Liability of RCM u/s. 9 (4) of CGST Act & 5(4) of IGST Act after recent Amendments

Section 9 (4) of the Central Goods and Services Tax, 2017 (CGST Act in short) and Section 5(4) of Integrated Goods and Services Tax, 2017 (IGST Act in short) provides that tax in respect of the supply of taxable goods or services or both by a person, 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.

Relevant Notifications :

i) Under CGST Act, the Governement of India [GOI] has issued a notification No. 8/2017 CT [Rate] dated 28^th June, 2017, which exempted, w.e.f. 1^st July, 2017, the intra-state supply of goods or services or both received by a registered supplier from whole of CGST levied provided that the exemption would 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 is reproduced for ready reference as Annexure-1

ii) The Proviso to above notification No. 8/2017 CT [Rate] dated 28^th June, 2017, specifying the threshold limit of Rs. 5,000.00 for exemption, has been “omitted” vide Notification No. 38/2017 CT [Rate] dated 13^th October, 2017. I shall discuss the effect of omission in this article. The Notification is reproduced as Annexure – 2

iii) Under CGST Act, the GOI has issued a notification No. 32/2017 CT [Rate] dated 13^th October, 2017 exempting IGST leviable on reverse charge basis on interstate supply of goods or services or both when received by a registered person from an unregistered person. Notification is reproduced for ready reference as Annexure-3

Let us discuss matter of levy of GST under RCM in two parts 1. Under IGST Act and 2. Under CGST/SGST Act

Levy of IGST under RCM on interstate supplies

Following supplies are considered as interstate supplies:

Barring some specific supply of services mentioned in sub sections 3 of Section 12 of IGST Act, generally the place of supply of service to a registered person under Section 12 shall be location of such registered person.

In view of this, receipt of supply of service e.g. Courier service, advisory service etc. by a registered person located in state of Gujrat from an unregistered person located in Karnataka shall be interstate supplies of service.

So far Place of supply of goods, other than import/ export of goods and the goods which does not require movement, is concerned, the place of supply of the goods shall be the location of the goods at the time at which the movement of goods terminates for delivery to the recipient [Section 10 (1) (a)] .

Further, section 10 (1) (b) specifies that where goods are delivered to a recipient or other person on direction of the third person by way of transfer of documents or otherwise, the place of delivery in such case shall deemed to be the place of business of such third person. Meaning thereby, if a representative or employee of the registered persons buys any goods outside the state and take hand delivery the place of supply shall be the place of business of such principal or the employer and the same shall be an interstate supply.

Since no exemption notification was issued Under IGST Act, similar to Notification No. 8/2017 supra , IGST was payable on Interstate Supply of Goods or Service or both, as explained above, received from an unregistered person located in state of Karnataka by a registered person in state of Gujrat w.e.f. 1^st July, 2017.

The GOI issued a notification No. 32/2017 IT(Rate) dated 13^th October, 2017 by which exemption from IGST has been granted to all interstate supplies of goods or services or both received by a registered person from an unregistered person upto 31^st March, 2018.

Conclusion :

1. IGST is payable on RCM basis from 1^st July, 2017 to 12^th October, 2017 on all interstate supply of goods or services or both, from very first rupee, received by a registered person from an unregistered person from outside state,

2. No IGST is payable on RCM basis w.e.f. 13^th October, 2017 upto 31^st March 2018 on all interstate supply of goods or services or both, received by a registered person from an unregistered person located outside the state.

3. IGST shall be payable on RCM basis from 1^st April, 2018 on all interstate supply of goods or services or both, from very first rupee, received by a registered person from an unregistered person from outside state,

Levy of CGST/SGST under RCM

The GOI on 28^th June, 2017 issued a Notification No. 8/2017 CT (Rate) effective from 1^st July, 2017 whereby exemption to all intra-state supply of goods or services or both was granted to the registered person who receives such supply from an unregistered person from payment of CGST on RCM basis subject to thresh hold limit of Rs. 5,000.00 per day in aggregate as provided by way of a proviso.

On 13^th October, 2017 the GOI issued Notification No. 38/2017 CT (Rate) by which above proviso under Paragraph 1 in the notification No. 8/2017 supra has been omitted and also provided that the exemption contained in the notification No. 8/2017 supra as amended by this notification shall apply to all registered persons till the 31st day of March, 2018.

