Explore the applicability of Goods and Services Tax (GST) under the Reverse Charge Mechanism (RCM) in the case of fees paid to the Registrar of Companies (ROC). Understand the criteria, legal standing, and GST implications for services provided by the ROC. Clarify doubts and stay informed about the taxation of ROC fees under GST law.
Background
Goods and Service Tax (GST) is introduced in F.Y. 2017-18 and is effective from July 01, 2017. GST subsumed some of the existing Indirect taxes laws. The GST Act has certain clauses which were prevailing in the subsumed indirect tax laws. The reverse charge by Goods / service recipient (RCM)is one such example. However, GST has introduced it’s own list of Goods and service, for the applicability of RCM.
RCM under GST includes service provided by Government to Business entity, hence it requires Payment of GST under Reverse Charge. There are various services availed by the business entity from the Government. Corporate entities avail various mandatory services from Registrar Of Companies (ROC) which are mandatory under provision of Company Act 2013/ LLP Act 2008, e.g. Registration of Company/LLP, Issuance of CIN/DIN, Registration of Various documents and returns of company (MOA, AOA, Annual returns) etc. and amendments thereof at certain pre-determined ROC fees.
The Company has asked us to give our opinion on the applicability of Provisions of GST on the fees paid to ROC under RCM.
We have analyzed various aspects for the applicability of RCM in case of payment of Fees to ROC and same is provided below.
Applicability of RCM in case of Services.
The list of Various Services for applicability of RCM under GST is Notified by Notification No 13/2017 (R) of CGST Act dated 28/06/2017. Entry no 5 of notification is reproduced as follows,
| Sr No | Category of Supply of Services | Supplier of service |
Recipient of Service |
| 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. |
Central government, State Government, Union territory or local authority | Any business entity located in the taxable territory |
By virtue of this entry, provision of RCM shall applicable and tax on the same is to be paid by the service recipient, if
(i) Service is provided by the Central Government, State Government, Local Authority or Union Territory.
(ii) It is provided to the any business entity registered under GST law.
(iii) Consideration for the same is more that Rs 5000 (Entry 9 (R ) of N T 12/2017 dated 26/06/2017) or
(iv) It is not is nature of Registration required under any law for the time being in force (Entry 47 of N T 12/2017 (R) dated 26/06/2017).
- Central Government or State Government
However, what is meant by Central Government or State Government is not defined under CGST law therefore one need to borrow the definition of Government from General Clause Act
- Central Govt
As per Clause 3(8) of the General Clauses Act, 1897, the ‘Central Government’, in relation to anything done or to be done after the commencement of the Constitution of India, mean president of India.
As per Article 53 of the Constitution of India, the executive power of the Union shall be vested in the President and shall be exercised by him either directly or indirectly through officers’ subordinate to him in accordance with the Constitution.
Further, in terms of Article 77 of the Constitution of India, all executive actions of the Government of India shall be expressed to be taken in the name of the President. Therefore, the Central Government means the President and the officers subordinate to him while exercising the executive powers of the Union vested in the President and in the name of the President.
- State Govt
As per Clause 3 (60) of the General Clauses Act, 1897, the ‘State Government’, as respects anything done after the commencement of the Constitution, shall be in a State the Governor, and in an Union Territory the Central Government.
As per Article 154 of the Constitution, the executive power of the State shall be vested in the Governor and shall be exercised by him either directly or indirectly through officers’ subordinate to him in accordance with the Constitution. Further, as per article 166 of the Constitution, all executive actions of the Government of State shall be expressed to be taken in the name of Governor.
- Local Authority
As per the Sec 2(69) of CGST Act, Local authority means the following:
1. “Panchayat” as defined in clause (d) of article 243 of the Constitution;
2. “Municipality” as defined in clause (e) of article 243P of the Constitution;
3. Municipal Committee, a Zilla Parishad, a District Board, and any other authority legally entitled to, or entrusted by the Central Government or any State Government with the control or management of a municipal or local fund;
4. Cantonment Board as defined in section 3 of the Cantonments Act, 2006;
5. Regional Council or a District Council constituted under the Sixth Schedule to the Constitution;
6. Development Board constituted under article 371 of the Constitution; or
7. Regional Council constituted under article 371A of the Constitution;
Ministry of Corporate affairs.
The Government of India (Allocation of Business) Rules, 1961 are made by the President of India under Article 77 of the Constitution for the allocation of business of the Government of India. The Ministries/Departments of the Government are created by the President on the advice of the Prime Minister under these Rules. The businesses of the Government are transacted in the Ministries/Departments, Secretariats and offices (referred to as ‘Department’) as per the distribution of subjects specified in these Rules. Each of the Ministries is assigned to a Minister by the President on the advice of the Prime Minister. Each department is generally under the charge of a Secretary to assist the Minister on policy matters and general administration.[i]
Article 74(1) of the Constitution provides that there shall be a Council of Ministers with the Prime Minister as its head to aid and advise the President, who shall exercise his/her functions in accordance to the advice. The real executive power is thus vested in the Council of Ministers with the Prime Minister as its head. And as per RTI, there are 49 Ministries and the Ministry of Corporate Affairs is one of them.
Conclusion for Above Para :
Based on the above analysis, we can conclude that the MCA is a Government department which is formed by the Central Government and headed by the President.
Legal standing of Registrar of Company
Provision regarding status of the ROC. Provision of Sec 396 in relation to establishment of registration offices under Companies Act 2013 is as follows
(1) For the purposes of exercising such powers and discharging such functions as are conferred on the Central Government by or under this Act or under the rules made thereunder and for the purposes of registration of companies under this Act, the Central Government shall, by notification, establish such number of offices at such places as it thinks fit, specifying their jurisdiction.
