JUNE 28, 2017

By Preety Parik, CA

ISSUE - whether provisions of GST under Reverse Charge basis are applicable to purchase of Goods by a registered person from a CONSUMER supplier.

1) Sale of Old Jewellery

2) Sale of Consumer scrap such as plastic, newspapers, steel

3) Sale of used goods

4) Sale of used Car etc.

Can the transactions of the above nature be subject to GST under Reverse Charge basis?

As per the provisions of Sec.9(4) of the Central Goods and Services Tax Act – "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".

Tax shall be payable by the registered recipient on reverse charge basis if:-

a) The transaction is within the scope of "SUPPLY"

b) The Supply is of Taxable goods or Services

c) By an unregistered supplier

d) To a registered recipient

The scope of supply is governed by the provisions of Sec.7.

As per the provisions of Sec.7(1)(a) of the Central Goods and Services Tax Act – " Supply includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business."

For a transaction to fall within scope of supply, it should also satisfy the following conditions:-

a) made or agreed to be made for a consideration

b) in the course or furtherance of business

Under clause(a) of Sec. 2(17),Business includes "Any trade, commerce, manufacture, profession, vocation, adventure,wager or any other similar activity, whether or not it is for a pecuniary benefit"

A general view of the provisions of Section 9(4) depicts that purchases of Goods by a registered person from Consumer, being an unregistered person, shall be subject to Tax under Reverse Charge Basis. However, on analysis of the above provisions, an alternate view also appears that: -

1) Sale of personal Goods by the consumer is not in course of furtherance of business of the Consumer.

2) The definition of business includes Trade and Trade refers to activities of buying and selling of goodsand not Selling of goods alone.

3) Since the sale of goods by the consumer is not in course of furtherance of business, it is outside the scope of Supply.

4) Since Sale of Goods by a consumer is not a SUPPLY, such purchase of Goods by the registered person from consumer supplier should not be subject to Tax under Reverse charge basis.

We may also appreciate the following:-

A) The Consumer is destination point in the Chain of Supply.

B) The consumer does not avail credit of tax paid and Tax on goods have been fully paid.

C) There is no loss of revenue to the Government as the goods have passed through Tax.

D) The goods that are sold are used Goods, on which tax has been fully paid.

E) Even the FAQ's dated 31/03/2017 released by CBEC, Q.no10 under Scope of Supply, page 50, mentions -

Q. An individual buys a car for personal use and after a year sells it to a car dealer. Will the transaction be a supply in terms of CGST/SGST Act? Give reasons for the answer.

Ans. No, because supply is not made by the individual in the course or furtherance of business. Further, no input tax credit was admissible on such car at the time of its acquisition as it was meant for non-business use.

(The views expressed are strictly personal.)