,70,000

50% credit is allowed as per Section 17(4) Rs. 1,35,000

Option 2: Working showing computation of reversal of ITC under Rule 43 for the month of January 2020

Particulars	Amount (in Rs.)
Amount of “A” as per Rule 43(1)(c), this is also ‘Tc’ in given case[Amount credited to Electronic Credit Ledger in the month of January, 2020]	2,70,000
Tm = Tc ÷ 60	4,500
Amount of common credit for exempt supplies ‘Te = (E÷F) X Tm’Te = (2687.70÷2709.10) X 4,500 [Amount to be added to the output tax liability]	4,464
Net Credit available in respect of motor vehicle in the month of January, 2020	2,65,536

13. How bank will compute GST liability for commission earned on exchange of foreign currency?

Answer:

Income on Sale of Foreign Exchange to other banks is exempt from GST as already specified in solution 1. Further, Value of Supply for Sale of Foreign Exchange to general public will be computed as per the following two options available as per Rule 32(2) of CGST Rules, 2017

Option 1

Option 2

Case 1: For a currency, when exchanged from, or to, Indian Rupees, the value shall be equal to the difference in the buying rate or the selling rate, as the case may be, and the RBI reference rate for that currency at that time, multiplied by the total units of currency

Value of Supply will be

Upto Rs. 1,00,000	1% of the gross amount of currency exchangedMinimum Rs. 200
Amount > Rs. 1,00,000Upto Rs. 10,00,000	Rs. 1,000 + 0.5% (Gross amount of currency exchange – 1,00,000)
Amount > 10,00,000	Rs. 5,500 + 0.01% (Gross amount of currency exchange – 10,00,000)Max Amount Rs. 6,000

Case 2: Where the RBI reference rate for a currency is not available, the value shall be 1% of the gross amount of Indian Rupees provided or received by the person changing the money

Case 3: Where neither of the currencies exchanged is Indian Rupees, the value shall be equal to 1% of the lesser of the two amounts the person changing the money would have received by converting any of the two currencies into Indian Rupee on that day at the reference rate provided by the RBI

14. Compute the GST liability for Rayala Bank for the month of January 2020 assuming all outward and inward taxable supplies are intra-state, unless otherwise provided? Take the assumptions wherever required within the ambit of GST law. CGST and SGST rates are 9% and 9% respectively. Draft your solution assuming that Bank does not opt to for Section 17(4).

Answer:

Computation of GST payable by Rayala Bank from cash ledger for the month of January 2020

Particulars

CGST @9%

SGST@9%

IGST@18%

GST payable (WN 1)

Less: ITC (WN 2)

2.15730.66478

1.351.35

NET GST Payable

1.49252

NIL

Particulars	(Rs. In Lacs)	CGST	SGST	IGST
Outward Supply
Interest on Loans – Interest	20,10	NIL	NIL	–
Interest on Loans – Pre CoD Interest	1,11	NIL	NIL	–
Interest on Loans – Interest on Interest	50	NIL	NIL	–
Interest on FDs	2,17	NIL	NIL	–
Dividend on Mutual Funds	1,05	NIL	NIL	–
Interest on Floating Rate Deposits	22	NIL	NIL	–
Income on Invoice discounting	57	NIL	NIL	–
Income on CBLO transaction	80	NIL	NIL	–
Income from Commercial Paper	25.20	NIL	NIL	–
Income on Sale of Secured debts	15	NIL	NIL	–
Income on Sale of Foreign Exchange to other banks	10.5	NIL	NIL	–
Income on Sale of Foreign Exchange to general public	11.25 (Note 1)	1.0125	1.0125	–
Charges for late payment of outstanding dues on credit card	10.15	0.9135	0.9135	–
Services received from Rayala bank (New York)(RCM Liability)	7.50	–	–	1.35
Services received from Recovery Agents (RCM Liability)	2.57	0.2313	0.2313	–
Total Outward Liability		2.1573	2.1573	1.35
Input Tax Credit details
Interest on Loan	18,50	NIL	NIL	–
Building Rent	1.2	0.108	0.108	–
Electricity Expenses	0.55	NIL	NIL	–
Depreciation on assets	1.25	NIL	NIL	–
Services received from RBI in relation to banking	2.20 (Note 2)	NIL	NIL	–
Services received from Rayala Bank (Gurgaon Branch – at OMV)	5.70	0.513	0.513	–
Services received from Recovery Agents	2.57	0.2313	0.2313	–
Services received from Rayala bank (New York)	7.50	–	–	1.35
Credit on purchase of Motor Vehicle	15	1.35	1.35	–
*Total GST credit available*		2.2023	2.2023	1.35
Less: Reversal of Credit as per Rule 42 (as per solution 8)		1.5152	1.5152
Less: Reversal of Credit as per Rule 43 (as per solution 12)		0.02232	0.02232
Net GST credit available		0.66478	0.66478	1.35
Utilisation of ITC to pay GST Liability		(-)0.66478CGST	(-)0.66478SGST	(-) 1.35IGST
Balance ITC to be carry forward to next month		NIL	NIL	NIL

