RCM provisions on RWA (Residents Welfare Association)

[PANKAJ CHUGH]

Respected Members,

Kindly guide on the following query:

Brief Fact:

the person is a Resident welfare association registered under Societies Registration Act, 1860. It's source of funds is monthly maintenenace collected from residents and also from advertisement, canopy.

The monthly maintenance is less than ₹ 7500/- per member. and annual turnover is also less than ₹ 20 lac.

RWA deploys security guards through a security agency (proprietorship).

Query:

1. whether RWA is required to deposit gst on RCM basis on Security Services ? in terms of Section 9(3) of the CGST Act ?

2. Whether security agency can charge gst in his bill raised to RWA ?

Thanks & Regards

[Alkesh Jani]

Shri Kasturiji Sir,

In this regard, First let us see section 9(3) of CGST Act, 2017 as on 01.02.2019 and is reproduced below for ready reference: -

“(3) The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such 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 the supply of such goods or services or both.”

The definition of reverse charge is given at Section 2(98) of CGST Act, 2017 as below:-

"(98) "reverse charge" means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or sub- section (4) of section 5 of the Integrated Goods and Services Tax Act;"

For this purpose, Section 24 of CGST Act, 2017 is given below:-

"24. Compulsory registration in certain cases.- Notwithstanding anything contained in sub-section (1) of section 22, the following categories of persons shall be required to be registered under this Act,…

(iii) persons who are required to pay tax under reverse charge;"

On going through the above, section 9(3) it is mentioned ‘categories of supply’ and has also mentioned as the person liable, here term ‘Person’ is used, and is defined at Section 2(84) at (i) includes co-operative societies, this makes ample clear that Section 9(3) is applicable to the ‘Person’. The various court has held section 9 as charging section, moreover, the preamble of the act, has made clear the purpose of enacting the act for the purpose of levy of tax.

When comes to charging section, it should be construed strictly.

Section 24 also uses term ‘Person’ and also used the term ‘shall’ means it is mandatory if any person regardless of threshold limit, if receives the goods or services as specified shall obtain the registration within 30 days of such receipt and shall discharge the tax liability. Section 23 is for who supplies exempted supplies not as a recipient of supplies and in any case not touching the issue even remotely.

Even in the definition of reverse charge, term ‘recipient’ is used and not class of person or registered person.

Further, even for the co-operative societies, by way of fliers and circulars, it is clearly mentioned that which supplies are exempted to arrive at threshold limit and monthly subscription of more than 7500/- per member per month, to obtain registration.

Above all, in our discussion any authority of law which suggest that Security service (personal) is exempted service was not placed.

When department has so much of ground to issue SCN, how I can suggest not to take registration and push him/her to matter which can be disputed or may be a litigation matter in future.

When counter view was expressed, it was also suggested that clarification in the matter is required.

I preferred not to comment was because, the ground advanced by Shri/Ku. Shilpiji, is lacking legality and logically too. By using phrase ‘many may not agree’ indicates that she is not convinced by ground advanced by her and once she is not convinced, how others may be convinced?

Thanks,

With Due Regards

[Amit Agrawal]

W.r.t. post No. 21, I agree with Shri Alkesh Jani Ji to the extent that Section 23 cannot be used to override 'Requirement of compulsory registration u/s 24'.

However, as shared in my earliest post above, on the core issue under discussion here, I am in agreement with view by way post No. 3 by Ms. Shilpi Jain which is duly & beautifully expounded by Shri Kasturi Sethi Ji in post No. 8.

With due respect, I do not agree with the view that Section 24 (iii) forces a RWA - which is otherwise not liable to take registration either u/s 22 or 23, to take GST registration just because it is recipient of 'Security services (services provided by way of supply of security personnel)' from 'Any person other than a body corporate'.

And my reasoning in brief for above disagreement is as follows:

A. 'Category of supply' as notified u/s 9 (3) of CGST Act, 2017 read with serial No. 14 of Notification No. 13/2017- Central Tax (Rate) (as amended till date) is "Security services (services provided by way of supply of security personnel) provided to a registered person"

B. Till the time, RWA is not registered either due to Section 23 or due to aggregate turnover in a financial year not exceeding prescribed limits u/s 22, it will NOT be receiving ''Category of supply' as mentioned in Para A above.

