Article explains Whether TDS under section 51 of CGST Act, 2017 is required to be deducted from supplier who is a unregistered person.
Introduction
The concept of Tax Deduction at Source (TDS) was in existence in the erstwhile VAT Laws especially in respect of works contract . GST Law also mandates Tax Deduction at Source (TDS) vide Section 51 of the CGST/SGST Act 2017, Section 20 of the IGST Act, 2017 and Section 21 of the UTGST Act, 2017. These provisions made effective from 01.10.2018 vide Notification No 50/2018 CT 13-09-2018. GST Laws provide for tax deduction at source (TDS) by the specified category of persons (herein after referred to as ‘the deductor’) from the payment made or credited to the supplier of taxable goods or services or both (herein after referred to as ‘the deductee’) at a prescribed rate. In this article issue , whether amount of TDS u/s 51 of GST act is required to be deducted from( the deductee ) supplier who is unregistered person is discussed.
Section 51 (1) of GST act 2017.
51(1) -Tax deduction at source.— (1) Notwithstanding anything to the contrary contained in this Act, the Government may mandate(a) a department or establishment of the Central Government or State Government; or
(b) local authority; or
(c) Governmental agencies; or
(d) such persons or category of persons as may be notified by the Government on the recommendations of the Council, (hereafter in this section referred to as ―the deductor), to deduct tax at the rate of one per cent, from the payment made or credited to the supplier (hereafter in this section referred to as ―the deductee) of taxable goods or services or both, where the total value of such supply, under a contract, exceeds two lakh and fifty thousand rupees:
Scope of section 51 (1) of the act .
Section 51 of the act mandates that notified persons are required to deduct to deduct TDS at specified rate from the payment made to the supplier ( the deductee) , where total value of such supply, under contract exceed Rs 2,50,000/. Plain reading of the said section suggest that the deductor should deduct TDS from the supplier, who is registered or unregistered person, if satisfies the prescribed conditions.
In order to examine the impugned issue it would be worthwhile to see the relevant provision to decide the issue of applicability of TDS provisions to unregistered supplier.
Definition of supplier S. 2 (105) of the GST act.
“ Supplier “ in relation to any goods or services or both, shall mean the person supplying the said goods or services or both and shall include an agent acting as such on behalf of such supplier in relation to the goods or services or both supplied;
Definition of registered person S. 2 (94) of the GST act.
registered person means a person who is registered under section 25 but does not include a person having a Unique Identity Number
Definition of taxable person S. 2(107) of the GST act.
―taxable person means a person who is registered or liable to be registered under section 22 or section 24;
Section 22- Person liable for registration.
(1) Every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees:
Analysis of the relevant provisions
Co joint reading of above referred provisions of the act indicate that the deductor should deduct amount of TDS , from payment made to the supplier irrespective of registered person or not. In other words, where supplier is even unregistered person and value of such supply under contract is exceed Rs. 2,50,000/, it is mandatory to the deductor to deduct and pay amount of TDS. Had there been word “ supplier who is registered person” is present in the section 51 (1) instead of word “ supplier” then only the deductor was not required to deduct amount of TDS from the supplier( the deductee) who is not registered person. In absence of word registered person in the said section , amount of TDS may be deducted from the supplier who is not registered person.
Payment of amount of TDS
In view of provisions of section 51(2) of the act the deductor is required to pay an amount of TDS to the Government Treasury within ten days as prescribed in the rule. As per section 51(5) of the act , the deductee is entitled to claim credit , in his cash ledger, of amount of TDS as reflected in the return filed by the deductor.
Relevant provisions in GST rule 66.
Rule 66 – Form and manner of submission of return by a person required to deduct tax at source.-
(1) Every registered person required to deduct tax at source under section 51 (hereafter in this rule referred to as deductor) shall furnish a return in FORM GSTR-7 electronically through the common portal either directly or from a Facilitation Centre notified by the Commissioner.
(2) The details furnished by the deductor under sub-rule (1) shall be made available electronically to each of the [deductees]151[suppliers in Part C of FORM GSTR-2A and FORM-GSTR-4A]152on the common portal after [the due date of]153filing of FORM GSTR-7[for claiming the amount of tax deducted in his electronic cash ledger after validation
(3) The certificate referred to in sub-section (3) of section 51 shall be made available electronically to the deductee on the common portal in FORM GSTR-7A on the basis of the return furnished under sub-rule (1).