Working Notes:

GST Liability on Sale of Foreign Exchange to general public

In the given question, it is the commission amount given which is earned by bank, assuming it has worked out following the option 1 as mentioned in solution 14.

Hence GST liability is 11.25 X 9% each = 1.0125 each

GST on services received from RBI

As per entry no. 26 of Notification No. 12/2017 dated 28.06.2017, Services by the Reserve Bank of India is exempt from GST.

CASE STUDY 4

The aim of this case study to make you understand the practical aspect of the business operation the financial market which includes business transaction related to finance of under various arrangements with respect to provisions of GST Act, 2017. In order to make you understand the applicability of provisions of GST on the various transaction, we have developed a detailed case study covering each and every of the financial market related to finance.

Facts:-The RMB Ltd. is formed under Company’s Act, 2013 for conducting the business of providing the risk capital mainly to the new aspirant’s entrepreneurs. It also provide financial assistance in setting up the projects for MSME & other sector of the country. The company also extends its services of corporate loans through bank loan, bonds and securitization.

For the FY 2018-19, the company declared PBT of Rs. 7,16,500/-. The extract is as:-

S. No.	Particulars	For the year ended 31.03.2019
I.	Revenue from operation:- Interest on lending operation Profit on sale of shares/funds Interest on bonds Management fees Bad debts recovered Other Income:- Interest on staff advances TOTAL REVENUE(A)	57,00,000.00 5,50,000.00 10,50,000.00 7,00,000.00 1,50,000.00 50,000.00 82,00,000.00
II.	Employees Benefit expense:- Salaries & allowances Staff welfare expense Finance cost Interest on bonds/borrowing Fee for issuance of Letter of comfort to holding company Depreciation Other expenses Building Rent Insurance Repair & maintenance Director’s sitting fees Legal charges (Advocate Fees) Professional expenses Training & Development expenses Other expenses TOTAL EXPENDITURE(B)	14,26,000.00 1,22,500.00 19,25,000.00 1,50,000.00 72,000.00 6,00,000.00 1,25,000.00 3,65,000.00 2,00,000.00 1,72,000.00 1,30,000.00 5,35,000.00 5,11,000.00 63,33,500.00
III.	Profit before provision	18,66,500.00
IV.	Provision for doubtful debts	12,50,000.00
V.	Profit before tax	6,16,500.00

The following are the additional information:-

25% of the taxable supply is made to the recipient located outside Delhi.
For welfare of the 45 employees, the company made expenditure in the following form:-
1. Food & beverages of Rs. 62,500/- & accumulate ITC of Rs. 3,000/- (CGST+SGST)
2. Awards of Rs. 10,000/-
3. Festival gift of Rs. 50,000/- & accumulate ITC of Rs. 2,500/-(CGST+SGST)
The company paid feesof issuance of Letter of comfort to the holding company & building rent to the registered person under GST law in the same state in which company is located i.e. Delhi.
ITC on insurance is Rs. 22,500/- (IGST)
ITC on repair & maintenance is Rs. 54,000 (CGST+SGST) & Rs. 6,000 (IGST)
The professional expenses is made on account of audit & secretarial services. Such service are provided by the registered suppliers located in Panipat & Lucknow.
All the advocates, if any are giving their services from Delhi.
The company makes the arrangement for enhancing knowledge of employees relating to banking services to support company’s activities. For this training, company accumulates ITC of Rs. 63,000/-(CGST+SGST) & Rs. 13,300/- (IGST)
Other common ITC (business & non-business purpose) are Rs. 10,000/- (CGST+SGST)& Rs. 1,000/-(IGST)
Other common ITC (taxable & exempt supply) are Rs. 5,000/- (CGST+SGST) & Rs. 1,000/-(IGST)

