Taxmann's GST How to Meet Your Obligations | Set of 3 Volumes

Contents PAGE

DIVISION ONE BASIC CONCEPTS CHAPTER 1 INTRODUCTION & BASIC CONCEPT

3

CHAPTER 2 CONSTITUTIONAL AMENDMENT

82

CHAPTER 3 TRANSITIONAL PROVISIONS

89

CHAPTER 4 MEANING & SCOPE OF SUPPLY AND LEVY OF GST

172

CHAPTER 5 DEFINITION & PRINCIPLE OF CLASSIFICATION

346

CHAPTER 5A RESIDENTIAL OR COMMERCIAL APARTMENTS - NEW SCHEME

441

CHAPTER 6

529

NON-TAXABLE SUPPLIES CHAPTER 7 PAYMENT UNDER REVERSE CHARGE I-7

557

CONTENTS

I-8 PAGE

CHAPTER 8 TIME OF SUPPLY & CHANGE IN RATE OF TAX

648

CHAPTER 9

679

PLACE OF SUPPLY CHAPTER 10

851

VALUE OF SUPPLY CHAPTER 11 JOB WORK, SCRAP & WASTE GENERATED AT JOB-WORKER

935

CHAPTER 12 ELECTRONIC COMMERCE OPERATOR & COLLECTION OF TAX AT SOURCE

956

CHAPTER 13 TAX DEDUCTED AT SOURCE

1010

DIVISION TWO EXEMPTIONS & OTHER LEVIES CHAPTER 14 EXEMPTIONS

1033

CHAPTER 15 UNION TERRITORY GOODS & SERVICES TAX

1541

CHAPTER 16 GST (COMPENSATION TO STATES) ACT

1546

CHAPTER 16A CESS

1548

CHAPTER 17 COMPOSITION LEVY

1552

I-9

CONTENTS PAGE

DIVISION THREE EXPORT & IMPORT OF GOODS AND SERVICES CHAPTER 18 EXPORT OF GOODS, SERVICES AND EXPORT INCENTIVES

1597

CHAPTER 19 DEEMED EXPORTS INCLUDING EOU, STP

1669

CHAPTER 20 SPECIAL ECONOMIC ZONE

1687

CHAPTER 21 IMPORT OF GOODS & SERVICES

1717

CHAPTER 22 ADMINISTRATION & REGISTRATION

1739

DIVISION FOUR PROCEDURES CHAPTER 23 TAXABLE PERSON, TAX INVOICE, CREDIT & DEBIT NOTES & E-WAY BILL

1821*

CHAPTER 24 PAYMENT OF TAX AND INTEREST - COMPUTATION OF TAX LIABILITY

1912*

CHAPTER 25 RETURNS

*See Volume 2.

1935*

CONTENTS

I-10 PAGE

CHAPTER 26 ASSESSMENT

2108*

CHAPTER 27 DEMAND, RECOVERY AND ADJUDICATION

2146*

CHAPTER 28 REFUND OF TAXES

2201*

CHAPTER 29 AUDIT OF ASSESSEE’S ACCOUNTS

2346*

CHAPTER 30 PENALTIES, CONFISCATION & FINE

2383*

CHAPTER 31 ARREST, PROSECUTION AND COMPOUNDING

2434*

CHAPTER 32 ADVANCE RULING

2458*

CHAPTER 33 INSPECTION, SEARCH & SEIZURE

2476*

CHAPTER 34 LIABILITY TO PAY IN CERTAIN CASES

2489*

CHAPTER 35 GOODS AND SERVICES TAX PRACTITIONER SCHEME & PROVISIONAL ATTACHMENT

2498*

CHAPTER 35A ANTI-PROFITEERING MEASURE

2512*

CHAPTER 36 RESIDUAL MATTERS

*See Volume 2.

2545*

I-11

CONTENTS PAGE

DIVISION FIVE INPUT TAX CREDIT CHAPTER 37 INTRODUCTION TO INPUT TAX CREDIT

2567*

CHAPTER 38 INPUT

2573*

CHAPTER 39 INPUT SERVICE

2645*

CHAPTER 40 CAPITAL GOODS

2661*

CHAPTER 41 UTILIZATION OF INPUT TAX CREDIT

2678*

CHAPTER 42 CONDITIONS, TIME LIMIT AND DOCUMENTS FOR AVAILMENT OF CREDIT

2706*

CHAPTER 43 COMMON INPUTS AND INPUT SERVICES FOR EXEMPTED AND TAXABLE SUPPLIES

2757*

CHAPTER 44 REMOVAL OF INPUT, CAPITAL GOODS AND WASTE INCLUDING FOR JOB-WORK

2776*

CHAPTER 45 PROCEDURES AND RECORDS FOR INPUT TAX CREDIT

2779*

CHAPTER 46 INPUT SERVICE DISTRIBUTOR *See Volume 2.

