Reverse Charge Under GST

Transcription

1 Reverse Charge Under GST July 17, 2017 [2017] 83 taxmann.com 206 (Article) Under any tax statute, the chargeability and collection of tax are the most important aspect apart from the aspects like administration, assessment, appeal, refund etc. In the same way, the GST law which has been divided into various chapter and sections, the chapter III covers the levy and collection of tax and chapter X covers the payment of taxes. Sachin Sinha FCA. LLB, Partner, Prakash Sachin & Co. Chartered Accountants The reverse charge has been defined in Section 2(98) of the GST Act. It is opposite to the Direct charge. Under the Direct charge the tax is collected and paid by the supplier of the goods or services or both whereas in the reverse charge the tax is paid by the receiver of goods or services or both. The section 2(98) of the GST Act defines the reverse charge. Reverse charge means "liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or sub-section (4) of section 5 of the Integrated Goods and Services Tax Act". Prakash Sinha FCA. LLB, Partner Prakash Sachin & Co. Chartered Accountants Thus, on the Reverse Charge Mechanism (RCM) is an alternative method to collect the tax where the government think that collection of tax through Direct Charge may be difficult or the person may be the supplied the goods or services belong to unorganized sector where the identification and collection will not be easy. Since the RCM is applied on the receiver of the good or services or both supplied by the supplier of the good or services or both, the aggregate turnover defined under section 2(6) will not include the value of the supply received by supplier on which the receiver was liable to pay the tax through RCM. On the same logic, the turnover in a state or union territory as defined under section 2(112) of the GST act will not include the value of supply of goods or services or both which were liable to be taxed under RCM. Similarly, the output tax as defined under 2(82) will not include the tax which are paid under RCM. The natural corollary is on the registration also, as the value of supply of the goods or services or both on which the central tax has to be paid Page 1 of 11

2 under the RCM is not be clubbed for the aggregate turnover, it is also not includible to count the threshold limit of the turnover to draw a liability to get registered under section 22 of the GST Act. However, the section 24 casts a compulsion on the person liable to pay the tax under RCM to get registered. The provision in GST related to RCM is much wider than the erstwhile service tax law as under that law only few of the services were liable for the RCM, whereas under the new law it is both the goods and services are covered. Further section 9(4) has a much wider implication which covers the RCM to be applied whenever there is a supply of good or services or both from an unregistered person to a registered person. Section 9(3) & 9(4) are the two-important provision of GST which is discuss about the payment of tax under reverse charge basis. Reverse Charge Under section 9(3) of the GST Act. The section is reproduced as below - "The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both". From above, it can be said that under this section the reverse charges are applicable only on those transaction which the government has after the recommendation of council has notified. So, this section operates only when the government notifies certain services to be covered under RCM and it operate independent of section 9(4). Reverse charges on supply of Goods The central government has issued the notification no. 4/2017 on which they have specified the description of the goods on which the reverse charge is applicable. The operative part of the notification is reproduced here under - S. No Tariff item, subheading, heading or Chapter Description of supply of Goods Supplier of goods Recipient of supply Page 2 of 11

3 (1) (2) (3) (4) (5) Cashew nuts, not shelled or peeled Bidi wrapper leaves (tendu) Tobacco leaves to 5006 Silk yarn 5 - Supply of lottery Reverse charge on Services Agriculturist Agriculturist Agriculturist Any person who manufactures silk yarn from raw silk or silk worm cocoons for supply of silk yarn State Government, Union Territory or any local authority Any registered person Any registered person Any registered person Any registered person Lottery distributor or selling agent. Explanation. - For the purposes of this entry, lottery distributor or selling agent has the same meaning as assigned to it in clause (c) of Rule 2 of the Lotteries (Regulation) Rules, 2010, made under the 2 provisions of sub section 1 of section 11 of the Lotteries (Regulations) Act, 1998 (17 of 1998). The Government has notified various services through notification no 13/2017 dated 28/06/2017 and the list of those services are hereunder Sl. No. Category of Supply of Services Supplier of service Recipient of Service (1) (2) (3) (4) 1 Supply of Services by a goods transport agency (GTA) in respect of transportation of Goods Transport Agency (GTA) (a) Any factory registered under or Page 3 of 11

4 goods by road to- (a) any factory registered under or governed by the Factories Act, 1948(63 of 1948);or (b) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India; or (c) any co-operative society established by or under any law; or (d) any person registered under the Central Goods and Services Tax Act or the Integrated Goods and Services Tax Act or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act; or (e) anybody corporate established, by or under any law; or (f) any partnership firm whether registered or not under any law including association of persons; or (g) any casual taxable person. governed by the Factories Act, 1948(63 of 1948); or (b) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India; or (c) any cooperative society established by or under any law; or (d) any person registered under the Central Goods and Services Tax Act or the Integrated Goods and Services Tax Act or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act; or (e) anybody corporate established, by or under any law; or (f) any partnership firm whether registered or not under any law including association of persons; or (g) any casual taxable person; Page 4 of 11

