ECOs paying Tax u/s 9(5) of CGST Act are Not required to reverse ITC in respect of supply of restaurant services: CBIC Clarifies [Read Circular]

The Central Board of Indirect Taxes and Customs (CBIC) through Circular No. 240/34/2024-GST clarified that electronic commerce operators (“ECOs”) required to pay tax under section 9(5) of the Central Goods and Services Tax Act, 2017 (“CGST Act”) are not required to reverse input tax credit (ITC) in respect of supply of restaurant services through their platform.

The clarification is in respect of input tax credit availed by electronic commerce operators where services specified under Section 9(5) of Central Goods and Services Tax Act, 2017 are supplied through their platform.  The reference is invited to Circular No. 167/23/2021 – GST dated 17.12.2021 which clarified that electronic commerce operators (“ECOs”) required to pay tax under section 9(5) of the Central Goods and Services Tax Act, 2017 (“CGST Act”) are not required to reverse input tax credit (ITC) in respect of supply of restaurant services through their platform (notified services under section 9(5)).

Regarding the obligation of reversing ITC, if any, in relation to the provision of services other than restaurant services under section 9(5) of the CGST Act, numerous representations have been received asking for clarity. The matter has been investigated, and in order to guarantee consistency in the application of the legislation throughout the field formations, the Board clarified it.

The issue was whether an operator of an electronic commerce business who is obligated to pay taxes under section 9(5) of the CGST Act is eligible for a reverse proportional input tax credit on his inputs and input services to the extent that he makes supplies under that provision.

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The circular explained that ECO, who is obligated to pay tax under section 9(5) of the CGST Act, is making supplies under two counts. One of the supplies is notified under section 9(5) of the CGST Act, for which he is responsible for paying tax as though he were the service provider. Secondly, he provides his own services by offering his electronic platform, for which he obtains fees from platform users, such as commissions.

The ECO is not required to reverse input tax credit for restaurant services on which he pays tax under section 9(5) of the CGST Act, as stated by question no. 6 of Circular No. 167/23/2021-GST dated 17.12.2021. Additionally, it has been made clear that the input tax credit cannot be used to satisfy the entire tax debt under section 9(5); instead, the entire amount owed must be paid in cash. 

According to section 17(1) or section 17(2) of the CGST Act, an electronic commerce operator who is required to pay tax under section 9(5) of the CGST Act for specific services is exempt from having to reverse the input tax credit on his inputs and input services proportionately to the extent of supplies made under section 9(5) of the CGST Act.

Furthermore, it is made clear that ECO will only be able to use an electronic cash ledger to pay the entire tax due owed on account of supplies under section 9(5) of the CGST Act. According to section 9(5) of the CGST Act, he cannot use the credit he received for the inputs and input services needed to enable such shipments to satisfy his tax obligation.

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However, such credit can be utilized by him for discharge of tax liability in respect of supply of services on his own account. It is requested that suitable trade notices may be issued to publicize the contents of this Circular. 

To Read the full text of the Order CLICK HERE

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