Reverse Charge Mechanism - SIRC

REVERSE CHARGE MECHANISM

INTERPLAY OF NOTIFICATION13/2017- CTR

WITH 12/2017- CTR &

11/2017- CTR

SIRC OF THE ICAI

1

By:

CA Rajender AroraGST की राह मे, आपका दोस्त

Reverse Charge –Meaning

Sec 2 sub-sec (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;

CA RAJENDER ARORA GST की राह मे, आपका दोस्त Phone No.: 9891112120

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2

Introduction

Concept of RCM was introduced in service tax first time on services provided by GTA and service provided by Clearing and forwarding agents in 1997.

As per the notification, the recipient of service was made liable to pay the tax.

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.

“Laghu Udyog Bharati Vs Union of India (112) E.L.T. 365 (SC) provision of reverse charge was ultra vires the Act itself.

After this Supreme Court Judgment, section 68 was amended by incorporating sub-section (2) which empowers the government to specify the service and the person liable to pay tax by notification.

After the said amendment, the constitutional validity of this reverse charge tax was upheld by Hon’ble Delhi High Court in the case of Orient Crafts Ltd Vs UOI (2006) (4) STR 81 (Del).


CONT..

Normal Provisions – Tax is paid by supplier and is borne by the recipient.

RCM - tax is not only borne by receiver of goods/services but is also paid to the credit of government by receiver only.

Already existing in service tax.

Facilitates tax administration.

Reduced the number of assesses.

Motive behind this is to ensure more tax compliance especially where the receiver of goods/services is from organized sector and supplier is from unorganized sector.

No exemption limit

Government to notify goods and/or services on which RCM will be applicable.


Reverse charge – legal provisions

2 TYPE OF REVERSE CHARGE SCENARIOS IN GST REGIME

First is, dependent on the nature of supply and/or nature of supplier. This scenario is covered by section 9 (3) of the CGST/ SGST (UTGST) Act and section 5 (3) of the IGST Act where by tax is to be paid by recipient on notified categories of supply.

Second scenario is, covered by section 9 (4) of the CGST/SGST (UTGST) Act and section 5 (4) of the IGST Act where taxable supplies by any unregistered person to a registered person was being covered. Now, There is a change in second scenario, where only specified goods and servicesshall be covered if, supplied by any unregistered person to specified registered person. WEF 1-2-2019


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Contd...

Unlike Service Tax, there is no concept of partial reverse charge under GST regime. The recipient has to pay 100% tax on the supply if covered under RCM.

The person who is required to pay tax under reverse charge has to compulsorily register under GST irrespective of the aggregate limit.

ITC in respect of tax paid on RCM shall be available after payment of same and subject to the provisions of section 16 and 17 of the Act.

Registration of supplier is not important. If notified supplies are made, RCM shall continue to apply irrespective whether supplier is registered or not.


Steps to determine tax liability

➢ Determination of type of supply whether notified u/s 9(3) – Not. 04/2017 CTR for Goods and Not. 13/2017 CTR for Services.

➢ Determination of Tax rates – Not. 01/2017 CTR for Goods and Not. 11/2017 CTR for Services

➢ Determination of exemption, if any, available – whether absolute of conditional – Not. 02/2017 CTR for Goods and Not. 12/2017 CTR for Services.

➢ Determination of Time of Supply – Sec 12(3) for Goods and Sec 13(3) for Services.

➢ Determination of Value – Section 15


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Requirement of registration

24. Compulsory registration in certain cases

(1) Notwithstanding anything contained in sub-section (1) of section 22, the following categories of persons shall be required to be registered under this Act, ––

(i) …………………………

(ii) ………………………..

(iii) persons who are required to pay tax under reverse charge;

Means Persons liable to pay tax under RCM are required to get registered under GST irrespective of the turnover.


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Section 12: time of supply of goods

Earliest of:

(a) the date of the receipt of goods; or

(b) the date of payment or date on which the payment is debited in his bank account, whichever is earlier; or

(c) 31st day from date of issue of invoice/document

When not determinable as per above Rule, TOS shall be date of entry in the books of account of the recipient of supply.


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Section 13: time of supply of servicesEarliest of:

(a) date of payment or the date on which the payment is debited in his bank account, whichever is earlier; or

(b) 61st day from date of issue of invoice /document

When not determinable as per above Rule, TOS shall be date of entry in the books of account of the recipient of supply.

Associated Enterprises: When Suppler is outside India, TOS shall be Earlier of:

• date of entry in the books of account of the recipient of supply or

• the date of payment


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Rule 36: Documentary requirements for claiming inputtax credit

➢ Invoice issued by Supplier: as per section 31

➢ Invoice issued by Recipient incase of reverse charge mechanism: as per Section 31 (3) (f)

➢ Debit note issued by a supplier : as per section 34

➢ Bill of entry for assessment of integrated tax on imports: as per Customs Act, 1962 or rulesmade there under

➢ Input Service Distributor invoice or Input Service Distributor credit note: as per Rule 54(1)


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Self-invoicing under GST

31(3)(f) a registered person who is liable to pay tax under sub-section (3) or sub-section (4) of section 9 shall issue an invoice in respect of goods or services or both received by him from the supplier who is not registered on the date of receipt of goods or services or both

A SELF-INVOICE IS REQUIRED TO BE ISSUED ONLY IN CASE WHERE SUPPLIESARE RECEIVED FROM AN UNREGISTERED PERSON. BASED ON WHICH TAX IS TOBE DEPOSITED ON RCM AND THAT SHALL BE A DOCUMENT FOR THE PURPOSEOF CLAIMING ITC.