5 2 Services supplied by an individual advocate including a senior advocate by way of representational services before any court, tribunal or authority, directly or indirectly, to any business entity located in the taxable territory, including where contract for provision of such service has been entered through another advocate or a firm of advocates, or by a firm of advocates, by way of legal services, to a business entity. 3 Services supplied by an arbitral tribunal to a business entity. 4 Services provided by way of sponsorship to anybody corporate or partnership firm 5 Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding, - (1) renting of immovable property, and (2) services specified below- (i) services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Central Government, State Government or Union territory or local authority; (ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) transport of goods or passengers. 6 Services supplied by a director of a company or a body An individual advocate including a senior advocate or firm of advocates. An arbitral tribunal. Any person Central Government, State Government, Union territory or local authority A director of a company or a located in the taxable Any business entity located in the taxable Any business entity located in the taxable Anybody corporate or partnership firm located in the taxable Any business entity located in the taxable The company or a body Page 5 of 11

6 corporate to the said company or the body corporate. 7 Services supplied by an insurance agent to any person carrying on insurance business. 8 Services supplied by a recovery agent to a banking company or a financial institution or a nonbanking financial company. 9 Supply of services by an author, music composer, photographer, artist or the like by way of transfer or permitting the use or enjoyment of a copyright covered under clause (a) of sub-section (1) of section 13 of the Copyright Act, 1957 relating to original literary, dramatic, musical or artistic works to a publisher, music company, producer or the like. body corporate An insurance agent A recovery agent Author or music composer, photographer, artist, or the like corporate located in the taxable Any person carrying on insurance business, located in the taxable A banking company or a financial institution or a non-banking financial company, located in the taxable territory Publisher, music company, producer or the like, located in the taxable Notification No -05/2017 dated 19/06/2017 In exercise of the powers conferred by sub-section (2) of section 23 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government hereby specifies the persons who are only engaged in making supplies of taxable goods or services or both, the total tax on which is liable to be paid on reverse charge basis by the recipient of such goods or services or both under subsection (3) of section 9 of the said Act as the category of persons exempted from obtaining registration under the aforesaid Act. Thus, a person who is supplying only those goods or services or both, on which the recipient is liable to pay the tax under RCM as per the provision of section 9(3), then that supplier of the good or services has been exempted from the registration. Page 6 of 11

7 Reverse charge u/s 9(4) of the CGST Act. The Section 9(4) of the CGST Act is reproduce as below: "The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both". Thus when the goods or services or both is supplied from a registered person to a registered person, there is no RCM, similarly when it supplied from registered person to an unregistered person then there is no RCM, further when it is supplied from unregistered to unregistered person then there is no RCM, but when the unregistered person supplied the hood or services to a registered person then the liability of tax through RCM arises in the hands of the recipient of the goods or services. The registered person has been defined as under section 2(94) discuss above the registered person "Registered person" means a person who is registered under section 25 of the CGST Act but does not include a person having a Unique Identity Number". This is an effort to bring the unorganized sector into an organized Page 7 of 11

8 sector. The registered person has to make the invoice and the payment voucher for each such unregistered purchase. In order to remove the complication of such invoicing as well payment voucher and payment of tax directly to then government and then take the credit, various company has started to modify their procurement policy and does not prefer to transact with the unregistered supplier of goods or services. Effect of Notification no. 08/2017- Central Tax (Rate): The Government has issued the notification no 08/2017 and it is reproduced as under. "In exercise of the powers conferred by sub-section (1) of section 11 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on being satisfied that it is necessary in the public interest so to do, on the recommendations of the Council, hereby exempts intra-state supplies of goods or services or both received by a registered person from any supplier, who is not registered, from the whole of the central tax leviable thereon under sub-section (4) of section 9 of the Central Goods and Services Tax Act, 2017 (12 of 2017): Provided that the said exemption shall not be applicable where the aggregate value of such supplies of goods or service or both received by a registered person from any or all the suppliers, who is or are not registered, exceeds five thousand rupees in a day". The notification has created some doubt in a situation where the aggregate amount exceeds Rs 5000/ per day then the tax has to be paid on the whole amount or only the amount which exceeds Rs 5000/-. Further another issue has raised where the unregistered supplier breaks the invoices in such that it does not exceeds Rs 5000/- each day and so on. The CBEC as well as the ICAI in their FAQ has raised few question on the reverse charges and it is summaries as below. Some FAQ on Reverse Charge: 1. What does the payment of tax under reverse charge mean? Ans. In terms of Section 2(98), the terms reverse charge is defined to mean liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both. 2. What are the different types of supplies which are liable to tax under reverse charge mechanism? Ans. As per Section 9 of the CGST Act, 2017 there are two types of supplies which are liable to tax under reverse charge mechanism which are: -. Page 8 of 11