2786*

CONTENTS

I-12 PAGE

CHAPTER 47 MATCHING OF CREDIT AND BLACK LISTING OF DEALER

2806*

CHAPTER 48 RECOVERY OF INPUT TAX CREDIT

2821*

CHAPTER 49 MISCELLANEOUS PROVISIONS

2827*

DIVISION SIX APPEALS CHAPTER 50 APPEAL - GENERAL PROVISIONS

2845*

CHAPTER 51 TIME LIMIT FOR FILING APPEAL AND CONDONATION OF DELAY

2911*

CHAPTER 52 PRE-DEPOSIT OF DUTY FOR ENTERTAINING APPEAL

2929*

CHAPTER 53 DEPARTMENTAL APPEAL & POWER OF REVISIONAL AUTHORITY

2940*

CHAPTER 54 APPEAL TO APPELLATE AUTHORITY

2956*

CHAPTER 55 APPEAL BEFORE GOODS & SERVICES TAX APPELLATE TRIBUNAL

2968*

CHAPTER 56 ORDER OF APPELLATE TRIBUNAL

2988*

CHAPTER 57 PROCEDURE BEFORE APPELLATE TRIBUNAL

*See Volume 2.

3014*

I-13

CONTENTS PAGE

CHAPTER 58 POWERS AND LIMITATIONS OF APPELLATE TRIBUNAL

3033*

CHAPTER 59 APPEAL BEFORE HIGH COURT

3059*

CHAPTER 60 APPEAL BEFORE SUPREME COURT

3073*

DIVISION SEVEN ACTS/RULES/NOTIFICATIONS/ CIRCULARS & CLARIFICATIONS u

CENTRAL GOODS AND SERVICES TAX ACT, 2017

3083†

u

INTEGRATED GOODS AND SERVICES TAX ACT, 2017

3331†

u

UNION TERRITORY GOODS AND SERVICES TAX ACT, 2017

3369†

GOODS AND SERVICES TAX (COMPENSATION TO STATES) ACT, 2017

3401†

u

CENTRAL GOODS AND SERVICES TAX RULES, 2017

3419†

u

INTEGRATED GOODS AND SERVICES TAX RULES, 2017

3595†

u

GOODS AND SERVICES TAX COMPENSATION CESS RULES, 2017

3611†

UNION TERRITORY GOODS AND SERVICES TAX (ANDAMAN AND NICOBAR ISLANDS) RULES, 2017

3615†

UNION TERRITORY GOODS AND SERVICES TAX (CHANDIGARH) RULES, 2017

3619†

UNION TERRITORY GOODS AND SERVICES TAX (DADRA AND NAGAR HAVELI) RULES, 2017

3623†

UNION TERRITORY GOODS AND SERVICES TAX (DAMAN AND DIU) RULES, 2017

3627†

u

u u u u

*See Volume 2. †See Volume 3.

CONTENTS

I-14 PAGE

u

UNION TERRITORY GOODS AND SERVICES TAX (LAKSHADWEEP) RULES, 2017

3631†

u

NOTIFICATIONS

3635†

u

CIRCULARS & CLARIFICATIONS

3955†

u

LIST OF PRESCRIBED FORMS

u

LIST OF NOTIFICATIONS

xi †

u

LIST OF CIRCULARS & CLARIFICATIONS

xli †

†See Volume 3.

i†

7

Payment under Reverse Charge

7.1 Background The Service Tax was imposed on few categories of services in 1994.

The Service Tax on services provided by goods transport agency was imposed in 1997. As per the notification, the recipient of service was made liable to pay the tax. At the relevant time, Section 68(2) of Chapter V of the Finance Act, 1994 did not provide for recovery of tax from the recipient of service. Therefore, the recovery of tax from recipient of service was challenged.

After the judgment of Supreme Court in the case of Laghu Udyog Bharati v. Union of India reported in [2006] 4 STT 322, Section 68 was amended by incorporating sub-section (2) which empowers the Government to specify the services and the person liable to pay tax by notification.

After the issuance of notification, the tax is payable by the person specified in the notification, which can be either the recipient of service or both provider of service as well as recipient of service. The Government has issued notification from time to time for recovery of tax from the recipient of service.