However, where such supplies are received from a person who is already registeredunder GST, no self-invoice is required to be issued and tax will be paid based on theinvoice received from supplier and accordingly ITC can be availed.

A registered person who is liable to pay tax under section 9(3) or section 9(4)shall issue a payment voucher at the time of making payment to the supplier.


Proviso: a registered person may issue a consolidated invoice at the end of a month for supplies covered under sub- section (4) of section 9, the aggregate value of such supplies exceeds rupees five thousand in a day from any or all the suppliers

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Time limit for availing ITC

Section 16(4)

ITC can be availed till earlier of:

• the due date of return of September following the financial year to which such invoice pertainsor

• due date of furnishing of Annual Return

❖ In case of registered person, no self-invoice is required to be issued and invoice issued by supplier shall be the document based on which tax is to be paid and ITC is to be availed. So ITC can be claimed in respect of services for which tax was paid on reverse charge basis in 2019-20 but invoice and services were received in 2017-18 by virtue of section 16(4)

❖ Now the question remains, whether ITC on RCM for 17-18 payable on supplies by unregistered person supported by raising of self invoice u/s 31(3)(f) in 19-20 can be availed? Whether invoice "pertains" to 17-18 or 19-20.


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13

Cont….

❖ Supreme Court in Doypack Systems P Ltd 1988 AIR 782 has held that " The expression "pertaining to" does not mean "forming part of".......The word "pertain" is synonymous with the word "relate", see Corpus Juris Secundum, Volume 17, page 693..........."

❖ Now section 16(4) of CGST limits ITC on Invoice to the due date of return for the month of Sep. following the FY to which "such" invoice "pertains".

❖ Now if "pertain" and "relation to" are similar and not restricted to "forming part of " then it implies that Invoice though issued in 19-20 'in respect of supplies for " 17-18 relates or pertains to 17-18.

❖ Hence, no ITC can be claimed.


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Accounts & Records

Rule 56(1)

Every registered person shall keep and maintain a true and correctaccount of :

the goods or services imported or exported supplies attracting payment of tax on reverse charge along with therelevant documents, including invoices, bills of supply, deliverychallans, credit notes, debit notes, receipt vouchers, paymentvouchers and refund vouchers.

Every registered person, other than Composition Taxpayer, shall

maintain details ( Including recipient of Reverse Charge Mechanism):

of tax payable

tax collected and paid

input tax

input tax credit claimed

register of tax invoice

credit notes

debit notes

delivery challan issued or received during any tax period.


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❖ Separate ledgers for RCM liability is required to be maintained in the books of accounts to identify them

from normal ledgers: -

❑ Output IGST-RCM, Output CGST-RCM, Output SGST-RCM

❑ Input IGST-RCM, Input CGST-RCM, Input SGST-RCM

❖ The following entries shall be passed for recording the expenses under RCM: -

1.For recording the expense under RCM

2. For recording GST on the RCM Expense incurred (in case RCM supply is creditable)

3. When payment of RCM tax GST liability is made

Expense A/c Dr 100

To Creditor 100


Recording RCM in Books of accounts

Input CGST-RCM Dr 9

Input SGST-RCM Dr 9

To Output CGST-RCM 9

To Output SGST-RCM 9

Output CGST-RCM Dr 9

Output SGST-RCM Dr 9

To Bank 18 16

Payment of Tax Under RCM

Section 49(4) of the CGST Act

Reverse charge liability cannot be discharged by using

input tax credit reflecting in electronic credit ledger. It

has to be paid by debiting electronic cash ledger i.e. to

be paid in Cash.

The credit of the same can be claimed by the recipient

in the same month itself, if eligible.


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17

Goods under Reverse Charge not. no

4/2017 ct(r)


18

18


19


20

Services under Reverse Charge not.

no 13/2017 ct(r)


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21

SERVICES BY AN ADVOCATE INCLUDING SENIOR ADVOCATE AND FIRM OF ADVOCATE

ADVOCATE

LAWYERS

OTHERS

REGD. IN BAR COUNCIL

LAW

GRADUATES BUT

NOT REGD IN

BAR COUNCIL

CA, CS, CWA

ETC.