QUESTIONS:-

What is the total value of taxable supply, exempt supply & no- supply?
On what basis the exempted supply can be determined?
What is the outward tax liability under CGST, SGST & IGST?
Out of the given information, calculate the tax liability on inward supplies u/s 9(3) of CGST Act, 2017?
Calculate the Gross ITC?
Calculate the ineligible ITC u/s 17(1) of CGST Act, 2017?
Calculate the total ineligible ITC u/s 17 of CGST?
How the ITC would be presented while filing GSTR-3B?

Answers:

Answer to Question 1& Question 2

Sec. 2(108) of CGST Act, 2017 defines taxable supply as a supply of goods or services or both which isleviable to tax under this Act.

Sec. 2(47) of CGST Act, 2017 defines exempt supply as supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply.

No-Supply is hereby not defined in the law, However, inference can be made that the activity which is not covered under the inclusion clause of sec. 7 i.e. definition of term ‘Supply’ i.e. activity mentioned in schedule III, etc. Sec. 7 of CGST Act, 2017 includes-

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

(b) import of services for a consideration whether or not in the course or furtherance of business; and

Components of Revenue from operation	Amount (Rs.)	Nature of supply	Related provision in law
Interest on lending operation	57,00,000.00	Exempt Supply	Notification no. 12/2017-CTR
Profit on sale of shares/funds	5,50,000.00	No Supply	Sec. 7 of CGST Act,2017
Interest on bonds	10,50,000.00	Exempt Supply	Notification no. 12/2017-CTR
Management fees	7,00,000.00	Taxable supply	Sec. 7 of CGST Act,2017
Bad debts recovered	1,50,000.00	No Supply	Sec. 7 of CGST Act,2017
Interest on staff advances	50,000.00	Exempt Supply	Notification no. 12/2017-CTR

Profit on sale of shares & bad debts recovered is the outcome or the benefit received on conducting certain activity, in such a way that a businessman calculates the net loss/profit of conducting business activity throughout a year. Hence, not covered under the definition of supply. Rather supply is any form of sale, transfer or lease made for consideration in the course or furtherance of business.

Answer to Question No.3– The value of taxable supply in the instant case is of Rs. 7,00,000/-, out of which 25% of the taxable supply is inter-state supply i.e. 1,75,000/-. It is assumed that the said service is taxed @18%.

Total tax liability is:-

Particulars	Taxable value	CGST @9%	SGST @9%	IGST @18%
Inter-state Supply	1,75,000/-	–	–	31,500/-
Intra-state supply	5,25,000/-	47,250/-	47,250/-	–
Total	7,00,000/-	47,250/-	47,250/-	31,500/-

Answer to Question No.4- Section 9(3) of CGST Act, 2017states that the Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. For this purpose, government issue the notification no. 13/2017-CTR & 10/2017-ITR.

From the given information,

Legal services are received from advocates & paid legal charges of an amount Rs. 1,72,000/-
Director sitting fees is provided against the services provided by the director to the company amounting Rs. 2,00,000/-

The tax liability would be as follows:-

Particulars	Taxable value of Inward Supply	CGST@9%	SGST@9%
Legal services	1,72,000/-	15,480/-	15,480/-
Director sitting fees	2,00,000/-	18,000/-	18,000/-
TOTAL TAX LIABILITY		33,480/-	33,480/-

Answer to Question No.5.

As per Sec. 2(62) of CGST Act, 2017, input tax in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes-

(a) the integrated goods and services tax charged on import of goods;

(b) the tax payable under the provisions of sub-sections (3) and (4) of section 9;

(c) the tax payable under the provisions of sub-sections (3) and (4) of section 5 of the Integrated Goods and Services Tax Act;

(d) the tax payable under the provisions of sub-sections (3) and (4) of section 9 of the respective State Goods and Services Tax Act; or

(e) the tax payable under the provisions of sub-sections (3) and (4) of section 7 of the Union Territory Goods and Services Tax Act,

but does not include the tax paid under the composition levy.