7.2 Rationale behind reverse charge The following three factors are the basis for providing of payment of tax under reverse charge: (a) Large number of assessees with small payment of tax from each assessee - Sometimes the number of Assessees (who is supplier of Goods or Service or both) are very large and the recipient of Goods or services or both are few. The Govt. feels that each of large number of assessee will pay small amount of tax and recovery of tax from the service recipient will be much simpler and will save public at large from burden of complying with law. For example, Insurance Agents. There may be over one crore insurance agents 557

Para 7.3

DIV. 1 : BASIC CONCEPTS

558

employed by 25 to 30 Companies engaged in providing life insurance services. The commission received by each of the agent may not exceed ` 10 Lacs. Therefore, the Government may not get any substantial revenue if the service provider is made liable to pay the tax. The Government has specified under Rule 2(1)(d) of the Service Tax Rules, 1994 that Insurance Company as a person is liable to pay tax when services are rendered by Insurance Agents.

The Government can collect the same amount of tax or more amount of tax for the services rendered by the Insurance Agent from its 25 to 30 Insurance Companies. Thus the administrative problems in collecting the tax is heavily reduced. (b) Jurisdiction - In case of import of service, the service provider is located outside India. The taxable territory for levy of GST is India.

The Government has no jurisdiction to demand tax from the person located outside India. Accordingly, the recipient of service is made liable to pay the tax as he is located in India. The Government can recover tax from recipient. (c) Difficulty in Collection of Tax - In many cases the Government finds it very difficult to recover tax from some class of assessees like individuals, partnership, HUF, etc. In some trades like providing security service, manpower supply, the recovery of tax is a big headache of Government. Therefore, it provides for payment of tax by the recipient who are corporate bodies.

7.3 Contents of the Chapter Following are the contents of the chapter (a) Statutory provisions [Refer para 7.4] (b) Reverse charge on supply of goods also [Refer para 7.5] (c) No partial payment of tax by supplier [Refer para 7.6] (d) Collection of tax at source and tax deducted at source are different [Refer para 7.7] (e) Tax cannot be collected from two persons [Refer para 7.8] (f) Utilization of credit [Refer para 7.9] (g) Revenue neutral [Refer para 7.10] (h) Supply by unregistered person to registered person [Refer para 7.11] (i) Reverse Charge in case of supplies from Unregistered person deferred [Refer para 7.11A]. Amendment from date to be notified [Refer para 7.11B]

559

CH. 7 : PAYMENT UNDER REVERSE CHARGE

Para 7.4

(j) Supply through Electronic Commerce Operator [Refer para 7.12] (k) No registration if tax is payable on reverse charge [Refer para 7.13] (l) Supply attracting reverse charge (Refer paras 7.14 to 7.30)

7.4 Statutory Provisions The Section 9(3) of GST Act excluding IGST Act and section 5(3) of IGST Act empowers the Central or State Government by issuing notification to specify categories of supply of goods or services or both, the tax on which shall be payable on reverse charge basis. The section 9(3) of GST Act excluding IGST Act and section 5(3) of IGST Act reads as follows: 9(3) 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.

Under IGST Act 5(3) 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.

The Section 9(4) of GST Act excluding IGST Act and section 5(4) of IGST Act specify that receipt is liable to pay GST on goods or services received by him from unregistered persons. These are discussed in para 7.11.

Section 2(98) defines ‘reverse charge’ as follows: (98) “reverse charge’’ means the 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;

7.4-1 Essential Ingredients of reverse charge The essential ingredients are as follows: (a) It shall be recommended by GST Council formed under the Constitution of India. The Section 2(36) defines ‘council’ as follows: ‘(36) “Council” means the Goods and Services Tax Council established under Article 279A of the Constitution;’

Para 7.5

DIV. 1 : BASIC CONCEPTS

560

The categories of supply of goods or service on which tax is payable by reverse charge shall be recommended by GST council.

Therefore, it is expected that it will be uniform in all the States. (b) The Central or State Government shall issue notification specifying the categories of supply of goods or services or both and the person liable to pay the tax. The issuance of notification is a mandatory condition. Section 68(2) of Chapter V of the Finance Act, 1994 empowers the Government to specify the services and the person liable to pay tax. The Government specified the person liable to pay tax under Rule 2(1)(d) of the Service Tax Rules, 1994 w.e.f. 16-8-2002 in case of import of service i.e. where service provider is located outside India. However, the Government did not issue the notification specifying the nature of service and the person liable to pay tax till 1-1-2007. The Larger Bench of Tribunal in the case of Hindustan Zinc Ltd. v. CCE 2008 taxmann.com 1220 (N. Delhi - CESTAT) has held that the tax is not payable by the recipient of service till 1-1-2005 as the Government did not issue the notification. The issuance of notification is mandatory condition.

