Ambiguity over goods and services tax (GST) on ‘free services’ offered to customers have been removed, providing relief to the banking sector by removing GST applicability. The ambiguity arose after notices were sent to lenders for non-payment of service tax under the pre-GST regime. That issue is yet to be sorted, though the government has given enough signals that these notices might be withdrawn.
The Central Board of Indirect Taxes and Customs (CBIC) clarified in its ‘Frequently Asked Questions’ (FAQs) that there would be no levy on services provided without consideration (free) to other than related/distinct persons. Government answered 91 in FAQs.
In other important clarifications, CBIC has noted that ATM machines do not trigger a GST registration liability —they are not a place of business. Beside, derivatives, forward and futures contracts are not subject to GST, it said, though GST is applicable on service charges or brokerage.
The move on free services by banks is in contradiction to notices issued by Directorate General of Goods and Services Tax Intelligence offices to at least 20 private, multinational and public sector banks, to explain why they should not pay service tax, penalty and interest on ‘free services’ offered to customers between July 2012 and June 2017, a period prior to rollout of GST.
At the time of GST implementation last year, United Bank, Karur Vyas Bank and Sumitomo Mitsui Banking Corporation had sought clarity from the then Central Board of Excise and Customs on the levy that might apply on services provided free of cost to customers.