ALL SERVIES

TAXABLE @18%

FORWARD

CHARGE

ALL SERVICES

TAXABLE @18%

FORWARD

CHARGE

LEGAL SERVICES: means any service provided in relation to advice, consultancy or

assistance in any branch of law, in any manner and includes representational

services before any court, tribunal or authority;

By Individual advocate

& Partnership Firm of

Advocates To Advocate –

Taxable @ 18%

under FORWARD

CHARGE

To Other than

B/E- EXEMPT

To CG, SG, UT ,LA ,GA AND

GE- EXEMPT

To Unregistered B/E with

aggregate turnover below

threshold limit – EXEMPT

B/E – Business Entity

CG – Central Government

SG – State Government

UT – Union Territory

LA – Local Authority

GA – Govt Authority

GE – Govt. Entity

By Senior Advocate

To Other than above(Entity>

threshold limit): taxable

under RCM @ 18%

To Advocates - Exempt

To Other than B/E - Exempt

To CG, SG, UT, LA and GE -

EXEMPT

To Unregistered B/E with

aggregate turnover below

threshold limit – EXEMPT

To B/E with turnover max 20 lacs

in taxable territory (i.e.

registered B/E – Taxable @

18% under RCM

(LEGAL SERVICES)

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SERVICES BY ARIBTRAL TRIBUNAL

TAXABLE998215

ARBITRUTION AND CONCILIATION TAX @ 18%

EXEMPTENTRY NO. 45

NOTIFICATION 12/2017-CT(R)

ANY BUSINESS ENTITY IN TAXABLE TERRITORY

OTHER THAN BUSINESS ENTITY

BUSINESS ENTITY WITH TURNOVER BELOW THRESHOLD LIMIT (UNREGISTERED)

CENTRAL GOVT. STATE GOVT., UNION TERRITORY, LOCAL AUTHORITY, GOVT. AUTHORITY, GOVT. ENTITY

RCM @ 18%ENTRY NO. 3

NOTIFICATION 13/2017 CT(R)


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ROYALTY PAID FOR INTELLECTUAL PROPERTY

TO ARTIST(MUSIC COMPOSER, PHOTOGRAPHER

ETC.)FOR ORIGINAL DRAMATIC, MUSICAL

OR ARTISTIC WORKS(CAUSED UNDER COPY RIGHT ACT)

ENTRY NO. 17(i)HSN 9973 TAX @ 12%

FOR WORK NOT COVERED

UNDERCOPY RIGHT ACT

TO AUTHORFOR ORIGINAL LITERRARY WORK

(CAUSED UNDER COPY RIGHT ACT)ENTRY NO. 17(i)

HSN 9973 TAX @ 12%

RCMENTRY NO. 9A


FORWARD CHARGETAX@ 12%

RECIPIENT PUBLISHER IN TAXABLE TERRITORY

Tax will be paid on forward charge basis where author isregistered and makes a declaration with jurisdictionalCommissioner or Where author makes a declaration oninvoice issued to publisher to that effect.

RCMENTRY NO. 9


RECIPIENT - MUSIC CO. PRODUCER ETC IN TAXABLE TERRITORY

Intangible property

that is the result of

creativity, such as

patents, copyrights,

etc.


SERVICES TO RBI

BY MEMBERS OF OBSERVING COMMITTEE

OTHERS

FORWARD CHARGETAXABLE UNDER

RESPECTIVEHSN AND TAX RATE

IN CAPACITY OF MEMBERS OF COMMITTEE

IN OTHER CAPACITY Eg. RENTAL SERVICES

PERFORMING SERVICES OF COMMITTEE

REVERSE CHARGEENTRY NO. 10


RECIPIENT OF SERVICE WILL BE RBI

FORWARD CHARGETAXABLE UNDER

RESPECTIVE HSN AND TAX RATE


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SPONSORSHIP SERVICES

EXEMPT ENTRY NO. 53 (9985)


SPORTING EVENTS

TAXABLE@ 18% (9985)

TO OTHERSTO BODY CORPORATE OR PARTNERSHIP FIRM

NATIONAL SPORTS FEDERATION

ASSOCIATION OF INDIAN UNIVERSITIES, INTER-UNIVERSITY SPORT BOARD, SCHOOL GAMES FEDERATION, ALL INDIA SPORTS COUNCIL FOR DEAF, PARALYMPIC COMMITTEE OF INDIA

CENTRAL CIVIL SERVICES CULTURAL &SPORTS BOARD

INDIAN OLYMPIC ASSOCIATION

PANCHAYAT YUVA KREEDAUR KHEL ABHIYAAN SCHEME

RCM @ 18%FORWARD CHARGE@ 18%

ENTRY NO. 21 NOTIFICATION 11/2017 CT(R)

ENTRY NO. 4 NOTIFICATION 13/2017

CT(R)


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DSA Services to Banks/ NBFC

Entry No. 23HSN 9985Tax @ 18%

Reverse Charge Mechanism

Entry No.- 11Notification No. 13/2017 CT(R)

Forward Charge


Notification No. 11/2017 CT(R)

By Individual By other than Individual


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Business Facilitator Services to Banking Company

Taxable Exempt



Entry No.- 12Notification No. 13/2017 CT(R)