As per sec. 2(63) of CGST Act, 2017, input tax credit means the credit of input tax;

Gross Input tax credit (ITC) means as the total accumulated ITC before any reversal of ineligible ITC. The ITC of CGST, SGST & IGST are:-

Particulars	ITC-CGST	ITC-SGST	ITC-IGST
Food & beverages	1,500/-	1,500/-	–
Festival gift	1,250/-	1,250/-	–
Fee for issuance of Letter of comfort to holding company	13,500/-	13,500/-	–
Building rent	54,000/-	54,000/-	–
Insurance			22,500/-
Repair & maintenance	27,000/-	27,000/-	6,000/-
Professional expenses			23,400/-
Training &Development expenses	31,500/-	31,500/-	13,300/-
Other common ITC (Point 9)	5,000/-	5,000/-	1,000/-
Other common ITC (Point 10)	2,500/-	2,500/-	1,000/-
Legal services	15,480/-	15,480/-	–
Director sitting fees	18,000/-	18,000/-	–
TOTAL Gross ITC	1,69,730/-	1,69,730/-	67,200/-

Answer to Question No.6.

Sec. 17(1) of CGST Act, 2017 states that where the goods or services or both are used by the registered person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his business.

However, the reversal of ITC on such goods or services which is being used for the business & non-Business purpose is to be made out of gross ITC. Rule 42 provide for the proportionate reversal of input tax credit in respect of inputs or input services, which attract the provisions of sub-section (1) or sub-section (2) of section 17, being partly used for the purposes of business and partly for other purposes, or partly used for effecting taxable supplies including zero rated supplies and partly for effecting exempt supplies, shall be attributed to the purposes of business or for effecting taxable supplies.

Rule 42 (1)(j) of CGST Rules, 2017 states that the amount of credit attributable to non-business purposes if common inputs and input services are used partly for business and partly for non-business purposes, be denoted as ‗D2‘, and shall be equal to five per cent. of C2.

Rule 42 (1)(j) of CGST Rules, 2017 states that the input tax credit left after attribution of input tax credit under clause (f) shall be called common credit, be denoted as C2.

Therefore the reversal of ITC u/s 17(1) is Rs.550/- as-

CGST:-Rs. 250/- (5000*5%)

SGST:-Rs. 250/- (5000*5%)

IGST:-Rs. 50/- (1000*5%)

Answer to Question No.7.

Sec. 17 of CGST Act, 2017 specifies the manner of apportionment of credit & blocked credits as-

(1) Where the goods or services or both are used by the registered person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his business.

(2) Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.

(3) The value of exempt supply under sub-section (2) shall be such as may be prescribed, and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.

Explanation.— For the purposes of this sub-section, the expression “value of exempt supply‘‘ shall not include the value of activities or transactions specified in Schedule III, except those specified in paragraph 5 of the said Schedule;

(4) A banking company or a financial institution including a non-banking financial company, engaged in supplying services by way of accepting deposits, extending loans or advances shall have the option to either comply with the provisions of sub-section (2), or avail of, every month, an amount equal to fifty per cent. of the eligible input tax credit on inputs, capital goods and input services in that month and the rest shall lapse:

Provided that the option once exercised shall not be withdrawn during the remaining part of the financial year:

Provided further that the restriction of fifty per cent. shall not apply to the tax paidon supplies made by one registered person to another registered person having the same Permanent Account Number.

(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub- section (1) of section 18, input tax credit shall not be available in respect of the following, namely:—

(a) motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely:—

(A) further supply of such motor vehicles; or

(B) transportation of passengers; or

(aa) vessels and aircraft except when they are used––

(i) for making the following taxable supplies, namely:—

(A) further supply of such vessels or aircraft; or

(B) transportation of passengers; or

(D) imparting training on flying such aircraft;

(ii) for transportation of goods;

(ab) services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa):

Provided that the input tax credit in respect of such services shall be available—

(i) where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein;

(ii) where received by a taxable person engaged—

(I) in the manufacture of such motor vehicles, vessels or aircraft; or

(II) in the supply of general insurance services in respect of such motorvehicles, vessels or aircraft insured by him;

(b) the following supply of goods or services or both—

(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:

(ii) membership of a club, health and fitness centre; and

(iii) travel benefits extended to employees on vacation such as leave or home travel concession:

(c) works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;

Explanation.––For the purposes of clauses (c) and (d), the expression ―construction‖ includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;

(e) goods or services or both on which tax has been paid under section 10;

(f) goods or services or both received by a non-resident taxable person except on goods imported by him;

(g) goods or services or both used for personal consumption;

(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and

(i) any tax paid in accordance with the provisions of sections 74, 129 and 130.