9 1. Specified categories of supply of goods or services or both as notified by government on recommendation of the council. 2. Supply of taxable goods or services or both by an unregistered supplier to a registered person. 3. What are the supplies on which reverse charge mechanism would apply? (a) Notified categories of goods or services or both (b) Inward supply of goods or services or both from an unregistered dealer (c) Both of the above (d) None of the above Ans. (c) Both of the above 4. What would be the time of supply of services taxable under reverse charge mechanism? Ans. In terms of Section 13(3) of the CGST Act, 2017, the time of supply of services for remittance of tax under reverse charge mechanism shall be the earliest of the following: (a) Date of payment recorded in the books of accounts; (b) Date of debit in bank account; (c) Sixty days from the date of issue of invoice or any other document by the supplier; or (d) Date of entry in the books of accounts of the recipient. 5. Time of supply of services under reverse charge mechanism where the supplier of service is associated enterprises? Ans. In case of associated enterprises located within India, the time of supply in terms of Section 13(3) shall be the earliest of the following: (a) Date of payment as per books of accounts; or (b) Date on which payment is debited in the bank account of the supplier; or (c) Sixty days from the date of issuing invoice by the supplier; or (d) Date of entry in the books of accounts of the recipient. Where associated enterprises are located outside India, the time of supply shall be the earliest of the following dates: (a) Date of entry in the books of accounts of the recipient; or (b) Date of payment. Page 9 of 11

10 6. What is time of supply of goods liable to tax under reverse charge mechanism? (a) Date of receipt of goods (b) Date on which the payment is made (c) Date immediately following 30 days from the date of issue of invoice by the supplier (d) Earlier of a/b/c Ans. (d) Earlier of a/b/c 7. What is the time of supply of service in case of reverse charge mechanism? (a) Date on which payment is made to the supplier (b) Date immediately following 60 days from the date of issue of invoice (c) Date of invoice (d) Earlier of (a) & (b) Ans. (d) Earlier of (a) & (b) 8. A person not required to obtain registration if he is required to pay tax under reverse charge and there are no taxable supplies made by him. (a) Incorrect, if person who are required to pay tax under reverse charge, irrespective of threshold shall obtain registration. (b) Incorrect, if person who are required to pay tax under reverse charge obtain registration only if such value of supplies under reverse charge exceeds the threshold limit. (c) Above statement is correct. (d) A person is required to obtain registration if he is required to pay tax under reverse charge and also, he is also making taxable supplies irrespective of the threshold limit. Ans. (a) Incorrect, if person who are required to pay tax under reverse charge, irrespective of threshold shall obtain registration. 9. What is the invoice or other documentation required in case reverse charge cases? Ans. In case of categories of goods or services that are notified, on which tax is payable on reverse charge basis, the recipient of the goods or services would be required to issue a payment voucher at the time of making payment to the supplier- Sec31(3)(g). Further, where the tax liability is cast on the recipient for the reason that the supplier of goods Page 10 of 11

11 or services is an unregistered person, the recipient will be required to issue an invoice in respect of such goods or services -Sec31(3)(f). 10. Can one use input tax credit for payment of tax under reverse charge basis? Ans. No, the amount available in the electronic credit ledger may be used for making any payment towards 'output tax'. Further, the definition of output tax u/s 2 (82) specifically excludes tax payable under reverse charge basis. Therefore, input tax credit cannot be used for payment of tax under reverse charge basis. 11. Whether the Job worker is liable to pay GST under reverse charge mechanism on the goods or services if notified? Ans. Yes. In terms of section 9(3) of CGST Act, 2017 on the specified categories of supply of goods and/or services, the recipient of such goods and/or services is liable to pay GST under reverse charge basis. Further, Section 143 of CGST Act, 2017 does not provide any exemption to job worker in this regard. 12. What does the payment of tax under reverse charge mean? Ans. In terms of Section 2(98), the terms reverse charge is defined to mean liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both. To conclude The scope of the RCM under the present law has become very wide as it does not only cover services but goods too. The enforceability as well as the compliance will be one of the key concern. Let wait to see the effect as it rolls down. Page 11 of 11