CBIC’s Latest GST Clarifications: What Businesses Need to Know

The CBIC has now issued a detailed circular recently on the GST rates and the classification of various products to bring out much-required clarity among stakeholders. This gazette was issued on October 11, 2024, after the 54 th GST council meeting that took place on September 9,2024 at New Delhi and this circular bears the number 235/ 29/ 2024 – GST. I. INTRODUCTION The purpose of this circular is to clarify several uncertainties that have arisen in the GST regime and to set out the correct approach to the classification of particular goods under the GST.

The clarification includes all kinds of food products which are tasted products including air conditioning units meant for railways and seats of two wheelers and four wheelers etc. These amendments which are expected to achieve the compliance objectives of the CBIC where there has been misunderstanding of the tax rates of the goods and services under the gst act shall ensure that the gst is applied in a uniform way across the board. Along with this, every clarification not only describes the right GST rates for these goods, but also outlines the period from where the new GST rates will be effective, which in turn help in reducing compliance burden from where it is possible and make the tax less burdensome where required. The reforms particularly affect the food product sector, railway materials and auto parts; significant clarifications concerning the rate changes and classification codes under HS tariff codes. In making such clear distinctions, the CBIC seeks to make business transactions easier to undertake, at the same time providing clear guidelines to tax authorities when undertaking their assessments. This has been made clear in this detailed circular where the CBIC has sought to address any issue that may cause misunderstanding among the different stakeholders making the GST structure more understandable to the users and to the authorities administering taxes. These updates will do a lot of work in ensuring that businesses do not meet wrong tax laws but also in handling unnecessary litigations that arise due to misunderstandings on GST classifications.

Understanding the Circular from CBIC

1. Background to Circular No. 235/29/2024-GST

The circular that has been released by CBIC contains some clarifications on the new GST rates that are important for companies operating in the sectors that implement these new rates. It includes the number of goods, and emphasizes other goods in which particular products of controversy over classification have been seen. The goal to harmonize GST with the degree of sophistication of products makes compliance easier for businesses.

2. Summary of the 54th GST Council meeting

In its 54 th GST Council meeting various suggestions regarding the amendment of GST laws were made. Much of what emerged in this meeting provided the basis of the next circular. According to CBIC, classification problems will be solved so that companies can easily know their GST liabilities.

Key Clarifications on GST Rates for Specific Goods

1. GST Rate for Extruded/Expanded Savory Food Products

The voluminous change relates to extruded or expanded savory food products such as snack pellets. Earlier there was confusion as to whether they fall under HS 2106  Namkeens that attract a 12% GST. The GST Council has now made it clear that from October 10, 2024, these products will come under the sl. No.HS 1905 90 30 and will attract a GST of 12 percent.

• Implication: 

This change also brings the snack products at par with namkeens and bhujia, meaning there is a distinction. As a reminder, from October 10, 2024, the GST rate applicable to the supply will be 12% following the abolishment of the previous rate of 18% for any supplies made prior to October 10, 2024. Also, snack pellets, which are not fried for consumption or raw, will keep on being subjected to a 5% GST.

Clarification on GST Rate for Roof Mounted Package Unit (RMPU) Air Conditioning Machines for Railways

One of the areas that need further clarification arises from the categorization of Roof Mounted Package Unit (RMPU) air conditioning machines in railways. The consequent question was whether these units should be classified under HS 8415, which attracts 28% GST or under HS 8607 for parts of railways at 18% GST.

• Decision: 

Further, the CBIC cleared the misunderstanding that the RMPU air conditioners fall under code HS 8415, thereby it is attracted to 28% GST rate. This classification is in the same vein of the Customs Tariff Act, 1975 that excluded air conditioning machines from the definition of “parts” under HS 8607.

GST Rate for Car and Motorcycle Seats

The circular also discussed the classification and GST rate on the chair like structures meant for vehicles.

• Two-Wheeler Seats: 

These seats fall under heading HS 8714 and they will be subjected to a 28% GST. This classification is consistent with the explanatory notes to HS 9401, wherein two-wheeler seats are specifically excluded from the Chapter heading.

• Car Seats: 

Earlier, car seats fell under the code HS 9401 which attracted an 18% GST. But after the recent suggestion, starting from 10-10-2024 car seats will be levied with a new GST of 28% which makes them on par with motorcycle seats.

Future Implications for Businesses

1. Compliance and Business Planning

By making such changes, the GST system needs new classifications, and organizations need to make changes to their compliance policies. Knowing these changes is important for correct filing of tax and for not getting on the wrong side of the law. Largely, firms should make necessary changes to their accounting systems to accommodate the new GST rates particularly where a company’s tax responsibility will change.