(2) The Central Government may appoint such Registrars, Additional, Joint, Deputy and Assistant Registrars as it considers necessary for the registration of companies and discharge of various functions under this Act, and the powers and duties that may be exercisable by such officers shall be such as may be prescribed.
(3) The terms and conditions of service, including the salaries payable to persons appointed under sub-section (2), shall be such as may be prescribed.
(4) The Central Government may direct a seal or seals to be prepared for the authentication of documents required for, or connected with, the registration of companies.
Further, as per the Induction Material issued by MCA, ROC function is administered by MCA. All the appointment, Monitoring and instruction are implemented through MCA.
Conclusion for the above Para
The Companies Act and Function of ROC are administered by the Ministry of Corporate Affairs and therefore we can say that ROC is a regulatory body under MCA and directly reporting to the President of India and hence the same can be treated as Central Government.
Position under GST Law for taxation of services provided by Govt or through its ministries
Section 2(17) of CGST Act 2017 defined Business means,
1. any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities;
However, the chargeability of GST as per the Act depends upon the word “Supply”. The scope of supply is defied under Section 7 of CGST Act 2017. Same time, the sub-section 2 excludes certain activity from the scope of Supply same is as below,
Section 7 (2) Notwithstanding anything contained in sub-section (1),
(i) activities or transactions specified in Schedule III; or
(ii) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services.
2. However, the real ambiguity starts with the FAQ’s[ii] issued by the CBIC on for “Government services”
While answering to the Question No 10 “Are various regulatory bodies formed by the Government covered under the definition of ‘Government’?”, department answered the question as follows,
No. A regulatory body, also called regulatory agency, is a public authority or a governmental body which exercises functions assigned to them in a regulatory or supervisory capacity. These bodies do not fall under the definition of Government.
Examples of regulatory bodies are – Competition Commission of India, Press Council of India, Directorate General of Civil Aviation, Forward Market Commission, Inland Water Supply Authority of India, Central Pollution Control Board, Securities and Exchange Board of India.
Conclusion for Above para
As on date there are no such activities as notified by the Central government under the provisions of CGST Act 2017. All activities performed by the Central Government, State Government, Local authority as Public Authority are classified as ‘Supply’ under GST Act.
3. Some of the examples given above, contradict the definition given as per the General Clause Act, e g. Central Pollution Control Board although it is created by Ministry of Environment, Forest and Climate Change, which is part of the Central government.
To answer to the question, GST Department has carved out regulatory Authority from the term “Government” and it may indicate that Scope of RCM will not extend to the ROC (Being regulatory Authority).
FAQs published is GST Department’s view; however it does not form part of the statute. Placing reliance on the FAQ’s framed by the department for the subject, may lead to ambiguity, hence it is not advisable to take decision based on the same.
Conclusion on the taxability of services provided by the Registrar of Company
As indicated in the above paras, the nature of services provided by the Central Govt. should be engaged in the capacity as public authorities which shall be termed as ‘business’.
However, if the services provided are other than the nature ‘engaged as public authorities’, the same shall not be classified as business.
As on date there are no activities which are notified by the Central Government under the provision of CGST Act 2017. All activities performed by the Central Government, State Government and Local authority as Public Authority are classified as ‘Supply’ under GST Act.
Considering the above, we conclude that the Service Charges/ Fees collected by ROC under the various provision of Companies Act 2013 are in the capacity of Public Authority and hence taxable under GST Law. Provisions of RCM shall be triggered in case payment of Fees made to the ROC.
# Abbreviations used
1. GST Act – Goods and Service Tax Act 2017
2. CGST Act – Central Goods and Service Tax Act 2017
3. RCM – Reverse Charge Mechanism
3. Constitution – Constitution of India
4. RTI – Right to Information Act, 2005
5. MCA – Ministry of Corporate Affairs
6. ROC – Registrar of Companies
7. FAQ – Frequency Asked Question as hoisted on website of CBIC
[i] Source:- https://eoi.gov.in/eoisearch/MyPrint.php?0775?001/0006
[ii] Source:- https://www.cbic.gov.in/resources//htdocs-cbec/gst/faqs-government-services.pdf
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Disclaimer : The functions performed by the ROC are mandated under Provisions of Companies Act and rules made thereunder. This is the statutory mechanism and should not be taxed under GST, However the intention of law makers are need to be considered and either clarification from the GST department or question is needs to be tested before court of law.
Author Bio
Sir, Please give your views
In the case of the taxpayer having regular import of goods, it is observed that they are executing forward contracts for foreign currency with their banks.
In advance they book foreign currency, anticipating that there may be a rise in the value of foreign currency against rupees, at the time of payment to their supplier. Such anticipation results either in gain or loss due to rate fluctuations.
These forward contracts are specific contracts between bank & taxpayer. As these contracts are not dealt with on any security exchanges they are not falling under The Securities Contracts Regulation Act, and therefore will cover under the definition of “Goods”.
It is pertinent to mention that “forward contract” is an agreement between taxpayers and their bank, to purchase or sell an amount of currency at a pre-determined future date at a pre-determined price. The gain or loss is determined on the date of settlement. The settlement could be by way of actual delivery of currency (i.e. Payment is made to their supplier) or by way of net of differential amount on the settlement date.
Where the settlement takes place by way of actual delivery of underlying currency, then such forward contracts would be treated as normal supply of goods and liable to GST.
Sir, who is the supplier of goods / services, a taxpayer who is hedging the contract for gain or a bank being a hedge platform.