On October 11, 2024, the Central Board of Indirect Taxes and Customs (CBIC) issued Circular No. 236/30/2024-GST to clarify the meaning and scope of the terms “as is” and “as is, where is basis” as used in previous GST circulars. The move follows the recommendations made during the GST Council’s 54th meeting held on September 9, 2024. This clarification provides much-needed insight into how these terms apply to specific transactions under GST law, especially in cases of conflicting interpretations and varying tax rates across different businesses.
Background and Scope of the Circular
The CBIC’s clarification addresses growing ambiguity around the terms “as is” and “as is, where is basis” in the context of regularizing past GST payments. The circular is aimed at transactions involving used goods, repossessed assets, and other items where these terms are commonly used. It seeks to standardize the tax treatment of such goods and ensure consistency in GST compliance across industries. The clarification aims to address situations where businesses face varying GST rates or exemptions due to differing interpretations of GST law.
Why the Circular Was Needed
The circular was prompted by several instances where taxpayers and GST field officers encountered confusion regarding the regularization of past transactions involving differing tax rates or exemptions. According to the CBIC, regularization on an “as is” or “as is, where is basis” had been employed in previous GST circulars to address cases where suppliers had paid different GST rates for the same goods or services. The Council’s intent in these cases was to resolve discrepancies without forcing businesses to repay the tax differential, thereby allowing taxpayers to accept their existing tax payments as final.
Interpretation of the Terms
In property law, “as is” or “as is, where is basis” generally means that the buyer accepts the property in its current condition, faults included. Applied to GST law, this concept refers to regularizing past transactions where businesses may have paid varying GST rates. Suppose a business has paid a lower GST rate or claimed an exemption in good faith due to conflicting interpretations. In that case, such payments will be accepted as final for the period being regularized. However, businesses that paid a higher GST rate during the same period will not be entitled to any refunds.
Clarification on Competing GST Rates
One key issue the circular addresses is the confusion that arises from conflicting GST rates. For example, if one group of taxpayers paid 5% GST while another paid 12%, and the GST Council subsequently clarifies that the applicable rate is 5%, the lower rate will be accepted as the final tax payment for the period. The higher-paying taxpayers will not receive any refund for the difference.
The circular offers several illustrative cases to demonstrate the application of this rule:
Illustration 1: Clarification on Different GST Rates Paid by Taxpayers
In this scenario, taxpayers who supplied a particular good, let’s call it “X,” were paying different GST rates due to confusion over which rate applied. Some taxpayers had paid GST at a 5% rate, while others had paid a higher rate of 12%. After considering this situation, the GST Council made a recommendation to lower the GST rate for this product to 5% on all future transactions starting from December 1, 2023. Along with this prospective reduction, they also decided to “regularize” the tax for the past periods, meaning they would accept whatever tax rate was paid previously, based on the taxpayers’ understanding at the time.
So, for the period before December 1, 2023, taxpayers who had already paid the 5% GST rate on “X” will be considered to have fully settled their tax liability, and they won’t be required to pay the difference between the 5% and 12% rates (which is a 7% differential). In essence, even though the correct rate might have been unclear or higher, their payment of 5% will be accepted as final.
For those taxpayers who had paid the higher 12% GST, the government will not issue any refunds. Even though the rate has now been lowered to 5%, they won’t be able to claim back the 7% extra they paid. This clarification ensures fairness by allowing both sets of taxpayers to move forward without further tax liabilities or refunds for the period before the new rate took effect.
Illustration 2: Clarification on Exemption Doubts and GST Rate Adjustments
In the second illustration, some taxpayers paid GST at 5% on “X,” while others didn’t pay any GST at all because they believed the product was exempt under a specific GST notification. Due to this confusion, different taxpayers had been applying different rates — either 5% or zero (nil). To clarify this, the GST Council stepped in and confirmed that the correct rate for “X” should have been 5%, and they issued a recommendation to regularize the past period on an “as is, where is basis.”
What this means is that for the period before December 1, 2023, the non-payment of GST by those who believed “X” was exempt will be accepted as full discharge of their tax liability, provided they had honestly declared the transaction as exempt in their GST returns. These taxpayers won’t have to go back and pay the 5% GST they might have otherwise owed because their position was based on a genuine doubt.
However, those taxpayers who had already paid the 5% GST won’t receive any refund. The government will treat their payment as the final tax, even though others had paid zero. The purpose of this clarification is to remove the ambiguity about the correct GST rate and regularize past payments without requiring additional tax collections or refund processing.
Illustration 3: Clarification on Different Interpretations of GST Rates
In the third case, there was even more confusion over what rate of GST should apply to the supply of “X.” Some taxpayers had paid GST at 5%, others had paid 12%, and a few had not paid any GST at all because they believed the supply was exempt. The GST Council then issued a recommendation stating that the correct rate should be 12% for “X,” and clarified that any payments for the past period would be regularized on an “as is, where is basis.”
This means that for the period before December 1, 2023, taxpayers who had paid 5% GST will be treated as having fully discharged their tax liability. They will not be required to pay the additional 7% that would bring their payment up to the correct 12% rate. On the other hand, those who had paid the 12% rate won’t be entitled to any refunds — their payment is considered final.
However, the clarification also makes it clear that taxpayers who didn’t pay any GST during this period (assuming they wrongly believed the supply was exempt) will still be required to pay the 12% rate. The regularization applies only to those who made a partial payment (such as 5%), not to those who made no payment at all. The goal here is to ensure fairness by accepting the lower payments made in good faith while still collecting the full tax from those who didn’t pay anything.
Practical Impact on Businesses
This clarification is expected to bring relief to businesses that previously faced uncertainty regarding GST compliance due to ambiguous tax rules. By regularizing past transactions “as is, where is,” the CBIC ensures that businesses will not face additional tax liabilities for genuine mistakes or varying interpretations of GST law. However, businesses should take note that no refunds will be issued to those who paid higher GST rates in good faith.
To ensure proper implementation, the CBIC has instructed field officers to apply these clarifications consistently across all industries. This is especially important in cases where businesses have already paid GST at lower or higher rates due to differing interpretations of applicable notifications or exemptions.
The CBIC’s clarification on “as is” and “as is, where is basis” under Circular No. 236/30/2024-GST is a significant step towards reducing ambiguity in GST compliance. It provides clear guidance on how businesses should approach past transactions involving conflicting GST rates or exemptions, helping to ensure smoother operations and fairer tax administration going forward. However at the some time, firms who had paid a higher tax in the past will not be receiving any refunds and may feel disheretened. Businesses engaged in the sale of used goods, repossessed assets, and similar transactions should review the circular closely to understand their GST liabilities.
CBIC Circular No. 236/30/2024 – GST
Clarification regarding the scope of “as is / as is, where is basis” mentioned in the GST Circulars issued on the basis of recommendation of the GST Council in its meetings