2. Addressing Past Transactions

Organizations also ought to be aware of the new GST rates’ effective dates. In respect of products that were supplied before 10.10.2024, the old GST rates will be chargeable. The above difference is important for accounting practices and when recording the sales in the tax returns.

Clarification on GST Rate for Car and Motorcycle Seats

The circular also dismissed apprehensions about the categorisation and GST rates pertaining to seats that are meant for motorcycles as well as cars. In case of two wheeler seats falling under code HS 8714, the GST rate applicable is 28%. This classification is based on the explanatory notes to HS 9401 which do not cover two-wheeler seats, and instead classify them under HS 8714. As for car seats, these would fall under HS 9401, in which all kinds of car seats are included including those that also function as a bed. Earlier, car seats were taxable at an 18 percent GST under S. No. 435A of Schedule III of notification number 1/2017 Central Tax (Rate). However, the GST Council has now altered it and car seats fall under the slab of a higher GST of 28% from 10 over October, 2024. This change aligns the GST rate for car seats to that of motorcycle seats with the pre-15 May 2019 rate of 18% applicable to any prior periods.

Input Tax Credits

Input Tax Credit is the most critical aspect to watch since it forms the foundation of all calculations that affect a business’s finances. The provision that the suppliers must have filed their returns before the recipient can claim ITC is a realism that there is an uploaded link between the GST structure. Businesses must implement checks to ensure:

• Supplier Compliance: 

Keep records of suppliers and make track of whether they are compliant with GST. This can be achieved by checking the number of returns filed by these clients through the GST portal..

• Documentation: 

Intense documentation is needed in this case. Businesses should keep purchase invoices and ensure that the suppliers have correctly filed the transactions to enable genuine ITC.

• Vendor Assessment: 

Review the current and prospective vendors on the subjects of price but also compliance and reliability aspects related to GST so that no problems could disrupt further ITC claims.

Streamlined Return Filing Process

It is in this regard that the making of return filing less complex is most appropriate to capture the small operations of an enterprise.

Here’s what businesses need to do:

• Familiarization with New Forms: 

There could be numerous different forms or templates, and it is usually quite helpful if companies could become more familiar with any of them. This could be done for instance in a process of getting enhanced accounting Software or even they may need to give a touch up to some or most of the people that work in the accounting department.

• Calendar Planning

Create a chart for compliance for GST the said chart shall be aligned with the new quarterly and or monthly filing thus the preparation of GST returns shall be done to meet compliance deadlines.

• Consulting Tax Advisors: 

Small businesses have received some assistance in the GST law but nothing is ever wrong with speaking to a tax consultant to have a firm grasp of the complicated structure and how best to leverage the simplified systems.

E-Invoicing Requirements

E-invoicing digitalizes invoicing and reduces the disparity and lack of clarity and can increase it. 

To prepare for these changes:

• Invest in Technology: 

Transform IT tools in accounting to allow implementation of e-invoice, including cloud based tools that support the exchange of data with the GST network in real-time.

• Training Employees: 

Organize meetings for the understanding of the staff in billing and IT in relation to the changes in process and regulations about e-invoicing.

• System Integration: 

It is also important to double check that your e-invoice feeds into existing accounting software for automatic upload to the GST system in order to reduce errors.

Also Read: Why Is E-Invoicing Crucial for Modern Businesses?

Adjusting to New GST Rates

One of the issues, which arise from a frequent change in GST rates is the issue to do with the price adjustment or pricing strategies. 

Businesses should:

• Review Pricing Strategies:

Consider how change in new rates will influence methodologies of pricing. This data must then be employed in decision-making, whether it be with respect to changing prices, bearing costs or passing them onto customers.

• Communicate with Customers: 

Transparency is key. Nothing should be done about the prices without consulting the customers, and any changes should be accompanied by a scientific explanation.

• Market Analysis: 

Get acquainted with the market as frequently as you can so as to be ready to counter any change in this context; new competitors may change their prices regarding GST.

Understanding the Reverse Charge Mechanism (RCM)

Navigating RCM can be complex, especially when intermediaries are involved. 

Businesses should:

• Capability Assessment: 

As a part of the organizational readiness assessment, RCM tools and techniques require an evaluation of internal capability to support RCM process implementation effectively. In the case of RCM for services or goods, training might be required for the right acknowledgment of services and goods appropriately.

