This circular provides clarifications on certain GST issues to ensure uniform implementation of the law, particularly relating to deemed export refunds, interpretation of section 17(5) of the CGST Act, taxability of employee perquisites, and utilisation of balances in electronic ledgers.

It clarifies that input tax credit availed by recipients of deemed export supplies for the limited purpose of claiming refund of tax paid is only a procedural facility and is not ITC under Chapter V of the CGST Act. Accordingly, such ITC is not subject to section 17 restrictions and is also not to be included in “Net ITC” for computing refunds under rule 89 relating to zero-rated supplies or inverted duty structure.

On section 17(5), the circular clarifies that the proviso allowing ITC where goods or services are obligatory for an employer to provide under any law applies to the entire clause (b) and not only to a specific sub-clause. It also clarifies that the restriction on ITC for “leasing” applies only to leasing of motor vehicles, vessels, and aircraft, and not to leasing of other goods.

With respect to employee-related transactions, it clarifies that perquisites provided by an employer to employees in terms of a contractual agreement form part of the employment relationship and are not liable to GST. The circular further clarifies that the electronic credit ledger can be used only for payment of output tax (excluding reverse charge liabilities) and not for interest, penalty, fees, or other amounts, while the electronic cash ledger can be used for payment of all liabilities under GST law.

These clarifications aim to remove ambiguity and reduce disputes in GST compliance and administration.