The said judgment is finally being upheld by the Hon’ble Supreme Court as reported in 2009 (14) S.T.R.J. 125. In view of this, it is essential to issue the notification under Rule 8(3) specifying the nature of supply on which tax is payable under reverse charge. (c) The recipient of service or goods will be considered as a person liable to pay GST. As per section 9(3) & (4) of GST Act excluding IGST Act and section 5(3) & (4) of IGST Act, the provisions of the Act, shall apply to such person as if he is responsible for making the payment. The specified person thus will step into the shoes of the person making the supply. He will have to obtain registration, make payment of tax, file return and comply with all other formalities as if he is the person making the supply. The officer from the department will also regularly audit the records maintained by him.

7.5 Reverse Charge on supply of goods also The Section 9(3) of GST Act excluding IGST Act and section 5(3) of IGST Act empowers the Central or State Government to specify the categories of supply of goods or services or both, the tax on which is payable on reverse charge basis. The Section 68(2) of Chapter V of the Finance Act, 1994 only empowered the Government to specify the services and the person liable to pay tax for such services by issuing notification. There is no provision in the Central Excise Act, 1944 which

561

CH. 7 : PAYMENT UNDER REVERSE CHARGE

Para 7.7

levies excise duty on manufacture of goods which empowered the Government to recover the tax from the purchaser of the goods, except in case of purchase of goods for use in the manufacture of export products. Thus recovery of tax on supply of goods from the recipient is a new concept.

The government vide Notification No. 4/2017-Central Tax (Rate) dated 28-6-2017 has specified categories of goods on which tax will be payable by recipient of supply.

7.6 No partial payment of tax by the supplier Section 68(2) of Chapter V of the Finance Act, 1994 till 1-7-2012 did not empower the Central Government to recover service tax partially from the recipient of service and partially from the provider of service. The Finance Act, 2012 added the following proviso to empower the Central Government to recover the tax partially from service provider and partially from service recipient.

“Provided that the Central Government may notify the service and the extent of service tax which shall be payable by such person and the provisions of this Chapter shall apply to such person to the extent so specified and the remaining part of the service tax shall be paid by the service provider.”

Thereafter the Central Government has issued Notification No. 30/2012ST which specifies the percentage of tax recoverable from the service provider and the service recipient.

7.6-1 No power for recovery from both The provisions of Section 9(3) & (4) of GST Act excluding IGST Act and section 5(3) & (4) of IGST Act have been reproduced above. It will be observed that the Government does not have power to specify the recovery of tax both from supplier as well as recipient. The tax can be recovered only from the recipient of goods or services.

7.7 Collection of tax at source and tax deduction at source are different Section 52 of the GST Act provides that the electronic commerce operator shall collect an amount calculated at such rate not exceeding one per cent, as may be notified by the Government on the recommendations of the Council, of the net value of taxable supplies made through it by other suppliers where the consideration with respect to such supplies is to be collected by the operator.

Para 7.8

DIV. 1 : BASIC CONCEPTS

562

Section 51 of the GST Act provides that the Central or State Government may mandate any or all of the following persons to deduct the tax at source and pay to the credit of Government. The sub-section (1) read as follows : (a) a department or establishment of the Central Government or State Government; or (b) local authority; or (c) Governmental agencies; or (d) such persons or category of persons as may be notified by the Government on the recommendations of the Council, (hereafter in this section referred to as “the deductor”), to deduct tax at the rate of one per cent from the payment made or credited to the supplier (hereafter in this section referred to as “the deductee”) of taxable goods or services or both, where the total value of such supply, under a contract, exceeds two lakh and fifty thousand rupees: Provided that no deduction shall be made if the location of the supplier and the place of supply is in a State or Union territory which is different from the State or as the case may be, Union territory of registration of the recipient.

Explanation.—For the purpose of deduction of tax specified above, the value of supply shall be taken as the amount excluding the Central tax, State tax, Union territory tax, integrated tax and cess indicated in the invoice.

In both the cases the deductor does not become the assessee. His responsibility is to deduct the tax and deposit it with the Government.