To Banking company withrespect to accounts in itsrural area branch

Entry No.- 39HSN 9985


Other Branches

"business facilitator or

business correspondent"

means an intermediary

appointed under the

business facilitator model or

the business correspondent

model by a banking

company or an insurance

company under the

guidelines issued by the

Reserve Bank of India;


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By agent of Business Correspondent

To a Business Correspondent

HSN 9985Tax @ 18%

Reverse Charge MechanismEntry No.- 13



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Services of Lending of Securities

Lender Approved Intermediary Borrowed

TaxableHSN 9971

Tax rate @ 18%Entry No. 15 (VII)


Entry No.- 16Notification No.13/2017 CT(R)

Securities Securities

Supplier Recipient

"scheme" means Securities Lending

Scheme, 1997 for lending of securities

through an approved intermediary to a

borrower under an agreement for a

specified period with the condition that the

borrower will return equivalent securities

of the same type or class at the end of the

specified period along with the corporate

benefits accruing on the securities

borrowed.


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Service by Recovery agent

To Banking Companies / NBFC

Entry No. 23HSN – 9985Tax @ 18%


RCMEntry No. – 8



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Services by an Insurance Agent

To Insurance Companies

Entry No. – 15HSN – 9971

Tax Rate @ 18%Notification No. 11/2017 CT(R)

RCMEntry No. – 7



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Security Services

To Others To Educational Institution

TaxableEntry No. 23HSN- 9985Tax@18%

ExemptEntry No. 66(b)Notification No. 12/2017 CT(R)

By other than Body Corporate

By Body Corporate

Reverse ChargeEntry No.14Notification no.13/2017 CT(R)

Forward Charge


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Renting of Motor Vehicles of Passengers (including Fuel cost)

Entry No. 10(i) | [ Notification No. 11/2017 CT(R)] | HSN 9966

Unregistered Supplier

To others To Body Corporate


@ 5%

Registered Supplier

Tax @ 5% without ITC(except same line of business)

By other than Body

Corporate

By Body Corporate

Forward Charge

Registered Supplier

12% with ITC

Forward Charge

To Other than Body Corporate or Body Corp. in NTT

To Body Corporate located in Taxable Territory (TT)

NIL


Reverse ChargeEntry No. 15

Notification No. 13/2017 CT (R)Forward Charge

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TRANSPORTATION OF GOODS BY ROAD

BY GTA BY OTHER THAN GTA

EXEMPTENTRY NO. 18

NOTIFICATION NO. 12/2017 CT(R)

TAXABLEENTRY NO.9


EXEMPTENTRY NO. 21


AGRICULTURE PRODUCE

SINGLE CONSIGNMENT ≤ 1500

MULTIPLE CONSIGNMENT ≤ 750

MILK, SALT, FOOD GRAINS, ORGANIC MANURE

NEWSPAPER/ MAGAZINES, RELIEF MATERIAL, DEFENCE EQUIPMENT

RATE OF TAX 12% WITH ITC

5% WITHOUT ITC

REVERSE CHARGE ENTRY NO. 1


FORWARD CHARGE

“Goods Transport Agency" means anyperson who provides service in relation totransport of goods by road and issuesconsignment note, by whatever namecalled;


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Person liable to pay tax under GTA services

Other GTAGTA charging GST@12%

Recipient is oneof the SpecifiedRecipient

Reverse charge

Person liable topay GST is suchrecipient

Recipient is other than SpecifiedRecipients (i.e. UnregisteredIndividual end Consumer andpersons who are registered onlyfor purpose of TDS

Exempt from GST

Forward charge

Person liable to payGST is GTA

Specified Recipient: Factory, Society, Co-operative Society, Body Corporate, Partnership Firm (Redg. or Unreg.), AOP, CTP in TT, Person regd. under CGST Act.


Person who pays or is liable topay freight

Recipient of GTA services 36

GTA ISSUES❖ Difference between GTA and GTO – what if consignment note not

issued - KISAN SAHKARI CHINI MILLS LTD. (All HC)

❖ Transaction between two GTA where vehicles are taken from other transporters

❖ Incidental services in addition to transportation – circular no. 186/5/2015

❖ 5% taxable under RCM – whether ITC is eligible?

❖ Transporter charged tax @ 5% under forward charge – whether liability under reverse charge?

❖ Whether tax charged wrong under forward charge – ITC is eligible?


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CONT....

❖ Nature of tax liability – transporter outside State?

❖ Can GTA issue invoice under both methods i.e. RCM as well as 12% FCM?

❖ Services of transportation of goods by person not issuing consignment note is exempt from GST.

❖ A person owning only a single conveyance providing services of transportation of goods in most cases does not issue a consignment note.

