Payment of GST Under Reverse Charge Mechanism (RCM)
DEL/285/2019/ALLM/46 15th October, 2019
To All Members,
Sub: Payment of GST Under Reverse Charge Mechanism (RCM)
This is with reference to the queries that we are receiving from our members with regard to Reverse Charge Mechanism (RCM). We had taken up this matter with our GST Consultant Mr. S. C Kamra, Advocate from whom we have received opinions with regard to applicability of RCM tax as under: -
1. Payment of GST under reverse charge on purchases of goods and services from unregistered suppliers.
2. Payment of GST under reverse charge on procurement of rent-a-cab services from non-body corporate entity.
Accordingly, the two opinions received from M/s. S.C. Kamra & Co., Advocates and GST Consultants, are placed below for your information.
However, to simplify the above matter, please note that RCM is applicable only on rent-a-cab services and that also where GST is being charged by rent a cab operator @ 5%. It is not applicable when rent a cab operator is charging GST @ 12%. As far as RCM on rent a cab services from those charging 5% GST, please note the following special points:-
• If rent a cab operator is a proprietor or a partnership firm and he is billing to a proprietor or partnership or any other non-corporate entity, then he would continue to charge 5% GST in his bill. RCM provisions do not apply in this scenario.
• If rent a cab operator is proprietor or a partnership firm and he is billing to a private limited or public limited company, then he would not charge 5% GST in his bill. In this case, the service recipient i.e. private limited company or public limited company would have to charge and deposit GST under the RCM mechanism @ 5 %. For this purpose, the company should raise Tax invoice in self-name and show GST payable on rent-a-cab service so procured.
• In case rent a cab operator (being proprietor or partnership firm) adds 5% GST in his bill to a private limited company or public limited company, the company need not reimburse GST portion to the cab operator. Instead the company should pay 5% GST on their own as RCM liability.
• In case rent a cab operator is not registered in GST, the private limited company or public limited company in receipt of cab services should still pay 5% GST under RCM
• In case rent a cab operator is a private limited or public limited company, whether his client is a proprietor or partnership firm or a private or limited company, he would have to charge 5% or 12% GST ( as the case may be) in his invoice
• No ITC would be available in respect of services provided by rent a cab operator to a tour operator irrespective of whether he elects to pay 5% or 18% GST on tour operator services. However, this is not applicable for services provided by our excursion agents who are billing as tour operators under HSN Code 998555. Services from one tour operator to another tour operator in the same line of business are legally available as Input Tax Credit.
Kindly note the above special points and establish compliance of RCM provisions on rent a cab services received from proprietorship or partnership firms.
With best regards,
Subject: Payment of GST under reverse charge on purchases of goods and services from unregistered suppliers
You may recall that u/s 9 (4) of CGST Act, 2017, it was provided that the central tax in respect of intra-State supply of taxable goods and / or services received by a registered person from unregistered supplier, would be paid by the registered person on reverse charge basis. Similar provision existed in section 5 (4) of IGST Act in respect of inter-State supply of goods or services by an unregistered person to a registered person. However the Government exempted goods and / or services of aggregate value upto Rs.5,000/- in a day procured from unregistered suppliers within the State. As these provisions were draconian provisions and the industry protested to comply with these provisions, the Government exempted all registered persons from the application of reverse charge tax liability upto 31.03.2018. The exemption was later renewed upto 30.06.2018, 30.09.2018 and finally upto 30.09.2019.
In the meantime the Government substituted the provisions of sub-section (4) of section 9 vide CGST (Amendment) Act, 2018 notified in the official gazette on 30.08.2018. The amended provisions of sub-section (4) are reproduced below:-
“(4) The Government may, on the recommendations of the Council, by notification, specify a class of registered persons who shall, in respect of supply of specified categories of goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient of such supply of goods or services or both, 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 such supply of goods or services or both.”
