Clarification on various issue pertaining to GST

Circular No.: 172/04/2022-GST
Date of Circular: 6th July 2022
Relevant Sections and Rules:

• CGST Act, 2017:
  • Section 17(5): Blocked credits
  • Section 49, 49A, 49B: Utilization of credit and cash ledger
  • Section 54: Refund
  • Section 168(1): Power to issue instructions
• CGST Rules, 2017:
  • Rules 86, 88A, 89
• Related Circulars:
  • Circular No. 147/03/2021-GST

Summary of Clarifications Provided:

1. Refund of Deemed Export Supplies – ITC Not to Be Treated as Regular ITC:
   ITC availed for claiming refund of tax paid on deemed export supplies is not considered regular ITC under Chapter V of the CGST Act.
   Hence:

• It is not subject to Section 17 restrictions (e.g., blocked credits), and
• It should not be included in “Net ITC” for refund computation under Rule 89(4) or 89(5) for zero-rated or inverted duty refunds.

2. Proviso to Section 17(5)(b) Applies to the Whole Clause:
   The proviso at the end of Section 17(5)(b) (allowing ITC for obligations under any law) applies to all sub-clauses [(i) to (iii)] of clause (b), not just sub-clause (iii).
   This means ITC is allowed where such goods/services are mandatorily provided to employees under law, e.g., transportation, food, insurance.
3. ITC Blockage on Leasing Services Applies Only to Motor Vehicles, Vessels, Aircrafts:
   The restriction on ITC for leasing under Section 17(5)(b)(i) applies only to motor vehicles, vessels, or aircrafts.
   Leasing of other items (e.g., office space, equipment) is not covered by the restriction and thus eligible for ITC.
4. Perquisites to Employees Not Taxable if Under Employment Contract:
   Perquisites provided by employers under a contractual employment agreement are not liable to GST, as they fall within the employer-employee relationship and are covered under Schedule III (services by employee to employer not treated as supply).
5. Use of Electronic Credit Ledger – Only for Output Tax:
   The electronic credit ledger can be used only for output tax payment under CGST/IGST Act.
   It cannot be used for:

• Reverse charge tax
• Interest
• Penalty
• Fees
• Erroneous refunds

6. Use of Electronic Cash Ledger – For All Payments:
   The electronic cash ledger can be used to pay any liability under GST laws, including:

• Tax (including reverse charge)
• Interest
• Penalty
• Fees
• Refund repayments

Source: Circular No.: 172/04/2022-GST