However, in case of tax payable on reverse charge, the person is liable to pay the tax. He shall be treated as assessee. Section 9(3) & (4) of GST Act excluding IGST Act and section 5(3) & (4) of IGST Act also provides that all the provisions of the Act shall apply to such person as if he is person liable to pay tax. Therefore, he has to take registration, pay tax, file return and comply with all other formalities. He steps into the shoes of the supplier.

7.8 Tax cannot be collected from two persons Provisions regarding payment of tax by recipient of service is also contained in Chapter V of Finance Act, 1994. The notification No. 30/ 2012-ST read with rule 2(1)(d) of Service Tax Rules, 1994 specified various categories of service on which tax is payable by the recipient of service. In some case, dispute has arisen regarding the nature of service and the fact whether tax is payable on reverse charge or not.

563

CH. 7 : PAYMENT UNDER REVERSE CHARGE

Para 7.9

One of the service specified in notification No. 30/2012-ST is supply of manpower which has been defined in rule 2(g) of Service Tax Rules, 1994 as follows: “supply of manpower temporarily or otherwise to another person to work under his superintendence or control”

It is observed from the rule that where supervision and control is exercised by recipient of service on the manpower, the service is considered as supply of manpower. In case supervision and control is exercised by the manpower supplier, it will be considered as supply of service of job work and not supply of manpower.

Similarly, in case of GTA in many cases, GTA has paid the service tax on the services provided by them. The department has demanded the tax from the recipient of service as notification specified recipient of service as person liable to pay tax. The Tribunal has consistently held in following judgments that once tax has been paid either by provider of service or recipient of service, service tax cannot be demanded again from other person. The government shall receive the tax only from one person on the transaction. If the government is already received the tax either from the provider or recipient it cannot ask other person to pay the tax again. (a) General Manager, J K Sugar Ltd. 2016 (43) STR 292 (Tri.-All) (b) Navyug Alloys Pvt. Ltd. - 2009 (13) S.T.R. 421 (Tri.-Ahd.) (c) Mandev Tubes - 2009 (16) S.T.R. 724 (Tri.-Ahd.) (d) Geeta Industries Pvt. Ltd. - 2011 (22) S.T.R. 293 (Tri.-Del.).

7.9 Utilization of credit Prior to July 2012, there was lot of dispute whether recipient of service can pay tax under reverse charge by utilizing credit balance available with them. In July 2012, specific proviso was added under Rule 3(4) of Cenvat Credit Rules, which reads as follows: “Explanation.—CENVAT credit cannot be used for payment of service tax in respect of services where the person liable to pay tax is the service recipient”

Thus after July 2012, it is mandatory on the part of recipient to pay tax by cash. He cannot utilize credit balance available with him.

Similar provisions has been made in GST Act. Section 49(4) of the GST Act provides that amount available in electronic credit ledger may be used for making payment towards output tax payable under the provisions of the Act or the rules made thereunder. The ‘output tax’

Para 7.10

DIV. 1 : BASIC CONCEPTS

564

has been defined in section 2(82) of the GST Act excluding IGST and 2(18) of the IGST Act as follows: (82) “output tax” in relation to a taxable person, means the tax chargeable under this Act on taxable supply of goods or services or both made by him or by his agent but excludes tax payable by him on reverse charge basis; It is evident from the above, it does not include tax payable by him on reverse charge basis.

Under IGST Act (18) “output tax” in relation to a taxable person, means the integrated tax chargeable under this Act on taxable supply of goods or services or both made by him or by his agent but excludes tax payable by him on reverse charge basis;

Accordingly, credit balance cannot be utilized for payment of tax under reverse charge for the supplies specified in section 9(3) & (4) of the GST Act excluding IGST Act and section 5(3) & (4) of IGST Act.

7.10 Revenue neutral Very often after making payment of tax on reverse charge basis, the taxable person is entitled to the credit of the same tax. Therefore, the entire situation is revenue neutral. The Government does not stand to gain any tax amount when the entire credit is available to the taxable person.

Similar was the situation in respect of provisions contained in Chapter V of Finance Act, 1994. The Tribunal has in the cases of Reliance Industries Ltd., 2016 (44) STR 82 (Tri. - Mumbai) and Jet Airways (I) Ltd. 2016 (44) STR 465 (Tri. - Mumbai) has held that when the situation is revenue neutral tax is not payable. Therefore, the demand is set aside.

The relevant extract of the above two judgments are given below.

