CA C V Suryam
An attempt is made to analyze the RCM provisions where the author is of the opinion that there is anomaly in drafting the provisions as well as corresponding notifications. Now look at the relevant provisions.
1.0 Section 9(4) of CGST Act deals with the supply of goods or services or both by an Un-Registered Persons (URP) to a Registered Persons (RP) and tax shall be paid on such goods or services or both by such RP as if he is the person liable for paying tax. The relevant extract of the section is reproduced below.
Sec. 9(4) The central tax in respect of the supply of taxable goods or services or both by a supplier, 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.
1.1 Now let us analyze the above definition in conjunction with the relevant notification no.18/2017-Central Tax date 28/06/2017 and see the implication of the same which will leave us in ambiguity.
Excerpts of the notification:- …….. 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.
1.2 If we look at the wordings of the section and notification, it will leave us enormous ambiguity. Firstly, the provision of the section says “supply of taxable goods or services or both…” underline taxable which means such goods or services or both shall be a taxable supply under CGST Act. Whereas, if we read the notification above harmoniously, the words used are “supplies of goods or services or both ……….” underline supplies which means such goods or services or both need not be a taxable supply.
1.3 Now the issues that come to our mind are:
a) If the value of such supply of goods or services or both, if received, reverse charge mechanism only when such supplies are taxable. Does it mean that if such supplies are exempt supplies, no applicability of reverse charge mechanism? Yes, as per the opinion of the author as there is no amendment to the section and it is only a notification.
b) In such case, take an example. A Registered Person (RP) received the total supply of goods or services or both, say Rs.7000 in a day in which Rs.5000 are under exempt goods and Rs.2000 are under exempt services. Then, as per the opinion of the author, though the limit of Rs.5000 exceeded, the recipient is not liable under reverse charge mechanism.
c) In another scenario, a RP received total supply of goods or services or both Rs.7000 in a day in which Rs. 6000 towards taxable supplies and Rs.2000 towards exempt supplies. Then, as per the opinion of the author, the recipient is liable under RCM to the extent of Rs.6000 only not on total amount of Rs. 7000.
d) Impact on pure supplier of exempt supplies:- As per Sec.22(1) of CGST Act, every supplier shall be liable to be registered if his aggregate turnover in a financial year exceeds twenty lakh rupees. Aggregate turnover means aggregate value of all taxable supplies (excluding RCM), exempt supplies, export of goods or services or both and inter-State supplies…………………. Now let us see how RCM impact on pure exempt supplies. Suppose a person is wholly into exempt supplies with a turnover of Rs.30 lakhs in a financial year and is exempt from payment of tax but he obligated to be registered as per the above definition. In such case, if he sources the exempt supplies from an URP, by virtue of the said notification, he is liable to discharge the tax under RCM which is a cost to him as he is not eligible to ITC since his outward supplies are exempt whereas by looking at the section 9(4), he is not liable under RCM since such supplies received by him are not taxable.
Conclusion: As a conclusion, it is the opinion of the author that as the Act prevails over the notification, one should abide by the provisions of the section.
(The author is a practicing Chartered Accountant and can be reached at firstname.lastname@example.org)