• Documentation and Compliance: 

Back RCM liabilities with good documentation since this helps in claiming ITC and also helps to avoid disagreements with the tax administration on the various recorded transactions.

• Monitoring Changes: 

Ensure to follow any other changes in the RCM provision to ensure that you can easily avoid the repercussions of non compliance.

Also Read: All about Reverse Charge Mechanism (RCM) in GST

Zero-Rated Supplies and Exports

Exports are quite important to those business entities that deal in zero-rated supplies. 

To effectively manage compliance in this area:

• Record-Keeping Requirements: 

In order to avail receipts for refunds, one should keep records of all exports performed under section 11E of the supplies.

• Vendor Verification: 

Check with relevant supply chain segments especially vendors who supply goods for export so that they understand the states of zero-rated supplies and necessary documentation, will make it easier for exports to deal with refunds.

• Refund Pathways: 

Want to know the procedure to apply for a refund for zero-rated supplies? Being informed on the timelines and requirements can thus help to enhance management of cash flows.

Also Read: Export and Zero-Rated Supply: Taxation and Compliance Requirements

Regular Audits and Internal Checks

Internal audits can be a method to ensure ongoing compliance with GST rules. 

Businesses should consider the following:

• Establishing Audit Processes: 

Develop internal audit protocols to regularly review GST compliance in different departments. This should encompass sales, purchase, and finance teams.

• Resolving Discrepancies: 

Quickly address any discrepancies identified during audits to avoid penalties and further complications with tax authorities.

• Implementation of KPIs: 

Setting Key Performance Indicators (KPIs) for compliance among teams can motivate staff to prioritize GST accuracy and adherence.

Key GST Clarifications from CBIC

What Businesses Need to Know

Conclusion 

CBIC in their circular no. 235/29/2024-GST has come up with a clear direction to further a clear understanding of the GST rates and the classification of various products. Thus, in addressing some critical issues on extruded food items, RMPU air conditioning units, and vehicle seats, the concern directly wants to do away with much confusion and non-adherence to compliance between business and tax authorities. Such updates are of particular relevance to all the stakeholders in the food industry and transportation since they influence prices and taxes. It is therefore important to familiarize oneself and any practicing business with these changes and align practice in regards to GST appropriately. In any given country, there is constant change in tax laws, hence the need to be active in dealing with such changes for efficiency in working and possibly to avoid noticing loose ends that may cause sleepless nights later. Therefore, by accepting all these clarifications, industries can easily come out of GST and thus the taxation system of India would also become clear and transparent.

Also Listen: Understanding accounting under GST

FAQ

1. What was the intention of CBIC circular no. 235/29/2024-GST?

The circular is on matters arising from the 54th GST Council meeting to explain the GST rates and differential rates for specified goods.

2. When was the CBIC circular let out?

This circular was released on the 11 th of October 2024.

3. What alterations were made to the extruded/expanded savory food products?

As from October the 10th, 2024, extruded or expanded savory products, except for un-fried snack pellets will now be classified under Heading HS 1905 90 30 will be liable to GST at the rate of 12%.

4. But for un-fried snack pellets, what is the GST rate?

Raw or autoclaved snack pellets will still be charged a 5% GST, regardless of the processing technique employed.

5. In which GST classification are Roof Mounted Package Unit (RMPU) air conditioners categorized?

RMPU air conditioners are in HS 8415 and attract a 28% GST. This is effective as of the circular’s date as at the date of preparing this circular.

6. What is the GST for motorcycle seats?

Sitting on two wheelers (HS 8714) commonly referred to as scooter and motorcycle seats come with a new understanding that they are subjected to a 28% GST.

7. What has been the change in the rate of the GST for car seats?

Formerly taxed at 18%, car seats will be included under HS 9401 and attract a 28% GST from October 10, 2024.

8. The current issue arising from the new GST rate is whether this new rate applies in the previous periods?

However, the new GST rates only take effect from the respective implementing dates. Any transaction done before that date will be charged at the previous rates as provided in the table.

9. Why will these circulars be fundamentally important for modern businesses?

The circular also educates entrepreneurs on the nature of GST classifications and rates to minimize conflicts with the law as well as fines.

10. How should business be prepared for these changes?

Most companies need to reconsider product categorization, adjust the appropriate price levels, and inform customers about such changes to meet the requirements and be as transparent as possible.

Rutuja Khedekar Freelance Copywriter

Rutuja is a finance content writer with a post-graduate degree in M.Com., specializing in the field of finance. She possesses a comprehensive understanding of financial matters and is well-equipped to create high-quality financial content.

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