(A) The Mumbai Tribunal in para 12 in case of Reliance Industries Ltd. 2016 (44) STR 82 (Tri.-Mumbai) has observed as follows: 12. We also note that the entire dispute being revenue neutral, there could have been no intention to evade payment of duty and consequently the extended period of limitation was per se not invocable. It is settled law laid down in the following amongst other judgments a series of judgment including that of the Apex Court that in a case where credit is available to an assessee itself it cannot be said that there is any intention to evade payment of duty, which is a pre-requisite for invoking the extending period of limitation. In the instant case also if any tax was payable it could have been available immediately to the Appellant, thereby rendering the entire dispute being revenue neutral. This being the case the invocation of extended period of limitation is clearly not justified :—

565

CH. 7 : PAYMENT UNDER REVERSE CHARGE

Para 7.11

(a) Reliance Industries Ltd. v. CCE - 2009 (244) E.L.T. 254 (Tri.) (b) CCE v. Indeos ABS Ltd. - 2010 (254) E.L.T. 628 (Guj.) (c) Mafatlal Industries Ltd. v. CCE - 2009 (241) E.L.T. 153 (T); affirmed by the Apex Court by dismissing the Civil Appeal reported in 2010 (255) E.L.T. A77 (S.C.) (d) Nirlon Ltd. v. CCE - 2015 (320) E.L.T. 22 (S.C.) (B) The Mumbai Tribunal in para 10.7 in case of Jet Airways (I) Ltd. 2016 (44) STR 465 (Tri. Mumbai) has observed as follows : 10.7 In our considered view, we have to read the order holistically, i.e., British Airways case; on merits is against the appellant in this case while on the issue of revenue neutrality the order of British Airways supports appellant’s case. The ratio of the Bench applies clearly to the case in hand accordingly respectfully following to ratio, we have to hold that the appellant has made out a case in their favour on the question of revenue neutrality. In view of a direct decision on the self same issue, we are not recording any findings on other case laws relied upon by both sides on the question of revenue neutrality.

Also refer para 1.12 for discussion on the same.

7.11 Supply by unregistered person to registered person [up to 31-1-2019] In addition to Section 9(3) of GST Act excluding IGST Act and Section 5(3) of IGST Act, section 9(4) of GST Act excluding IGST Act and section 5(4) of IGST Act provides that supply of taxable goods or services or both by supplier who is not registered to a registered person shall be paid by such person on reverse charge basis. Say person X is registered under GST. He purchase the goods from A who is not registered. In such case, as per section 9(4) of GST excluding IGST Act and section 5(4) of IGST Act, GST will be payable by recipient of supply i.e. X. Mr. X is required to declare the receipt of goods or services in form GSTR-2.

This will ensure that goods or services purchased from unregistered person is also subject to tax.

The definition of input tax inter alia includes tax payable by recipient under section 9(4) of GST excluding IGST Act and section 5(4) of IGST Act. Therefore, credit of such tax will be available to the recipient provided which is used in the course or furtherance of business.

7.11-1 From an unregistered person for value up to Rs. 5000 in a day As per Sec 9(4) of CGST Act, GST to be discharged on Reverse charge basis on purchase of goods/services from unregistered persons. In a

Para 7.11

DIV. 1 : BASIC CONCEPTS

566

relief to the assessee, the government has exempted the following supplies from GST under reverse charge vide Notification No. 8/2017-Central tax (rate). u Exemption is available only for intra-state supplies. Thus location of supplier and place of supply should be in the same state. u The exemption is eligible only when the total value of supplies of goods or services or both received from any or all the unregistered persons does not exceed Rs. 5,000 in a day. If the value exceeds Rs. 5000 per day then the GST will be payable on the entire value. e.g. if a person buys goods worth Rs. 2000 and Rs. 3500 from two unregistered supplier in a day, then GST will be paid on the entire value of Rs. 5500 under RCM by the buyer. u Notification rescinded – Notification No. 8/2017-CT (Rate) has been rescinded by notification No. 1/2019-CT (Rate) which is effective from 1-2-2019. Therefore, discussion made in the following sub-paras are relevant up to 31-1-2019 only.

7.11-2 Difficult to monitor It is possible to monitor the daily expenses in a small firms to compute value of receipts of Goods or Services of Rs. 5000 in a day. However, it is very difficult to monitor sum in a large organization particularly when there are multiple place of business in a State. For example, say a bank has 200 branches in a State, the exemption is available when the supply from an unregistered person in respect of all 200 branches in a day has not exceeded Rs. 5000. Normally, the accounting records are maintained branch-wise, the computation of expenses of supply of goods/services per day can be made at the branch level but it is very difficult to compute for all 200 branches in a day. Therefore, this notification will not be much useful for large organization.