(6) The Government may prescribe the manner in which the credit referred to in sub-sections (1) and (2) may be attributed.

Explanation.––For the purposes of this Chapter and Chapter VI, the expression ―”plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes—

(i) land, building or any other civil structures;

(ii) telecommunication towers; and

(iii) pipelines laid outside the factory premises.

S. No.	Particulars	CGST	SGST	IGST
A.	Total Gross ITC	1,69,730/-	1,69,730/-	67,200/-
B.	Less:- Reversal of ITC u/s 17(1)(For non-business purpose) (D₂)#	250/-	250/-	50/-
C.	Less:- Blocked Credit u/s 17(5)(Food & Beverage and Festival Gifts) (T₃)	2,750/-	2,750/-	–
D.	Eligible ITC	1,66,730/-	1,66,720/-	67,150/-
E.	Less:- Reversal of ITC u/s 17(4) i.e. 50% of eligible ITC	83,370/-	83,360/-	33,575/-
F.	Net ITC available for utilization	83,365/-	83,365/-	33,575/-
G.	Total reversal of ITC u/s 17 [B+C+E]	86,365/-	86,365/-	33,625/-

#On the plain reading of the rule 42 of CGST rules, 2017, the reversal of ITC used for the non-business purpose (if not identified as exclusively) i.e. D₂ is to be calculated as the 5% of common credit i.e. C_2.Common credit is that portion of the total credit which is credited to electronic credit ledger as reduced by the credit exclusively for taxable supplies including zero rated supply. In other words, Common credit is the credit used both for exempted & taxable and business & non-business purpose. On interpreting the rules, it can be inferred that the D₂ is also calculated on that portion of credit which is used for both exempt & taxable supplies.

In our opinion, D₂should first be calculated & reduced to derive the common credit (C₂) so that the effect of the credit for non-business purpose would be nullified & thereafter the credit attributable for exempted supplies out of the common credit should be derived by applying the formula as given in the rule. As per the rule, there is a double reversal by 5% in the form of D₂& D₁(calculated to derive credit attributable for exempted supplies out of common credit).

Answer to Question No.8.

Details	Integrated Tax	Central Tax	State/UT Tax
(A) ITC Available (Whether in full or part)
(1) Import of goods	–
(2) Import of services	–
(3) Inward supplies liable to reverse charge (other than 1 &2 above)	33,480/-	33,480/-	–
(4) Inward supplies from ISD	–	–	–
(5) All other ITC	1,36,250/-	1,36,250/-	67,200/-
(B) ITC Reversed
(1) As per Rule 42 & 43 of SGST/CGST rules	250/-	250/-	50/-
(2) Others	86,115/-	86,115/-	33,575/-
(C) Net ITC Available (A)-(B)	83,365/-	83,365/-	33,575/-
(D) Ineligible ITC
(1) As per section 17(5) of CGST//SGST Act	2,750/-	2,750/-	–
(2) Others

CASE STUDY 5

Golden Talent Pvt. Ltd. is a provider of outsourcing solutions in the financial services vertical.Golden talent has two Units, in Gurugram and Chennai, registered in GST. Its Gurugram Unit is an 100% Economic Oriented Unit. Major part of its supplies is export of services under LUT without payment of taxes. Minimal part of outward supplies is to Domestic Tariff Area on payment of GST. Its Chennai Unit raises invoices for the Gurugram Unit on quarterly basis for processing services

Remarks:

1.In Gurugram Unit, Revenue from Operations is fees from services, the supply is export of services under LUT without payment of taxes. In Chennai Unit, Revenue from Operations are Processing Services Income billed to Gurugram Unit.

Interest Received include interest received from various multi deposits and unsecured loan.

3.Rent Recovery is recovery from the sister concern which has the office in the same building. The rent is charged on the basis of area. (This is the situation of cross charge).

4.Facility Charges are the other expenses recovered from the sister concern.

5. Sale of Fixed Assets includes the following detail:

Sale of E-waste(Monitor Scrap) amounting to Rs.2,000.(Cost of Acquisition:50,000)
Sale of Other goods amounting to 5,000. (Cost of Acquisition:70,000). This supply is made to recipient located in Delhi.
Sale of Old Career Chiller amounting to Rs.7,000. (Cost of Acquisition:45,000). This supply is made to a person located in UP.