➢ Will there be a liability to pay tax on same on reverse charge basis?: NO


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Notification No. 20/2017-Central Tax (Rate) dt. 22.08.2017


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SERVICES BY A DIRECTOR

NON EXECUTIVE DIRECTOR(AS DIRECTOR)

IN CAPACITY OTHER THAN DIRECTOR

WHOLE TIME DIRECTOR, MANAGING DIRECTOR, EXECUTIVE DIRECTOR

(AS EMPLOYEE)

EMPLOYER-EMPLOYEERELATIONSHIP

TAXABLE UNDER

FORWARD CHARGEUNDER RESPECTIVE HSN

CODE & TAX RATE(Eg. RENTING SERVICES)

SCHEDULE-IIICLAUSE(1)

NOT SUPPLY

NO EMPLOYER-EMPLOYEERELATIONSHIP

CONSULTANCY/SITTING FEES ETC.

TAXABLE UNDER RESPECTIVE HSN CODE AND TAX RATE (NORMALLY-18%)

TAX UNDER RCMENTRY NO.6



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Lot of discussions are going on concerning the taxability of director's remunerationunder GST subsequent to a ruling pronounced by Rajasthan AAR in the matter ofM/s Clay Craft India Pvt. Ltd. vide Order no. RAJ/AAR/2019-20/33 dated 20February 2020.

In this matter, question that came up before the Rajasthan AAR is whether the salary paid to whole time director(s)is covered under Notification No. 13/2017 - Central Tax (Rate) dated 28 June 2017 to attract GST under ReverseCharge or covered under Entry no. 1 of Schedule - III of CGST Act, 2017 read with Section 7 of CGST Act, 2017 to falloutside the ambit of taxable supply?

The Authority for Advance Ruling, in this matter, while holding that salary so paid to Directors is taxable underreverse charge observed that the consideration paid to directors is against the supply of services provided by themto the Applicant as directors are not the employee of the Company. It was further observed that Notification No.13/2017 has given distinct identity to the services provided by the Director and specifically included in the categoryof service on which GST will be payable under RCM.

Earlier, Karnataka AAR in the matter of Alcon Consulting Engineers (India) P. Ltd. vide Order No. KAR ADRG 83/2019dated 25 September 2019, also pronounced a similar ruling.


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It is important to note that both the rulings are pronounced sans considering the concept of different typesof director, as provided in Company Law, like Independent Director, Whole -Time Director, ManagingDirector, Executive Director, etc. and the capacity in which the services is being rendered by these directorsto the Company.

Entry no. 1 of Schedule - III of CGST Act, 2017 read with Section 7 of CGST Act, 2017 provides that 'Servicesby an employee to the employer in the course of or in relation to his employment' will not be treated aseither supply of goods or services and thus, no GST implication arises thereupon. However, the above tworulings have clearly ruled out the possibility that director can be an employee of the Company, contrary towhat the position under Service tax regime was.

CBIC (then CBEC), had issued some circulars under Service tax regime which clearly provides that thelegislative intent has always been to differentiate between the services provided by directors in individualcapacity (taxable under RCM) from that provided in the capacity of employee (non-taxable).


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Hon'ble Mumbai CESTAT in the matter of Rent Works India Pvt. Ltd. v. Commissioner of C. Ex., Mumbai - V,reported in 2016 (43) S.T.R. 634 (Tri. -Mumbai) held that there is a difference between salary andconsultancy fee inasmuch as when the Income Tax Department considers payment in the nomenclature'consultancy fee' as salaries, on which TDS is also made, THE SAID PAYMENTS CANNOT BE SAID TOWARDSRENDITION OF TAXABLE SERVICE FOR LEVY OF SERVICE TAX

Hon'ble Mumbai CESTAT in the matter of Allied Blenders and Distillers Pvt. Ltd. v. C.C.E. & S.T., Aurangabad,reported in MANU/CM/0499/2018, after going through the Articles of Association, resolution passed byBOD for appointment of such directors, Form - 16 issued by the Company, Form - 32 filed by the Companywith ROC, etc. HELD THAT THE WHOLE TIME DIRECTORS WERE WORKING IN THE CAPACITY OF EMPLOYEEAND THUS, SALARY PAID TO THEM IS NOT TAXABLE.

Circular No. 115/09/2009 - S.T. dated 31 July 2009 observed that Manging Director (Whole - time orIndependent) perform management functions and generally do not provide any consultancy or advisory tocompany. However, whether any separate service of consultancy or advisory is being provided depends oncase to case.

General Circular No. 24/2012 bearing F. No. 14/33/2012-CL. VII dated 09 August 2012 clarified that sittingfee/commission payable to Non-Whole Time Director(s) of the company are taxable under Service tax.


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CESTAT, Eastern Bench, Kolkata in case of Maithan Alloys Ltd vs C.C.E & S.T Bolpur [2020 (33) G.S.T.L 228]Remuneration/ salary paid to whole time director. Such remuneration comprising of fixed as well as variablecomponents i.e commission payable based on the percentage of profit. Whole time director is an employeeof company and payment of variable pay does not alter/ dilute his employer-employee relationship withcompany. Remuneration paid to whole time director on which tax deducted by company u/s192 of theIncome Tax Act, 1961 cannot be towards rendition of any taxable service and COMPANY NOT LIABLE TO PAYSERVICE TAX THEREON UNDER REVERSE CHARGE MECHANISM.