7.11-3 Exporter buying from unregistered person Section 9(4) of CGST Act and similar provisions in other Acts provides no exemption from payment of tax under reverse charge to exporters.

Therefore, exporter will be liable to pay GST on receipt of goods or services from unregistered person. He cannot claim that the goods procured by him from unregistered person is ultimately meant for export and therefore no GST is payable. The liability to pay GST on goods/ services procured from unregistered person by a registered person under section 9(4) is independent of refund of IGST on export of goods provided under section 16 of IGST Act. Therefore, the exporter will have to pay GST.

567

CH. 7 : PAYMENT UNDER REVERSE CHARGE

Para 7.11A

7.11-4 Purchase from individual In many trade, it is common that individual person who are not registered sells the product to a registered person. For example, in case of jewellery, many individual sell their old jewellery and in return purchase new jewellery or merely sell old jewellery for cash. As per section 9(4) in case of supply by unregistered person to registered person, GST will be payable by the registered person. There was confusion whether individual person who is selling old jewellery can be said to have sold jewellery in the course or furtherance of business. It has been clarified by the Government in press release dated 13-7-2017 that the said transaction is not in the course or furtherance of business. It cannot be considered as supply attracting GST. The said clarification is reproduced below: 4. Even though the sale of old gold by an individual is for a consideration, it cannot be said to be in the course or furtherance of his business (as selling old gold jewellery is not the business of the said individual), and hence does not qualify to be a supply per se. Accordingly the sale of old jewellery by an individual to a jeweller will not attract the provisions of section 9(4) and jeweller will not be liable to pay tax under reverse charge mechanism on such purchases. However, if an unregistered supplier of gold ornaments sells it to registered supplier, the tax under RCM will apply.

7.11A Reverse charge in case of supplies from unregistered person [upto 31-1-2019] The Not. No. 8/2017-CT (Rate) dated 28-06-2017 provides exemption to intra State supplies from unregistered person to registered person. However as per the proviso to said notification such exemption shall not be available if value of such supplies exceeds Rs. 5000 in a day. Thus no GST will be payable on supplies received from unregistered person not exceeding Rs. 5000 in day.

However, Government on the recommendation of the council vide Not. No. 38/2017-Central Tax (Rate) dated 13-10-2017 has omitted the proviso to Not. No. 8/2017-CT (Rate) 28-06-2017. Therefore with effect from 13-10-2017 supplies received from unregistered supplier will not attract GST irrespective of value of supplies received. The benefit of such notification is available till 31-03-2018.

As exemption has been granted, there will be no requirement to prepare an RCM self-invoice at month end. Consequently, there is no requirement to issue the payment voucher under GST for such payments.

Para 7.11A

568

DIV. 1 : BASIC CONCEPTS

The Government on recommendation of the council vide Notification Number 10/2018-CT(Rate), dated 23-3-2018 has further deferred the liability to pay tax on reverse charge basis when the supplies has been procured from an unregistered supplied till 30-06-2018. Similar notification has been issued under IGST Act, SGST Act and UTGST Act. u Applicability of Section 9(4) further deferred - The Government on recommendation of the council vide Notification Number 12/2018CT(Rate), dated 29-06-2018 has further deferred the liability to pay tax on reverse charge basis when the supplies has been procured from an unregistered supplied till 30-09-2018. Similar notification has been issued under IGST Act, SGST Act and UTGST Act. u

Section 9(4) has been replaced by GST (Amendment) Act, 2018 w.e.f.

1-2-2019. Therefore, notification granting exemption from payment of GST till 30-9-2019 referred above is not relevant after 31-1-2019 u Applicability of Section 9(4) further deferred - The Government vide Notification No. 22/2018- CT (Rate) dated 6-8-2018 has further deferred the liability to pay tax on reverse charge basis when supply has been procured from unregistered supplier till 30-09-2019. Similar notification has been issued under IGST Act, SGST Act and UTGST Act.

