Explore a case study on Reverse Charge Mechanism (RCM) and find out if there’s a solution to the challenges faced by X & Company.
X & Company during the Financial Year has following sales amount for his mining business :-
| Table-1 | ||
| TURNOVER | SGST @5% | CGST@5% |
| 1,00,00,000.00 | 2,50,000.00 | 2,50,000.00 |
| ITC | 75,000.00 | 75,000.00 |
| Net Tax payable | 1,75,000.00 | 1,75,000.00 |
| Tax paid in Cash | 1,75,000.00 | 1,75,000.00 |
Note :- The X and Company has paid Royalty to the State Government amounting to Rs. 9,00,000.00 on which he has to pay the RCM and the same was not paid by him.
Now suppose the Dealer has paid the RCM then the situation of this case will be as under :-
X & Company during this year has paid a royalty of Rs. 9 Lakhs to the State Government and RCM payable on this amount @18 % is as under:-
| Table-2 | ||
| ROYALTY | SGST @18% | CGST @18% |
| 9,00,000.00 | 81,000.00 | 81,000.00 |
| RCM TO BE PAID IN CASH | 81,000.00 | 81,000.00 |
| ITC FOR RCM | 81,000.00 | 81,000.00 |
IF the dealer has paid RCM then the Tax payment condition is as under:-
|
Table-3 |
||
| TURNOVER | SGST @5% | CGST@5% |
| 1,00,00,000.00 | 2,50,000.00 | 2,50,000.00 |
| ITC For Inward supplies | 75,000.00 | 75,000.00 |
| ITC For RCM | 81,000.00 | 81,000.00 |
| Total ITC | 1,56,000.00 | 1,56,000.00 |
| Net Tax payable | 94,000.00 | 94,000.00 |
| Tax paid in Cash | 94,000.00 | 94,000.00 |
| RCM Paid in Cash | 81,000.00 | 81,000.00 |
| Total Cash Paid By the Dealer | 1,75,000.00 | 1,75,000.00 |
| REMARK | See Cash Paid as Tax by the dealer without paying the RCM in Table -1 is the same as it was in Table-3 and see here there is no financial effect of separately paying the RCM. In this case RCM is only a technical formality. | |
Now since the Dealer has not paid RCM and now, he has to pay the RCM along with Interest and further since time of taking the ITC is lapsed hence, he will not get the ITC in this respect.
WHAT WAS THE MISTAKE OF THE DEALER
It was just a technical Mistake in the eyes of the Dealer since he has paid all the taxes including the RCM but failed to show the same in it’s return as RCM and taking the ITC of the same but in the eyes of Law it is a big mistake and now it has to pay RCM again with interest without any ITC claim and it is a burden on the dealer for not following a procedure of GST and the law makers should provide a viable solution of this problem instead of burdening the tax payers under huge demands in this respect since non payment of RCM in these type of cases has no financial effects.
Is there any solution of this problem !!
Author Bio
No sir, there is not any solution except making comment, govt. intention to close old business and want to start start ups…
your the experts can make it possible it sir..
Regards:
CA Yogendra Jain