The amended provisions came into force from 01.02.2019. From the amended provisions, you will observe that the Government is now empowered to specify a class of registered persons and also specified categories of goods or services received from unregistered supplier. The specified category of registered persons will need to pay CGST on purchase of specified types of goods or services or both from unregistered suppliers. Every registered person is not covered by reverse charge provisions of section 9 (4) of CGST Act. The provisions of section 5 (4) of IGST Act were also substituted on identical lines by IGST (Amendment) Act, 2018 w.e.f. 01.02.2019. Since the provisions of section 9 (4) of CGST Act or section 5 (4) of IGST Act, as the case may be, were totally substituted, the earlier exemption given upto 30.09.2019 from application of old provisions of section 9 (4) or 5 (4) has lost its significance.
So far the Government has issued Notification No. 07/2019-CT (R) dated 29.03.2019 (effective from 01.04.2019) specifying promoters for construction of projects to pay GST under reverse charge on procurement of cement, capital goods etc. from unregistered suppliers. The other types of registered persons, manufacturers or service providers (including tour operators) or traders have not been notified for compliance of reverse charge provisions on procuring goods and / or services from unregistered suppliers. In the absence of any such notification, the travel agencies and tour operators are not required to discharge GST from their pocket on procurement of goods or services from unregistered vendors / service providers even after 01.10.2019. You may advise your members accordingly.
Office Address :
S.C. KAMRA & Co.
Advocates & Solicitors
New Delhi - 110029
Ph.: 011-26161079, 26185504, 26183763
Mobile No.: 98100 - 72662
Email ID : email@example.com
Subject: Payment of GST under reverse charge on procurement of rent-a-cab services from non-body corporate entity
We would like to update you that the GST Council in its meeting held on 20.09.2019 at Goa recommended that in the case of registered persons other than body corporate (e.g. proprietorship, HUF or partnership firm) engaged in renting of vehicles and paying 5% GST ( without availing ITC), the GST shall be paid by the recipient of service if it is a body corporate entity. In other words, the services of renting of motor vehicles from non-body corporate entity to body corporate entity is brought under reverse charge mechanism (RCM), as was the practice during pre-GST regime.
2. Now the Govt. has issued notification No. 22/2019-CT (R ) dated 30.09.2019 to amend the parent notification No. 13/2017-CT (R ) dated 28.06.2017 issued under section 9(3) of CGST Act, 2017. Under the parent notification, specified services such as services of goods transport agency, Advocates, sponsorship services, services provided by the Govt. / local authority, security services supplied by non-body corporate person etc. are already subjected to RCM provisions. The Govt. has now enlarged this list to cover rent-a-cab services. The amendment has come into force from 01.10.2019.
3. The RCM provisions requiring the body corporate (recipient of service) to discharge GST will apply in the following conditions:-
(a) The service provider / transporter is a non-body corporate person i.e. it should be a proprietorship concern, HUF or partnership firm.
(b) The transporter is paying 2.5% CGST + 2.5% SGST or 5% IGST ( as the case may be) without availing ITC.
(c) The service recipient is a body corporate i.e. a company including private limited company or corporation.
In case all the above 3 conditions are fulfilled, GST will be paid by the service recipient (body corporate) on their own under RCM. The RCM provisions are not applicable in any of the following situations:-
• The transporter / service provider is a body corporate; or
• The service provider / transporter is paying 12% GST (normal rate under HSN Code 9966) with or without availing ITC; or
• The service recipient is not a body corporate i.e. it is a proprietorship or partnership firm.
4. In case the transporter and service recipient are located in the same State / U.T., the service recipient will pay 2.5% CGST + 2.5% SGST under HSN Code 9966 without availing ITC of goods or services used in rent-a-cab service. In case the transporter and service recipient are located in different States / U.T., IGST @5% will be paid by the recipient depending upon the place of location of the transporter.
5. Please also note that having paid GST / IGST on RCM basis, input tax credit would still not be available to the body corporate / service recipient. Under section 17(5) of CGST Act, 2017, renting or hiring of motor vehicle having approved seating capacity upto 13 persons (including driver) is not allowed as input tax credit. In view of this specific bar, GST liability paid by the body corporate on RCM basis will be an additional revenue cost.
Since this is an important amendment and is likely to affect large number of travel and tour operators (private limited companies), we advise you to update your members with the latest amendment in GST law which is operative from 01.10.2019.