Hon'ble Kolkata CESTAT in the matter of Brahm Alloy Limited v. Commissioner of CGST & C. Ex., Durgapur,reported in 2019 (24) G.S.T.L. 616 (Tri. - Kolkata) has also held that whether the services provided by thedirector is in employer-employee capacity or as an independent service provider, depends on various facts,like, terms of appointment of such director, how the payment of remuneration is made to director,treatment of remuneration under Income Tax Act, etc.

Hon'ble Kolkata CESTAT in other matters of Concrete Pvt. Ltd. v. CCE, Siliguri, cited in 2018 (9) GSTL 391 (Tri.- Kolkata) and Maithan Alloys Ltd. v. CCE & ST, Bolpur, cited in MANU/CK/0094/2018 has also observed thatconsideration paid to whole time directors would be treated as PAYMENT OF SALARIES INASMUCH ASTHERE WOULD BE EMPLOYER - EMPLOYEE RELATIONSHIP AND IN SUCH CASES, THERE CANNOT BE ANYLEVY OF SERVICE TAX.


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Summing up, as can be inferred from above judicial pronouncements, it can be concluded that based uponvarious factors (terms of engagement of director, treatment under Income Tax Act, etc.) and takingreference from provisions contained in Companies Act, 2013, it must be ascertained that whether thedirector to whom remuneration is being paid is providing the services in the capacity of employee or inindependent capacity as a consultant.

Where services are provided qua an employee to the Company, salary so paid to director either in the formof commission or percentage or in any other form, shall fall outside the ambit of GST BUT WHEREINDEPENDENT SERVICES ARE BEING PROVIDED BY DIRECTOR FOR WHICH CONSIDERATION IS RECEIVED INTHE FORM OF COMMISSION, CONSULTANCY FEE, SITTING FEE, OR BY ANY OTHER NAME, IT SHALL BETAXABLE UNDER REVERSE CHARGE IN HANDS OF THE COMPANY.

Wen we say services by a Director, “IN CAPACITY” as directors has to be read as although the law is silent on that part.ACCORDINGLY, SERVICES NOT IN THE CAPACITY OF DIRECTOR FOR EG. RENTING SERVICES WOULD NOT ATTRACT TAXON REVERSE CHARGE BASIS AND TAX ON SAME IS REQUIRED TO BE PAID ON NORMAL FORWARD CHARGE BASIS ASOUTWARD SUPPLY SUBJECT TO THE PROVISIONS OF THE ACT.


45

Services By Government Other Than Renting of Immovable Property

Taxable Exempt

All other Services

Other than ESM

To Business Entity

RCM

To Others

EXEMPT

ESM other than to business entities

Forward Charge

Entry No. – 4, 5, 6, 7, 8 ,9, 9C, 34A, 42, 47, 61, 62, 63, 64, 65, 65B


Note: HSN and Tax Rate willbe of respective service asand when received


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Entry no.4: Functions entrusted to municipality 243WEntry no.5: Function entrusted to Panchayat 243GEntry no.6: All Services (ESM)Entry no.7: To Business Entity turnover below limit(ESM + renting of immovable property)Entry no.8: By government to government (ESM)Entry no.9: Consideration pf services < 500(ESM)Entry no. 9C: By government entity to government + consideration as grants (ESM)Entry no. 34A: By government to government entity/ PSUs of loan guarantee (ESM)Entry no. 42: Allowing to operate as telecom SP or use radio frequentlyEntry no. 47: Registration services like(Aadhar registration), testing, calibration, safety check, certification,

license for public at large.Entry no. 61: Issuance of passport, visa, Driving License, Birth/ Death certificate.Entry no. 62: tolerating non-performance pf contract,Entry no. 63: Right to use natural resources to Indian farmer.Entry no. 64: Right to use natural resources + 1 time license feesEntry no. 65: Merchant overtime charges.Entry no. 65B: SG to ERCC

Exempt- Services By Government Other Than Renting of Immovable PropertyNotification No. 12/2017 CT (R)

[ESM: Except Specifically Mentioned]

▪ Postal Services, Life Insurance and Agency Services to other than Govt.▪ Services in relation to Aircraft or Vessel▪ Transport of Goods or Passengers▪ Any service, otherthan above, provided to business entities 47

AUTHORITY FOR ADVANCE RULINGS (RAJ.) – IN RE: M/S. ARAVALI POLYART PVT. LTD.

Classification of services – royalty – lease transfer agreement for obtaining mining lease – N/N. 11/2017-CT (Rate)dated 28.06.2017 – to be classified under 9973 specifically Licensing services for the right to use minerals including itsexploration and evaluation or as any other service?

Held that:- The activity undertaken by the applicant is classifiable under Heading 9973 (Leasing or rental services, withor without operator), as mentioned in the annexure at Serial No. 257(Licensing services for the right to use mineralsincluding its exploration and evaluation) sub heading 997337 of notification number 11/2017-CT (Rate) dated28.06.2017. The applicant is liable to discharge tax liability under reverse charge mechanism vide N/N. 13/2017-CT(Rate), dated 28.06.2017 (as amended from time to time) of the CGST Act, 2017.

