RCM applicability permit fees paid to State Govt.

[KARAN VERMA]

Sir, my query is whether RCM required to be paid on permit fees paid to State Govt. for ethanol sale. Amount for permit fees is ₹ 50 lakhs.

[Rajagopalan Ranganathan]

Sir

As per Circular No. 121/40/2019-GST dated 11.10.2019 services provided by the Government to business entities including by way of grant of privileges, licences, mining rights, natural resources such as spectrum etc. against payment of consideration in the form of fee, royalty etc. are taxable under GST. Tax is required to be paid by the business entities on such services under reverse charge.

[Shilpi Jain]

If this is a statuory fee without any service being involved by the government it can be argued that there is no supply and thereby RCM may not be liable.

[KASTURI SETHI]

GST is applicable on such kind of fee under RCM. Not any exemption is admissible.

[KASTURI SETHI]

Sh.Karan Verma Ji,

In continuation of my reply dated 12.09.2021 above, I further opine as under:-

Ethanol is not absolute alcohol. Hence it is not out of network of GST. Ethanol is taxable under GST. Now the issue arises whether the grant of permit for sale of ethanol is supply of service or not.

As per definition of ‘business’ under Section 2 (17) (i) of CGST Act, 2017, it includes any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities. In view of the above definition of business, any activity or transaction carried out/provided by the Govts. in which they are engaged as public authorities shall constitute a supply leviable to GST, if it is made against a consideration except those transactions which are specifically notified as non-supplies under Section 7(2)(b) of CGST Act.

In this context, serial no.5 of Notification no.13/17-CT(R) dated 28.6.17 as amended has to be seen. As per the notification, GST on the supply of services supplied by Govts. shall be payable by any business entity (receiver of service) located in taxable territory under RCM except the following transactions/services:-

(1) Renting of Immovable Property Services

(2) Services specified below :-

i) services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Central Government, State Government or Union territory or local authority;

(ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport;

(iii) transport of goods or passengers.

Your activity does not fall in the exclusion exception. Hence in my view GST is leviable on the permiit fee under RCM.

[KARAN VERMA]

Thank you sir

[Amit Agrawal]

Just to add to what Sh. Rajagopalan Ranganathan and Sh. Kasturi Sethi said:

Attention is invited to Bombay High court ruling in case of BUILDERS ASSOCIATION OF NAVI MUMBAI Versus UNION OF INDIA as reported in 2018 (4) TMI 461 - BOMBAY HIGH COURT 

 

[KASTURI SETHI]

Sh. Amit Agrawal Ji,

Thanks a lot for posting case law in support.

AI Summary

Reverse charge on government permit fees: recipient liable for GST on permit to sell ethanol unless fee is a non-supply. Circular 121/40/2019-GST treats government charges for privileges, licences or rights as taxable services with GST payable by the recipient under reverse charge. The grant of an ethanol-sale permit is prima facie a taxable service and not within Notification No. 13/2017-CT(R) exclusions; however, a counter-argument exists that purely statutory fees with no service may not constitute a supply and thus may not attract reverse charge.