Suspension of reverse charge – effective date?
OCTOBER 18, 2017
By L S Karthikeyan, Advocate
THE intent of the Government in removing the glitches in implementation of the GST is again demonstrated by issue of Notification No.38/2017- CT (Rate) on 13.10.2017.
Notification No.8/2017-CT (Rate) provided exemption in respect of all supplies of goods and / or services received by a registered person from an unregistered person from central tax leviable under Section 9(4) of the CGST Act, 2017. The proviso thereunder restricted the exemption only when the total value of all supplies received did not exceed Rs.5,000/- in a day.
By omitting the proviso, the exemption has been made applicable in respect of all the supplies received by registered persons from unregistered persons, irrespective of the value, albeit for the period upto 31.03.2018.
After the decision of the GST Council to facilitate the small enterprises, it was hoped by the taxpayers that the exemption would be provided retrospectively, which, however, is not apparent from the notification.
As the registered persons were generally eligible for input credit of tax paid under reverse charge, the prospective effect to the exemption may not create major difference financially.
However, in respect of supplies in respect of which credit is not available in terms of Section 17(5) of the Act or in respect of suppliers such as 'Rent-a-cab' operators or GTA, where the rate of tax is 5% if input tax credit is not taken and 12% if credit is taken, the effective date of the exemption makes a difference.
It would be beneficial to the taxpayers if the Government issues a clarification to dispel the doubts lingering as to the effective date of the Notification considering the following aspects.
Supply of goods
Notification No.40/2017-CT (also issued on 13.10.2017) specifies the 'registered person(s)' whose turnover is less than one crore and fifty lakhs as a class of persons to pay central tax on the date of supply as specified in Section 12(2)(a) which effectively means that the date of receipt of payment before supply of goods (advance) would not be taken as the time of supply of goods for such class of persons.
However, the time of supply, in respect of supplies (of goods) attracting reverse charge, under Section 12(3) is the date of receipt of goods or the date of payment or the date of invoice / any document issued by the supplier. Thus, in respect of goods where advance is paid to unregistered persons, the recipient is required to pay GST even before receipt of the goods. As the input tax credit can be taken only on receipt of the goods as per Section 16(2)(b), the registered persons may still be discouraged to receive supply of goods from unregistered persons.
Supply of services
The time of supply of services, attracting reverse charge, in terms of Section 13(3) is the earlier of:
- The date of payment by the recipient; or
- The date immediately following sixty days from the date of issue of invoice / any document, by the supplier.
Applying the above provision, assuming that payment has not yet been made to the supplier, where a supply of service has been received on or after 14th August, 2017 (60 days prior to 13.10.2017, the date of issue of subject notification) the time of supply would fall on or after 13.10.2017. Consequently, the liability of the recipient to pay the tax on reverse charge would fall after the Notification No.38/2017-CT (Rate) has been issued.
In view of the above, it is possible to take a stand that the exemption would be applicable to any supply of services received on or after 14.08.2017. On the same basis, as the exemption has a sunset clause (upto 31.03.2018), the exemption may apply only in respect of supply of services upto 30.01.2018.
To avoid litigations, it would be in the best interests of the taxpayer, if an appropriate clarification is issued by the Government.
Proportionate credit
On a different plane, Notification No.8/2017-CT as amended by No.38/2017-CT has been issued under Section 11(1) of the CGST Act. As per Section 2(47), 'exempt supply' means any supply of goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under Section 11'.
Section 17(3) states that the value of exempt supply under sub-section (2) shall include supplies on which the recipient is liable to pay tax on reverse charge basis. But, 'turnover in a State' means the value of all taxable supplies excluding the inward supplies on which tax is payable on reverse charge basis [Section 2(112)].
Thus, while calculating amount of input tax credit attributable towards exempt supplies under Rule 42(1), the supplies from unregistered persons would form part of the numerator but will not form part of the denominator. Based on individual numbers, it is possible that some of the recipients would end up paying (proportionate) input tax credit which would be more than the tax payable on supplies received from unregistered persons.
The above problem also needs to be addressed immediately.
(The views expressed are strictly personal.)
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