Trader not liable under reverse charge for M-sand, P-sand, blue metal, boulders, hollow bricks from unregistered suppliers; Notification No.7/2019-CT(R) inapplicable

AAR held that the applicant, being only a trader and not a promoter, does not fall within Notification No. 7/2019-CT(R) and is not liable under the reverse charge mechanism for purchases of M-sand, P-sand, blue metal, boulders and hollow bricks from unregistered suppliers. The goods are not notified under Section 9(3) and the applicant's activity is not covered by amended Section 9(4); consequently the applicant is not required to pay tax under RCM on those purchases.

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ISSUES PRESENTED AND CONSIDERED

1. Whether purchases of M-sand (HSN 25061020), P-sand (HSN 25061020), Boulders (HSN 25171010), Blue Metal and Bricks (HSN 25171010), and Hollow Bricks (HSN 68101110) from intra-state unregistered persons attract liability to pay tax under the reverse charge mechanism (RCM) under Section 9(3) of the CGST Act.

2. Whether the goods notified under Section 9(3) specifically exclude the above-mentioned goods purchased from unregistered persons.

3. Whether the amended Section 9(4) (and Notification issued thereunder) excludes the applicant from liability to pay tax under RCM for purchases of the above goods received from unregistered persons, having regard to the category of recipient specified (notably "promoter").

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Applicability of Section 9(3) RCM to purchases of specified construction-related materials from unregistered suppliers

Legal framework: Section 2(98) defines "reverse charge" as liability to pay tax by the recipient under sub-sections (3) or (4) of Section 9; Section 9(3) empowers the Government to notify categories of supplies the tax on which shall be paid on reverse charge basis by the recipient; Notification No. 04/2017-CTR (as amended) lists goods/suppliers/recipients for RCM.

Precedent Treatment: No judicial precedent is cited or relied upon in the ruling; determination is made on statutory text and notifications alone.

Interpretation and reasoning: The Notification No. 04/2017-CTR (reproduced and examined) enumerates specific tariff items and descriptive entries (e.g., cashew nuts, bidi wrapper leaves, tobacco leaves, certain essential oils, silk yarn, raw cotton, metal scrap, used/old goods, etc.) where RCM applies to supplies from unregistered persons to registered persons or to other specified recipients. The materials in question (M-sand, P-sand, Blue Metal, Boulders, Hollow Bricks) do not appear in any entry of that notification.

Ratio vs. Obiter: Ratio - the absence of the specified goods from Notification No. 04/2017-CTR means they are not subject to RCM under Section 9(3) as notified; Obiter - none additional on unrelated classes of goods.

Conclusions: Purchases of M-sand, P-sand, Blue Metal, Boulders, Hollow Bricks from intra-state unregistered persons are not liable to tax under RCM pursuant to Section 9(3), because those goods are not covered by the entries in Notification No. 04/2017-CTR.

Issue 2 - Whether Section 9(3) notification specifically excludes the subject goods

Legal framework: Section 9(3) notifications specify categories of supplies on which RCM will apply; the notification's entries determine coverage by positive enumeration.

Precedent Treatment: None cited; approach is textual and purposive-notification lists covered items; items not listed fall outside.

Interpretation and reasoning: The notification operates by positive specification of goods and suppliers. The ruling notes that the goods received by the applicant "do not get covered under any of the entries" of the reproduced notification and are therefore outside its ambit. The Authority treats the absence from the notification as de facto exclusion for RCM under Section 9(3).

Ratio vs. Obiter: Ratio - exclusion follows from non-inclusion in the notification; Obiter - implicit commentary that notifications may be amended to include other goods in future.

Conclusions: Yes - the goods notified under Section 9(3) exclude the applicant's listed goods purchased from unregistered persons within the State because those goods are not specified in the notification.

Issue 3 - Applicability of amended Section 9(4) (and Notification No. 07/2019) to purchases from unregistered suppliers and the status-based exclusion for non-promoters

Legal framework: Section 9(4) permits notification of a class of registered persons who must pay tax on RCM in respect of specified categories of goods/services received from unregistered suppliers; Notification No. 07/2019-CTR (effective 01.04.2019) identifies categories of supply and specifies the class of recipient (notably "Promoter").

Precedent Treatment: No judicial authorities referred to; determination based on the text of Section 9(4) and the terms of Notification No. 07/2019.

Interpretation and reasoning: Notification No. 07/2019 identifies very specific categories (shortfall in minimum purchases by a promoter for construction of a project, cement shortfall, capital goods to promoters) and designates the recipient class as "Promoter." The applicant, on inquiry, confirmed it is solely a trader (wholesale and retail) and does not undertake construction nor act as a promoter. As such the applicant does not fall within the class of registered persons specified in the notification and therefore cannot be subject to RCM under Section 9(4) pursuant to that notification.

Ratio vs. Obiter: Ratio - where a notification under Section 9(4) limits RCM to a specified class of registered persons (e.g., promoters), a registered person who does not fall within that class is not liable under that notification; Obiter - comment that liability under Section 9(4) would attach if the recipient's nature of business were that of a promoter.

Conclusions: The amended Section 9(4), as operationalized by Notification No. 07/2019, excludes the applicant from liability to pay tax under RCM for purchases of the listed goods from unregistered intra-state suppliers because the applicant is not a "Promoter." The exclusion is conditional - if the recipient's nature of business were to change to that of a promoter, the position would differ (cross-reference to Issue 1 and Notification wording).

Ancillary legal observations relied upon in reasoning

1. Binding effect of advance ruling: The Authority notes statutory provisions that an advance ruling under Chapter XVII is binding on the applicant and the concerned officer, and is liable to be void ab initio if obtained by fraud or suppression of material facts; the ruling assumes facts as stated by the applicant (exclusive trading activity; suppliers unregistered).

2. Fact sensitivity: The conclusions are expressly tied to the facts presented - the applicant's representations that it is solely a trader and that suppliers are unregistered were taken as the factual matrix for the ruling; any change in law, facts, or circumstances (including the applicant's nature of business) would affect binding effect under Section 103(2).

Final Determinations (Ratio of the Ruling)

i. Purchases of M-Sand, P-Sand, Boulders, Blue Metals, Bricks and Hollow Bricks from unregistered persons are not liable to RCM under Section 9(3) or Section 9(4) as per the existing notifications, because the goods are not specified in Notification No. 04/2017-CTR and the applicant does not fall within the class of recipients (Promoter) specified in Notification No. 07/2019-CTR.

ii. The notification under Section 9(3) excludes the subject goods by virtue of their non-inclusion in the notification's entries.

iii. The amended Section 9(4) (Notification No. 07/2019) excludes the applicant from RCM liability for the purchases in question so long as the applicant's nature of business remains that of a trader and not a promoter; change of status to promoter would bring different consequences (cross-reference to Issue 3).

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