C. Hence, question of compulsory registration u/s 24 (iii) for such RWA does not arise in my humble view.

D. Any other interpretation for Section 24 (iii) - for core issue which is raised by the Quriest and under discussion here - will result into changing the 'Category of supply' as notified u/s 9 (3) of CGST Act, 2017 read with serial No. 14 of Notification No. 13/2017- Central Tax (Rate) (as amended till date) to the followings: "Security services (services provided by way of supply of security personnel) provided to a person (INSTEAD of "a registered person").

E. As rightly said, charging section needs to be read strictly. And, in this case, RWA does not fall for levy under RCM as per said charging Section 9 (3) for above explained reasons. Hence, Section 24 (iii) will not come into play at all.

All above should be treated as strictly personal views of mine only and not a professional advice or suggestion. And I fully respect contrary views.

[Amit Agrawal]

As far as risk of dispute / litigation upon RCM is concerned, while such risk does exist, same is not sufficient in my humble view for RWA to take registration under GST due to following reasons:

i) Paying taxes under RCM by RWA also exposes risk of gst demand from tax-dept. upon service provider (assuming service provider's aggregate turnover in a financial year exceeding prescribed limits u/s 22) and resultant contractually disputes / chaos. This is more so because my views explained in the earlier posts and specially if RWA forces such service provider not to charge GST under forward charge but insist on paying it under RCM.

ii) Cost of ensuring GST compliance, Dept's audit / scrutiny etc. after taking registration under GST, specially in the context that a RWA.

iii) For any reason, if service provider is not charging gst under forward charge for his own and without RWA insisting for the same, then, why to increase cost for RWA by paying gst under RCM. In case a case, contract with service provider should ideally includes clause to the effect that charges for services includes all applicable taxes, if any.

However, I fully concur with my professional colleagues that it would be better if CBIC comes with a classificatory circular in this regard.

All above should be treated as strictly personal views of mine only and not a professional advice or suggestion. And I fully respect contrary views.

[Amit Agrawal]

To further clarify w.r.t. my Post at serial no. 22 above, 'Category of supply' (as notified u/s 9 (3) of CGST Act, 2017) quoted by me is what is specified at column No. 2 (& NOT what is mentioned at column No. 4) of Sl. No.14 of Notification No. 13/2017- Central Tax (Rate) (as amended till date).

This, in my humble view, eliminates the question whether said Notification No. 13/2017- Central Tax (Rate) exceeds the mandate of Section 9(3) of CGST Act, 2017.

I believe this is important to note, while dealing with the question of compulsory registration u/s 24 (iii) for such RWA.

[KASTURI SETHI]

Sh.Amit Agrawal Ji,

Your interpretation has substance. You really works hard, sir.

[Amit Agrawal]

Shri Kasturi Sethi Ji,

Thank you very much for your kind words of appreciation! Coming from you, makes me more humble!

[PAWAN KUMAR]

yes right mam, section 24 for compulsory registration overrides only on section 22 (1) not on section 23. Hence, rwa need not taking registration and accordingly supplies of security service provider to unregistered rwa will not be taxable under rcm. thanks for giving good opinion and it will helpful in all our working.

[Amit Agrawal]

Relevant portion of Section 25 (1) reads as follows: "Every person who is liable to be registered under section 22 or section 24 shall apply for registration in every such State or Union territory in which he is so liable within thirty days from the date on which he becomes liable to registration, in such manner and subject to such conditions as may be prescribed: ......"

The argument that Section 23 can override requirement of compulsory registration u/s 24 directly ignore above section, in my respectful submission.

Furthermore, such argument - if accepted - will run contrary of harmonious interpretation of other provisions of law and will have far reaching consequences for Govt / Revenue. I feel that we should debate this issue in some different / better scenario.

All above should be treated as strictly personal views of mine only and not a professional advice or suggestion. And I fully respect contrary views.

[KASTURI SETHI]

Sh.Amit Agrawal Ji,

Rightly suggested, Sir. Your approach is visionary. No need to go further in detail.

AI Summary

Reverse charge on security services: recipient liability and GST registration hinge on recipient's registration status.
Whether an RWA must discharge GST under reverse charge for security services depends on Notification No. 13/2017 and the CGST Act: the notification makes the recipient liable where the supplier is not a body corporate and the recipient is a registered person in the taxable territory, so an RWA that is registered and receives such services must pay tax under reverse charge; by contrast, where an RWA is unregistered due to exemption or turnover below threshold, commentators contend the supplier must account for tax under forward charge and the RWA may not be obliged to register solely because it receives security services.