Analysis of rule 66 of GST rules
After careful analysis of the return GSTR 7 and form of TDS certificate it is seen that GSTIN of the the deductee is mandatary field. This makes clear that supplier ie the deductee should be registered person. TDS certificate in FORM- GSTR -7A is to be issued to the deductee for claiming benefit of credit of amount of TDS in electronic cash ledger. It appears that arrangement of grant of credit of TDS has been made and returns are designed in such a way that amount of TDS is to be deducted from the registered supplier only. Co joint reading of the section 51 (5) and rule 66 indicate that amount of TDS is to be deducted only from the supplier (the deductee) who is registered person.
Standard operating procedure for TDS under GST act.
On 28-11-2018 Law Committee GST Council has issued standard procedure for TDS under GST act for the DDO and the other deductors. Para 9 of the said SOP is on the issue of “When tax deduction is not required to be made under GST”. The same is reproduced hereunder.
Tax deduction is not required in following situations:
a) Total value of taxable supply ≤ Rs. 2.5 Lakh under a contract.
b) Contract value > Rs. 2.5 Lakh for both taxable supply and exempted supply, but the value of taxable supply under the said contract ≤ Rs. 2.5 Lakh.
c) Receipt of services which are exempted. For example services
exempted under notification No. 12/2017 – Central Tax (Rate) dated 28.06.2017 as amended from time to time.
d) Receipt of goods which are exempted. For example goods exempted under notification No. 2/2017 – Central Tax (Rate) dated 28.06.2017 as amended from time to time.
e) Goods on which GST is not leviable. For example petrol, diesel, petroleum crude, natural gas, aviation turbine fuel (ATF) and alcohol for human consumption.
f) Where a supplier had issued an invoice for any sale of goods in respect of which tax was required to be deducted at source under the VAT Law before 01.07.2017, but where payment for such sale is made on or after 01.07.2017 [Section 142(13) refers].
g) Where the location of the supplier and place of supply is in a State(s)/UT(s) which is different from the State / UT where the deductor is registered.
h) All activities or transactions specified in Schedule III of the CGST/SGST Acts 2017, irrespective of the value.
i) Where the payment relates to a tax invoice that has been issued before 01.10.2018.
j) Where any amount was paid in advance prior to 01.10.2018 and the tax invoice has been issued on or after 01.10.18, to the extent of advance payment made before 01.10.2018.
k) Where the tax is to be paid on reverse charge by the recipient i.e. the deductee.
l) Where the payment is made to an unregistered supplier.
m) Where the payment relates to “Cess” component.
In view of the para 9 of above referred SOP amount of TDS should not be recovered from the supplier ( the deductee) who is unregistered person. However, it is pertinent to note that SOP is not issued by CBIC by issuing any or instructions or circular under section 168 of the act . Therefore, same may not be binding on the authorities.
Provision of grant of refund of excess or erroneous deduction of TDS
Section 51 (8) provides for refund of excess or erroneous deduction to the deductor or the deductee under section 54 of the act. However, no refund shall be granted to the deductor , if the amount deducted has been credited to the cash ledger of the deductee. As per this section, the deductee who is unregistered person may also claim refund of erroneous deduction of amount of TDS by the deductor under section 54 of the act. This provision suggest that the deductor is not required to deduct amount of TDS if supplier is unregistered person.
Similar provisions of TDS u/s 31 of Mvat act 2002.
Under earlier Mvat act there was also provision in section 31 ,to deduct amount of TDS while making payment to the contractors( irrespective of registered dealer or not ). However, there was express provision in the notification dated 29 /08/2005 that employer should deduct TDS @ 5% of amount payable to the unregistered contractor.
Conclusion
Section 51(1) mandates that the deductor should deduct amount of TDS from( the deductee) the supplier( whether registered person or not ) subject to prescribed conditions. However, section 51 (5) and (8) and rule 66 suggest that amount of TDS is to be deducted only from the supplier (the deductee) who is registered person. Prima facie it appears contradictory and create some sort of confusion and ambiguity. However, it seen from the above referred SOP that amount of TDS is not to be deducted from the supplier (the deductee) who is unregistered person. In absence of express provision in section 51 (1) of the act and circular instructions , in some cases, possibility of deducting amount of TDS from the supplier ( the deductee ) who is unregistered person can not be ruled out. In order to avoid litigations and for clarity requested to issue circular instructions.
Author Bio