The activity undertaken by the applicant attracts 18% GST (9% CGST+ 9% SGST).

IN RE: M/S. ARAVALI POLYART PVT. LTD.Dated:- 15-2-2019In: GSTOther Citation: 2019 (23) G. S. T. L. 245 (A. A. R. – GST)AAR No. RAJ/AAR/2018-19/34


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Renting of Immovable Property By Government

Taxable Exempt

Commercial Purpose Residential Purpose

Registered Person Unregistered

Reverse Charge Forward Charge

Note: HSN and Tax Rate will beof respective service as andwhen received


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Import of Services

Services by Person located in Non Taxable Territory

To Person located in taxable territory (other than non-taxable online Recipient)

Taxable at Respective Tax Rate

RCMEntry No. 1

Notification No. 10/2017 IT(R)

Note: HSN and Tax Ratewill be of respectiveservice as and whenreceived


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Services by the person located in non taxable territory

To Importer

Taxable @ 5%Entry No. 9HSN – 9965

Notification no. 11/2017 CT(R)

RCMEntry No. – 10

Notification No. 10/2017 IT(R)

Ocean Freight


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Cont....

In Mohit Minerals (P.) Ltd. v. Union of India [2020] 33 GSTL 321 (Gujarat)The Hon’ble Gujarat HighCourt decided on the issue of IGST on ocean freight.

By order dated 23/01/2020 the Hon’ble High Court held that ocean freight for services provided by aperson located in a non-taxable territory by way of transportation of goods by a vessel from a placeoutside India upto customs station of clearance in India is not leviable to tax under the Act. The courtlooked into the definition of recipient and after duly recording its reasons held that such process would beunconstitutional and also declared Notification No. 8/2017-Integrated Tax (Rate), dated 28-6-2017 andEntry 10 of Notification No. 10/2017-Integrated Tax (Rate), dated 28-6-2017 unconstitutional


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Cont....

In our opinion, such observations, on the contrary, supports the case of the writ-applicants that in a caseof CIF contract, the contract for transportation is entered into by the seller, i.e. the foreign exporter,and not the buyer, i.e. the importer, and the importer is not the recipient of the service oftransportation of the goods.

In view of the aforesaid discussion, we have reached to the conclusion that no tax is leviable under theIGST Act, 2007, on the ocean freight for the services provided by a person located in a non-taxableterritory by way of transportation of goods by a vessel from a place outside India up to the customsstation of clearance in India and the levy and collection of tax of such ocean freight under the impugnedNotifications is not permissible in law.


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Reverse Charge Mechanism in Real Estate Business

Promoter

Capital Goods from URP

(01.04.2019)

Inputs and Inputs Services from URP falling short of 80%

value of annual purchases

(01.04.2019)

Cement from URP

(01.04.2019)

TDR/FSI/Long Term Lease w.r.t contracts entered on or after

(01.04.2019)


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Meaning of promoter

❑ The term "promoter" shall have the same meaning as assigned to it in inclause (zk) of section 2 of the Real Estate (Regulation and Development)Act, 2016 (16 of 2016);

❑ As per RERA, a promoter is a person who constructs or causes to beconstructed an independent building or a building consisting ofapartments, or converts an existing building or a part thereof intoapartments, for the purpose of selling all or some of the apartments toother persons and includes his assignees


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What is meant by Development Rights ?

Permission given by land owner for development of land/building

Apart from transfer of physical possession also authorises the Promoter

➢ To do all such acts/ apply before authorities for development of land/building.

➢ Create mortgage on the land in order to raise finance

➢ Advertise the project in such mode as may deem fit to the Promoter

➢ Sell, allot, lease, license etc. the saleable area and other spaces available in the project

In nutshell landowner gives all its rights over the land and gives full authority to the promoter to enjoy the land in the

manner of his choice. For all purposes, therefore, the landowner extinguishes its interest in the land in favor of

promoter on execution of collaboration agreement.


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Government Intends to Levy GST on Development Rights

• Time of supply in case of transfer of development rights by landowner and construction services provided byPromoter.

Notification No 04/2018 – CT (R) dated 25.01.2018

• Conditional exemption to transfer of development rights [on or after 01.04.2019] w.r.t residential apartments.


• Reverse charge has been made applicable on the services supplied by way of transfer of development rights.


• Time of supply in case of development rights/FSI/Long term lease by the promoter.


Relevant notifications in this regard have been encapsulated hereunder:


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Service by way of TDR

Taxable ExemptEntry no. 41A

HSN- 9972

Commercial

Entry No. 16HSN – 9972

Tax Rate @ 18%

RCMEntry 5B

Not. No. 13/2017

Residential(Where considerationreceived aftercompletion)

Entry No. 16HSN – 9972

Tax Rate @ 18%

RCMEntry 5B

Not No. 13/2017

Residential Apartments (Exceptwhere consideration receivedafter the completion or firstoccupation)

Conditions for Exemption

Promoter to pay RCM onProportionate to Unbooked flatsafter completion of First Occupation.


