India has implemented GST law w.e.f. July 1t 2017. One of the most dangerous provisions under GST law is tax to be paid on Reverse Charge Mechanism (RCM) on supplies from Unregistered Dealer.
As per section 9(4) of the CGST Act, if a registered person purchases goods/services from an unregistered dealer (URD) then the registered taxpayer is liable to pay GST on reverse charge basis. All the provisions of the Act will apply to such recipient as if he were the person liable for paying the tax in relation to the supply of goods or services.
The above provision means, even a small supply of Rs. 100 from URD will liable for GST under reverse charge. To give relief to small tax payers, government issued Notification No 8/2017 on June 28th, 2017 whereby URD supplies were exempt from GST under reverse charge if the aggregate value of all such supplies does not exceed Rs. 5000 in a day.
The above notification has given relief to small tax payers but it has added one more confusion – whether such supplies are to be declared in GST return. If yes, under which head it should be reported. The one argument is since the government has introduced notification 8/2017 to reduce the difficulties of tax payers; it should not be required to be reported in GST return also. However other argument is, the said notification exempts only from payment of tax and not reporting in GSTR.
I have tried to analyze the legal provisions relating to it. Let’s first see what Notification 8/2017 says:
[TO BE PUBLISHED IN PART II, SECTION 3, SUB-SECTION (i) OF THE GAZETTE OF INDIA, EXTRAORDINARY
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
(Department of Revenue)
Notification No. 8- 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 Service Tax Act, 2017 (12 of 2017), the Central Government), on being satisfied that if 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 Central Goods and Service 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 services 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.
The above notification is issued in exercise of powers conferred under section 11 of the CGST Act.
The question regarding reporting of URD transaction below 5000 was asked by one of the users on twitter. Sharing the reply given by official twitter handle of GST.
Exempt supplies need to be disclosed in table 5 of GSTR 3B. After going through reply, I tried to understand meaning of exempt supply under GST law. Exempt supply is defined in section 2(47) of GST Act.
(47) “Exempt supply” means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply. It thus includes the supply of following type of goods and services: (a) Non-taxable supply; (b) Supply attracting nil rate of tax; (c) Supplies exempt under Section 11 of the GST Act excluding IGST and under Section 6 of the IGST Act;
After going through notification 8/2017 and definition of exempt supplies, it is clear that inward URD supplies can be termed as “Exempt Supplies” if aggregate of all such supplies by a registered dealer in a day is below Rs. 5000 since notification 8/2017 is issued by powers conferred u/s 11 of the CGST Act.
After going through all the provisions, it is clear URD supplies will have to be disclosed in GSTR as Exempt Supplies even if tax under RCM is not payable on the same by virtue of Notification No 8/2017.