6.Legal and Professional Charges are as follows in Gurugram Unit:

Professional Charges- Rs.15,00,000
Legal Charges-Rs. 25,00,000 (Retainership Fee for legal services 10,00,000 and Advisory Fees 15,00,000)
Legal & professional charges of Chennai includes all legal charges received from other state.

7.Membership fees are membership in foreign associations and various subscriptions (This is Import of Service)

8. Conveyance Expenses include cab services provided to employees. (Female staff:15Male staff:30)

9.Miscellaneous Expense include staff meals, plants and uniform for office boy and drivers.

Questions:

Calculate Aggregate turnover and tax payable on it.
Calculate Tax payable under RCM
Calculate Total Tax payable.
Calculate Eligible ITC (RCM & Other)
5.Blocked Credit, if any.

Answers:

Computation of Aggregate Turnover and tax payable there on:

Gurugram Unit:

Particulars	Taxable Value	IGST	CGST	SGST	Remarks
Fee from services	2,50,00,000	–	–	–	Note 1
Interest Income	9,20,000	–	–	–	Note
Rent Recovery	3,20,000	–	28,800	28,800	Note 3
Facility charges Received	1,70,000	–	15,300	15,300	Note 3
Sale of Fixed Assets
a) Sale of E-Waste	2,000	–	50	50	Note 4
b) Sale of Other Goods	5,000	900	–	–	Note 5
c) Sale of Old career Chiller	7,000	1,260	–	–	Note 5
Notice Pay Recovery	21,500	–	1,935	1,935	Note 6
Total	2,64,45,500	2,160	46,085	46,085

(Cross Charge from sister concern is chargeable to tax under GST)

Note 1

As per section 16. (1) of IGST Act, 2017“Zero rated supply” means any of the following supplies of goods or services or both, namely:—

export of goods or services or both;
supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.

Therefore, Fee from services is export of services.

Note 2

As per SI. No.- 27 of N.N.12/2017 CT(R) dated 28th June,2017

Services by way of— (a) extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount (other than interest involved in credit card services); is exempt under GST. Hence tax is not levied on Interest income received on FD.

Note 3

Space is provided to its sister concern for which company is charging rent and other charges in the name of other facility charges on the basis of area allocated to its sister concern. Hence it is the situation of cross charged and it is taxable under GST @ 18%.

Note 4

As per NN-1/2017 CT (R) (Amended vide NN-34/2017 CT(R)), S. No. 234A, E-waste is defined as follows:

“E-waste–

E-waste means electrical and electronic equipment listed in Schedule I of the E-Waste (Management) Rules, 2016, published in the Gazette of India vide G.S.R. 338 (E) dated the 23rd March, 2016, including the components, consumables, parts and spares which make these products operational”;

Schedule I of the E Waste (Management) Rules, 2016, includes printer, telephones, copyright equipment, Refrigerator, Air-conditioners excluding centralized air conditioning plants etc.

Tax on sale of E-Waste is levied @ 5% w.e.f. 13/10/2017.

Note 5

Sale of other goods & Sale of Old Career Chiller are taxable @18% under GST.

As per provisions of Sec 15 of CGST Act,2017 and Rule 28 of CGST Rules,2017,

The value of the supply of goods or services or both between distinct persons as specified in sub-section (4) and (5) of section 25 or where the supplier and recipient are related, other than where the supply is made through an agent, shall-

be the open market value of such supply;

Thus, it has been assumed that the sale value of fixed assets is the open market value of such goods.

Note 6

As per Schedule III, Services by an employee to the employer in the course of or in relation to his employment is neither treated as supply of goods or supply of services. However, employer tolerates the act of employee in lieu of notice pay recovery after the termination of employment agreement. Hence, such recoveries should be charged @ 18% on Notice pay recovery.

Chennai Unit:

Particulars	Taxable Value	IGST	CGST	SGST	Remarks
Processing Services Income	21,65,000	3,89,700	–	–	Note 7

Note 7

Chennai unit raise invoice to its Gurugram units, this service is taxable @18%.

2. Tax Payable Under RCM:

As per Section 9(3) of CGST Act,2017 which states that the Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.