The effect of above notification dated 13^th October is generally understood that the GST on RCM basis on intr-state supply is applicable for the period from 1^st July, 2017 to 12^th October, 2017 if aggregate amount of supplies in a day from the unregistered person exceeds Rs. 5,000.00; and w.e.f. 13^th October, 2017 upto 31^st March, 2018 payment of GST on RCM basis on such supplies is exempted without any threshold limit.

This interpretation does not seem to be correct for the following reasons:

The Notification 38/2017 supra has omitted the proviso to the para 1 of the notification No. 8/2017 supra and the above notification 38/2017 has not mentioned any effective date nor any saving clause has been provided. Normally, effective date of a notification unless specifically specified should be taken as the date of issue of the notification. But, in case of the omission of a provision, unless a date is specified it should be construed to be effective from the date of issue of the notification in which such provision being omitted was introduced i.e. such provision stands null and void ab initio in absence of a saving provision in this regard.

The Supreme court in the Rayala Corporation (P) Ltd. vs. Director of Enforcement AIR 1970 SC 494 has made it clear that the word omission is different than the word repeal and the provisions of section 6 of the General Clauses Act which are applicable to repeal are not at all applicable to word omission in absence of an appropriate saving clause.

In case of Kolhapur Canesugar Works Ltd. vs. Union of India, 2000 (2) SCC 536 also, the Supreme Court has held that section 6 of the General Clauses Act was not applicable in case of omission of an enactment and it was applicable only in case of repeal of an enactment.

Further, Supreme Court in the case of General Finance Co. and another vs. Assistant Commissioner of Income Tax, Punjab, (2002) 7 SCC 1 – AIR 2002 SC 3126, wherein the court held that in the light of its earlier decisions in Rayala Corporation Pvt. Ltd. (supra) and Kolhapur Canesugar Works Ltd. (supra), the principle underlying section 6 of the General Clauses Act as saving the right to initiate proceedings for liabilities incurred during the currency of the Act will not apply to omission of a provision in an Act but only to repeal, omission being different from repeal as held in the said decisions.

In view of the above it may be concluded as under:

1. That the exemption from payment of GST on RCM basis for receipt of supply of goods or services or both by a registered person from an unregistered person is applicable without any threshold w.e.f. 1^st July, 2017 and upto 31^st March, 2018.

2. That no action for recovery of GST not paid on RCM basis under section 9(4) of CGST Act or corresponding provision of SGST or UGST Act can be initiated

3. That if GST on RCM basis has not be paid by a registered person in compliance of Notification 8/2017 supra, there is no need to deposit the same now

4. That the registered dealer can claim refund of GST paid on RCM basis upto 12^th October, 2017 where the GST paid on RCM was not eligible for ITC

5. That CGST and SGST shall be payable on RCM basis from 1^st April, 2018 on all inta-state supplies of goods or services or both, where the aggregate value of supply exceeds Rs. 5,000.00 per day, received by a registered person from an unregistered person from outside state.

Annexure – 1

Notification No.8/2017-Central Tax (Rate) New Delhi, the 28th June, 2017

G.S.R. (E).- 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.

2. This notification shall come into force with effect from the 1st day of July, 2017.

Annexure – 2

Notification No. 38/2017 – Central Tax (Rate) New Delhi, the 13th October, 2017

G.S.R. (E).- 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 makes the following amendment in the notification of the Government of India, in the Ministry of Finance (Department of Revenue), No.8/2017- Central Tax (Rate), dated the 28th June, 2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 680(E), dated the 28th June, 2017, namely:-

In the said notification, the proviso under Paragraph 1 shall be omitted.

2. The exemption contained in the notification No. 8/2017-Central Tax (Rate) dated the 28th June, 2017 as amended by this notification shall apply to all registered persons till the 31st day of March, 2018.

Annexure – 3

Notification No. 32/2017 – Integrated Tax (Rate) New Delhi, the 13th October, 2017

G.S.R. (E).- In exercise of the powers conferred by sub-section (1) of section 6 of the Integrated Goods and Services Tax Act, 2017 (13 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 the inter-State supply of goods or services or both received by a registered person from any supplier, who is not registered, from the whole of the integrated tax leviable thereon under sub-section (4) of section 5 of the said Act.

2. The exemption contained in this notification shall apply to all registered persons till the 31st day of March, 2018.