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Long Term Lease of Land (30 yrs. or more)

Taxable ExemptEntry 41B

Commercial

Tax @ 18%HSN- 9972

RCMEntry 5C

Not. 13/2017 CT (R)

Residential(Whereconsiderationreceived after thecompletion orfirst occupation)

Tax @ 18%HSN- 9972

RCMEntry 5C

Not. 13/2017 CT (R)

Residential Apartments(Consideration received beforethe completion or firstoccupation)

Conditions

Promoter to pay RCM on Proportionateto Unbooked flats after completion orFirst Occupation.


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Exemption of transfer of development rights/FSI/Long term lease for Residential Apartments

[Entry 41A & 41B of N.No 12/2017-CT(R) inserted vide N.N 04/2019 dated 29.03.2019]

W.e.f. 01.04.2019Exemption is available on transfer of development rights/FSI/Long term lease on or after01.04.2019.

ApplicabilityAvailable only in case of residential apartments which are sold prior to date of completioncertificate/First Occupation.

Amount of Exemption

(GST payable on TDR/FSI/Long term lease for Project X Carpet area of the residentialapartments in the project)

Total carpet area of the residential and commercial apartments in the project


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If all residential Apartmentsnot booked

Promoter shall be liable to pay tax under RCM on proportionate value of developmentrights/FSI/Long term lease attributable to residential apartments not booked up date ofcompletion certificate/First occupation

Tax Computation

(GST payable on TDR/FSI/Long term lease for residential apartments X Carpet area of unbooked-residential apartments)

Total carpet area of the residential apartments in the project

Maximum Liability✓ 1%/5% of the value of un-booked residential apartments.

✓ Value shall be deemed to be equal to the value of similar apartments charged by thepromoter nearest to the date of issuance of completion certificate or first occupation,as the case may be.


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Liability in case of transfer of development rights/FSI/long term lease of land [for 30 years or more]

Description On or After 01.04.2019

Person liable for payment of GST

Promoter under reverse charge

[Sr Nos. 5B and 5C of Notification No. 13/2017-CT (R) as inserted vide

N.N 05/2019-CT(R) dated 29.03.2019]

Time of Supply

[where consideration paid in form construction of

residential/commercial apartments]

Date of completion certificate of project or its first occupation,

whichever is earlier

[Notification No. 6/2019-CT (R) dated 29-3-2019]


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Description On or After 01.04.2019

Time of Supply

[In case of Monetary consideration]

Residential Apartment

Date of completion certificate of project or its first occupation, whichever is earlier

[Notification No. 6/2019-CT (R) dated 29-3-2019]

Commercial Apartment

Earlier of following:

✓ Date of payment

✓ Date immediately following 60 days from the issuance of invoice/any other document [Contract]

If not determinable from above then date of entry in books of accounts.

[Section 13(3) of CGST Act, 2017]

Value of Supply

Value of similar apartments charged by promoter from independent buyers nearest to the date on

which development rights/ FSI is transferred to promoter.

Plus

Monetary Consideration

[Para 1A of Notification No. 12/2017-CT (R) dated 28-6-2017 inserted vide N.N 04/2019-CT (R) dated

29.03.2019]GST Rate 18%


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Section 9(5): special provisions w.r.t. E-commerce

Government to notify services on which tax will be payable by e-commerce

operator where such services are supplied through it.

It’s a kind of third party charge where neither the supplier nor the receiver is

required to deposit tax rather the facilitator or intermediary is required to deposit the same with the government.

Note: Foregoing provision is applicable only in case of services provided through e-commerce operator and not in case of

goods.

Where an electronic commerce operator does not have a physical presence in the

taxable territory, any person representing such electronic commerce operator for

any purpose in the taxable territory shall be liable to pay tax

Where an electronic commerce operator does not have a physical presence in the

taxable territory and also does not have a representative in the said territory, such

electronic commerce operator shall appoint a person in the taxable territory for the purpose of paying tax and such

person shall be liable to pay tax.

This scenario is being covered by Section 9(5) of the CGST/SGST (UTGST) Act and

section 5 (5) of the IGST Act.


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Not. no. 17/2017 CT(R)

1. services by way of transportation of passengers by a radio-taxi, motorcab, maxicab and motor cycle;

2. services by way of providing accommodation in hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes, except where the person supplying such service through electronic commerce operator is liable for registration under sub-section (1) of section 22 of the said Central Goods and Services Tax Act.

Explanation.- For the purposes of this notification,-

a. “radio taxi” means a taxi including a radio cab, by whatever name called, which is in two way radio communication with a central control office and is enabled for tracking using Global Positioning System (GPS) or General Packet Radio Service (GPRS);

b. “maxicab”, “motorcab” and “motor cycle” shall have the same meanings as assigned to them respectively in clauses (22), (25) and (26) of section 2 of the Motor Vehicles Act, 1988 (59 of 1988).


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Reverse Charge Mechanism - SIRC

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