For this purpose, government issued notification no. 13/2017-Centre Tax-Rate& 10/2017 Integrated Tax Rate and asper this notification legal services and import of services are taxable under RCM.

Category of Supply of Services

Supplier of Service

Recipient of Service

Any service supplied by any person who is located in a non-taxable territory to any person other tha nnon-taxable online recipient.

Any person located in anon-taxable territory

Any person located in the taxable territory other than non-taxable online recipient

Services supplied by an individual advocate including a senior advocate by way of representational services before any court, tribunalor authority, directly or indirectly, to any business entity located in the taxable territory, including where contract for provision of such service has been entered through another advocate or a firm of advocates, or by a firm of advocates, by way of legal services, to a business entity.

An individual advocateincluding a senior advocate or firm of

advocates.

Any business entity located in the taxable territory.

Gurugram

Particulars	IGST	CGST	SGST
Legal Services	–	2,25,000	2,25,000
Membership Fee & Subscription (Import of services)	36,000	–	–
Total	36,000	2,25,000	2,25,000

Chennai

Particulars	IGST	CGST	SGST
Legal Services	8,100	–	–
Total	8,100	–	–

3. Total Tax Payable

Gurugram

Particulars	IGST	CGST	SGST
Under Forward Charge	2,160	46,085	46,085
Under RCM	36,000	2,25,000	2,25,000
Total	38,160	2,71,085	2,71,085

Chennai

Particulars	IGST	CGST	SGST
Under Forward Charge	3,89,700	–	–
Under RCM	8,100	–	–
Total	3,97,800	–	–

4.Computation Eligible ITC:

Gurugram

Particulars	IGST	CGST	SGST	Remarks
Other than RCM (A)	3,89,700	3,96,450	3,96,450
a) Legal & Professional charges	–	1,35,000	1,35,000	Note 8
b) Software Expenses	–	27,000	27,000
c) Rent Expenses	–	2,34,000	2,34,000
d) Conveyance Expenses	–	450	450	Note 9
e) Miscellaneous Expenses	–	–	–	Note 9
f) Processing charges	3,89,700	–	–
RCM (B)	36,000	2,25,000	2,25,000
a) Legal & Professional charges	–	2,25,000	2,25,000	Note 8
b) Membership Fee &Subscription(Import of services)	36,000	–	–	Note 8
Total (A+B)	4,25,700	6,21,450	6,21,450

Chennai

Particulars	IGST	CGST	SGST
Other than RCM (A)	–	85,500	85,500
Rent	–	85,500	85,500
RCM (B)	8,100	–	–
Legal & Professional charges	8,100	–	–
Total (A+B)	8,100	85,500	85,500

Note 8

“Input tax” in relation to a registered person, means the central tax, State tax,

integrated tax or Union territory tax charged on any supply of goods or services or

both made to him and includes—

(a) the integrated goods and services tax charged on import of goods;

(b) the tax payable under the provisions of sub-sections (3) and (4) of section 9;

(c) the tax payable under the provisions of sub-sections (3) and (4) of section 5 of the integrated Goods and Services Tax Act;

(d) the tax payable under the provisions of sub-sections (3) and (4) of section 9 of the central Goods and Services Tax Act.

Thus, ITC for RCM shall be available.

Note 9

As per Sec 17(5) of CGST Act,2017 states that ITC on following shall not be available-

Foods and beverages, goods and services used for personal purpose & rent-a-cab etc.

Therefore, ITC on meals provided to staff, uniform provided to office boy & drivers, rent a-cab shall not allowed. However, ITC on cab services to shall be allowed if it is provided to late sitting female employee as per factories Act. Therefore, ITC on cab services shall be allowed portion of traceable for female employee.

ITC is not available for plants as plants are exempt supplies.

5.Blocked Credit:

the following supply of goods or services or both—

(ii) membership of a club, health and fitness centre; and

(iii) travel benefits extended to employees on vacation such as leave or home travel concession:

goods or services or both used for personal consumption;

Thus, following ITC shall not be available.

ITC on staff meals
ITC on Uniform for office boys and drivers.

Gurugram:

Particulars	IGST	CGST	SGST	Remarks
Conveyance Expenses(related to Male employee)	–	900	900	As per proviso to Sec 17(5) (b)
Miscellaneous Expenses	–	1,800	1,800	As per Sec 17(5) (b)(i) & (g)

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