7.11A-1 Change of rate The grant of exemption is in the nature of change in rate of tax. The Section 14 of the CGST Act provides for determining the rate in case of change in rate of GST. Based on the provisions of the said section, the GST exemption will be determined as follows: Date of Payment to unregistered vendor

Supply of goods or services by unregistered vendor

Date of issue of invoice

Exemption applicability

Upto 12th October

Upto 12th October

W.e.f. 13th October

No Exemption

Upto 12th October

W.e.f. 13th October

Upto 12th October

No Exemption

Upto 12th October

W.e.f. 13th October

W.e.f. 13th October Exemption available

W.e.f. 13th October

Upto 12th October

W.e.f. 13th October Exemption available

W.e.f. 13th October

W.e.f. 13th October

Upto 12th October

Exemption available

W.e.f. 13th October

Upto 12th October

Upto 12th October

No Exemption

W.e.f. 13th October

Upto 12th October

W.e.f. 13th October Exemption available

569

CH. 7 : PAYMENT UNDER REVERSE CHARGE

Para 7.12

ILLUSTRATION : Mr. A an unregistered person is providing cleaning services to Mr. B since 1-7-2017 has the following details in respect of that activity for the month of September, 2017 :

Amount Rs. (a)

Date of issue of invoice (b)

Date on which payment was received (c)

2,00,000

18-9-2017

14-10-2017

2,40,000

25-9-2017

6-10-2017

80,000

15-10-2017

20-10-2017

The date of ‘change in effective rate of tax’ in this case is 13-10-2017.

The services are rendered in September, 2017. The time of supply for the amounts will be as follows : Amount (Rs.)

Time of Supply

Exemption availability

2,00,000

18-9-2017

No

2,40,000

25-9-2017

No

80,000

15-10-2017

Yes, as two events are after change of rate

7.11B Tax payable in respect of specified categories Section 9(4) is replaced with new section by GST (Amendment) Act, 2018 which has been made effective from 1-2-2019. The said provision provides power to Government to specify supply of specified categories of goods or services or both received by the specified class of recipient from unregistered supplier, the tax in respect of which will be payable on reverse charge basis by the said recipient.Till to date no notification under this section has been issued.

7.12 Supply through Electronic Commerce Operator Section 9(5) of GST Act and similar other provision in other GST Act empowers the Central Government on recommendation of Council to specify the categories of services on which tax shall be paid by Electronic Commerce Operator if such services are supplied through him.

The Central Government in exercise of said power has issued notification No. 17/2017-CT (Rate) and specified different type of services including accommodation service. Therefore, tax on such services is payable by Electronic Commerce Operator. The provisions are discussed in detail in paras 7.24, 7.25 and 7.27.

Para 7.14

DIV. 1 : BASIC CONCEPTS

570

The first proviso further provides that if electronic commerce operator is not present in taxable territory, any person representing such electronic commerce operator will be liable for payment of tax under reverse charge. In case no person represents electronic commerce operator in taxable territory, the electronic commerce operator shall appoint the person for the purpose of payment of tax. Refer Chapter 12.

7.13 No registration if tax is payable on reverse charge The Government has power under section 9(3) of CGST Act and similar Act to specify supply of goods or services or both where the tax would be payable not by the supplier of goods or services but by the recipient of goods or services. If tax is payable by the recipient for all supplies, supplier of goods or services need not obtain registration. The Central Government has vide notification No. 5/2017 Central Tax dated 19-6-2017 exempted such supplier of goods or services where entire tax is payable by the recipient, from obtaining registration.

7.14 Supply attracting reverse charge Section 9(3) of CGST Act and similar provisions under other Acts empowers the Government on recommendation of GST Council to specify the categories of goods or services or both on which tax would be payable by the recipient of goods or services and not by the supplier. In exercise of the said power, Central Government has issued following notifications: (a) 4/2017-Central Tax (Rate) dated 28-6-2017 (b) 13/2017-Central Tax (Rate) & 17/2017 - Central Tax (Rate) both dated 28-6-2017 (c) 10/2017-Integrated Tax (Rate) and 14/2017 - Integrated Tax (Rate) both dated 28-6-2017 The supply covered under this notifications are briefly discussed below: 7.14-1 Supply of goods Notification No. 4/2017-Central Tax (Rate) specify the supply for which tax is payable by the recipient. The table given below the notification reads as follows:

GST

How to Meet Your Obligations (Set of 3 Volumes) AUTHOR PUBLISHER DATE OF PUBLICATION EDITION ISBN NO PAGE NO. BINDING TYPE

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S.S. GUPTA TAXMANN FEBRUARY 2022 12TH EDITION 9789393880352 4652 PAPERBACK

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Description This book is Taxmann’s bestselling commentary explaining every concept of GST lucidly. The noteworthy features of this book are as follows: u

The various provisions contained in different statutes are discussed in sixty chapters

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Provides the scope of provisions of section, rules, etc.

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Basic Concepts

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