Understanding GST Circular No. 34/8/2018: Key Clarifications on Service Classification

02March

Understanding GST Circular No. 34/8/2018: Key Clarifications on Service Classification

<h2 class="text-xl font-bold text-text-200 mt-1 -mb-0.5">1. Bus Body Building: Goods or Services?</h2><p class="whitespace-pre-wrap break-words"><strong>Key Clarification</strong>: Bus body building involves both supply of goods and services, making it a composite supply. The classification depends on determining the principal supply based on the specific facts and circumstances of each case.</p><p class="whitespace-pre-wrap break-words">This clarification is particularly important for manufacturers and suppliers in the automobile industry who need to determine the correct tax rates and input tax credit eligibility.</p><h2 class="text-xl font-bold text-text-200 mt-1 -mb-0.5">2. Retreading of Tyres: Goods or Services?</h2><p class="whitespace-pre-wrap break-words"><strong>Key Clarification</strong>: The circular provides two distinct scenarios:</p><ul class="[&:not(:last-child)_ul]:pb-1 [&:not(:last-child)_ol]:pb-1 list-disc space-y-1.5 pl-7"><li class="whitespace-normal break-words">When retreading is performed on customer-owned tyres: This is a composite supply where the predominant element is the retreading process, making it primarily a service. The rubber used is considered an ancillary supply.</li><li class="whitespace-normal break-words">When the old tyres belong to the supplier: This is treated as a supply of goods (retreaded tyres under heading 4012 of the Customs Tariff), attracting GST at 28%.</li></ul><p class="whitespace-pre-wrap break-words">This distinction helps tyre retreading businesses correctly classify their supplies and apply the appropriate tax treatment.</p><h2 class="text-xl font-bold text-text-200 mt-1 -mb-0.5">3. Priority Sector Lending Certificates (PSLCs): Taxability</h2><p class="whitespace-pre-wrap break-words"><strong>Key Clarification</strong>: PSLCs are:</p><ul class="[&:not(:last-child)_ul]:pb-1 [&:not(:last-child)_ol]:pb-1 list-disc space-y-1.5 pl-7"><li class="whitespace-normal break-words">Considered goods, not securities</li><li class="whitespace-normal break-words">Similar to freely tradeable duty scrips, Renewable Energy Certificates, or replenishment licenses</li><li class="whitespace-normal break-words">Taxable as goods at the standard rate of 18% under the residuary entry S. No. 453 of Schedule III of notification No. 1/2017-Central Tax(Rate)</li><li class="whitespace-normal break-words">GST paid on these certificates is available as Input Tax Credit (ITC) to the bank purchasing them</li></ul><p class="whitespace-pre-wrap break-words">This clarification brings certainty to banking and financial institutions dealing with PSLCs.</p><h2 class="text-xl font-bold text-text-200 mt-1 -mb-0.5">4. DISCOM Activities and State Government Guarantees</h2><p class="whitespace-pre-wrap break-words"><strong>Key Clarification</strong>: Two separate issues are addressed:</p><p class="whitespace-pre-wrap break-words"><strong>a) DISCOM Activities</strong>:</p><ul class="[&:not(:last-child)_ul]:pb-1 [&:not(:last-child)_ol]:pb-1 list-disc space-y-1.5 pl-7"><li class="whitespace-normal break-words">Basic electricity transmission/distribution by utilities is exempt from GST</li><li class="whitespace-normal break-words">However, associated services like application fees for connections, meter rental charges, testing fees, labor charges for shifting meters/service lines, and duplicate bill charges are all taxable</li></ul><p class="whitespace-pre-wrap break-words"><strong>b) State Government Guarantees</strong>:</p><ul class="[&:not(:last-child)_ul]:pb-1 [&:not(:last-child)_ol]:pb-1 list-disc space-y-1.5 pl-7"><li class="whitespace-normal break-words">Guarantees provided by Central/State Governments to business entities (including PSUs) for loans taken from financial institutions are taxable</li><li class="whitespace-normal break-words">This applies regardless of the form of consideration, including Guarantee Commission</li></ul><h2 class="text-xl font-bold text-text-200 mt-1 -mb-0.5">Implications for Businesses</h2><p class="whitespace-pre-wrap break-words">This circular helps businesses properly classify their supplies, ensuring compliance with GST regulations. Clear classification is essential for:</p><ul class="[&:not(:last-child)_ul]:pb-1 [&:not(:last-child)_ol]:pb-1 list-disc space-y-1.5 pl-7"><li class="whitespace-normal break-words">Determining the correct tax rate</li><li class="whitespace-normal break-words">Proper documentation and invoicing</li><li class="whitespace-normal break-words">Accurate input tax credit claims</li><li class="whitespace-normal break-words">Avoiding disputes with tax authorities</li></ul><p class="whitespace-pre-wrap break-words">Business entities dealing with any of these specific services should review their tax practices to ensure alignment with these clarifications. When in doubt about classification, the circular emphasizes looking at the "essential nature" of the supply rather than focusing solely on value.</p><p><br><a href="https://cms.plasament.com/storage/shubham-pathak/circularno-34-cgst.pdf">circularno-34-cgst</a><br> </p>

Understanding GST Circular No. 34/8/2018: Key Clarifications on Service Classification

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