Apex Indirect Tax Body, i.e., CBIC, has made major amendments under Igst Act which will be having impact on both, businessmen and end users. Some services tend to get costlier for end users and importers are getting major relief from payment of tax on some services.

This article contains a detailed analysis of amendments w.e.f. 1st October, 2023 in Integrated Goods and Service Tax Act, 2017 (IGST Act):

1. Change in Default method of refund on Zero Rated Supply (Section 16 of IGST Act)

• Till 30th September, 2023, as per Section 16(3) of IGST Act, a registered person making zero rated supply shall be eligible to claim refund under either of the following routes:

1. Made supply without payment of IGST under LUT or Bond and claim refund of unutilised Input Tax Credit; or
2. Supply goods on payment of IGST and claim refund of such IGST Amount.

• Now, Section 16(3) has been amended to provide that the default route for claiming refund shall be export without payment of IGST under LUT or Bond and supplier may claim refund of unutilised Input Tax Credit in accordance with Section 54 of CGST Act.

• As per Section 16(4), the Government shall specify the class of persons or class of goods or services which can be exported on payment of IGST and refund can be claimed for such IGST Amount.

• In accordance with power given under Section 16(4), Government has issued notification No. 01/2023- Integrated Tax dated 31st July, 2023 wherein all goods and services are notified for export on payment of IGST route expect certain category of goods such as:
  • Pan Masala
  • Unmanufactured tobacco (without lime tube) – bearing a brand name
  • Tobacco
  • Snuff
  • And similar products

• As per Circular No. 24/2023-Customs dated 30th September, 2023, To implement the restrictions imposed on export of goods or services on payment of IGST, DG Systems CBIC has developed a backend functionality to restrict IGST refund route for the goods notified by government. Corresponding changes have been made in the system of filing of shipping bills. IGST refund is paid at shipping bills level, the checks have been enabled at shipping bill level itself.

2. Ocean Freight on Import of goods is exempted from IGST with effect from 01.10.2023

• In May Last Year, Apex Court held in the matter of Mohit Minerals case that Indian Importers are liable to pay IGST on “Composite Value” of imported goods, i.e., FOB Value of goods, Cost of Freight and Insurance (CIF) is considered in total to compute Custom duty liability. Accordingly, IGST is paid on freight value at the time of payment of custom duty. 

• Therefore, a separate levy of IGST on ocean freight services on imported goods under RCM is in violation of GST provisions.

• To align provisions of GST law with judgment of Hon’ble Supreme Court, following amendments are made under IGST Act:

• Deletion of GST Rate on Ocean Freight on import of goods
  • As per Entry No. 9 of Notification No. 8/2017-IGST Rate (GST rates on supply of services), IGST @ 5% was leviable on services provided by a person located in non-taxable territory to a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India.
  • Such entry has been deleted vide notification No. 11/2023-IGST Rate dated 26th September, 2023.

• Deletion of RCM provisions
• Entry No. 10 of RCM Notification, specifying that importer was liable to pay IGST under RCM on transportation of goods through vessel from a place outside India up to the customs station of clearance in India, has been deleted through Notificaton No. 13/2023-IGST Rate dated 26th September, 2023..

• Accordingly, the government has exempted payment of IGST under RCM on ocean freight for import of goods w.e.f. 01.10.2023.

3. Supply to SEZ Developers and SEZ Unit for Authorised Operations

• As per Section 16(1) of IGST Act, “Zero Rated Supply” means supply made to Special Economic Zones and Special Economic Zone Developers.

• With effect from 01.10.2023, supply made to SEZ units and SEZ Developers shall be considered for “Authorized Operations” only shall be considered as Zero Rated Supply.

4. Change in scope of OIDAR Services

• Till 30th September, 2023, Online Information and Database access and retrieval services (OIDAR) provided by a person located in non-taxable territory was taxable in India only if such services were received by an unregistered person for business purpose.

• OIDAR services provided by a person located in non-taxable territory to Central Government, state government or any unregistered person for non-business purposes were exempted from GST.

• However, with effect from 01.10.2023, such exemption on supplies made to unregistered person based on purpose of use, i.e., business or personal, has been removed, Therefore, OIDAR Services provided to an unregistered person for personal purpose shall also be liable to IGST. Any person registered under GST for TDS deduction purpose only shall be considered as unregistered person for OIDAR services.

• If OIDAR services are received by a person registered under GST, then such registered person is liable to GST on reverse charge basis.

• Tech giants like Facebook and Google and many other cloud based companies such as Netflix will now face up to 18% of IGST on their services, irrespective of personal or business use. This change broadens the tax scope, increases compliance challenges, and mandates database maintenance for service providers.