Reverse Charge and the Place of Supply

[Rakesh Garg]

Dear All,

Reverse Charge (RCM) and the Place of Supply (POS)

1. If we read carefully, we would observe that the POS provisions under the IGST Act are made in relation to the Supplier.

2. GST is destination-consumption based tax except in few circumstances, such as, immovable property, right to admission, etc. Thus, tax must reach the state where the Recipient is located.

3. In the case of RCM goods/services, the Recipient is deemed as a supplier to pay tax u/s 9(3).

4. In my view, RCM provisions in the IGST Act [Sec 5(3)] would be applicable in rare cases. To support, take a few illustrations: -

5. Suppose, Delhi BE (business entity) receives legal services from Delhi Advocate → Delhi BE will pay C+S [CGST+SGST].

Suppose, Delhi BE receives legal services from Mumbai Advocate → Delhi BE is deemed as supplier and is also a Recipient → Thus, supplier and recipient, both are in Delhi → Further, destination of supply and POS u/s 12(2) of the IGST Act is Delhi → Hence, in this case also Delhi BE should pay C+S even though Delhi BE and Mumbai Advocate are in different states.

6. Take another case: Suppose, Delhi registered BE receives renting services from Delhi Landlord (property at Delhi) → Delhi BE will pay C+S.

Suppose, Delhi BE receives renting services from Mumbai Landlord (property at Delhi) → then also Delhi BE should pay C+S because immovable property and the POS u/s 12(3) of the IGST Act is in Delhi → Hence, in this case also Delhi BE should pay C+S even though Delhi BE and Mumbai Landlord are in different states.

7. Take another case: Suppose, Delhi registered BE receives renting services from Mumbai Landlord (property is at Gurgaon, Haryana) → since the immovable property is located in Haryana, tax should reach in Haryana → POS is Haryana u/s 12(3) of the IGST Act as the property is in Haryana → In this case, Delhi BE should pay IGST (POS at Haryana) to achieve the basic intention of the GST.

Open for discussion

[Shilpi Jain]

For RCM under GST, the recipient is not deemed the supplier. He is only regarded as the person liable to pay GST.

[Rakesh Garg]

You are right Shilpi ji: He is deemed as a supplier for limited purposes.

But the main issue and discussion remain.... when IGST is applicable in the RCM transactions?? Should the Recipient not decide the POS of the transaction in the shoes of the Supplier (instead of him as a supplier)?

[Ganeshan Kalyani]

Sec 12(8) The place of supply of services by way of transportation of goods, including by mail or courier to,––

(a) a registered person, shall be the location of such person;

[KASTURI SETHI]

Dear Sir,

In Service Tax law, under RCM the recipient was deemed service provider. Case laws to this effect are available.

The phrase, 'limited purposes' is not independent of the criteria for determination of place of supply of service under RCM.

Similarly, the words, 'only for person liable to pay GST' used by Madam Shilpi Jain is also not independent of the criteria for determination of place of supply of service under RCM.

As per legal dictionary, the word, 'deemed' has very wide scope.

[Alkesh Jani]

Shri

In this context, I agree with the views taken by Shri Kasturiji Sir.

Some principles for interpreting the statute is as under :-

“It was contended that a statute must be read as a whole and then chapter by chapter, section by section, and then word by word. For the said purpose, the scheme of the Act must be noticed. If the principle of interpretation of statutes resorted to by the Court leads to a fair reading of the provisions, the same would fulfill the conditions of applying the principles of purposive constructions.” -Hon’ble SC

“It is well-settled principle that while interpreting a statute, the interpretative function of the court is to discover the true legislative intent. A statute is best interpreted when we know why it was enacted. It must be read, first as a whole, and then section by section, clause by clause, phrase by phrase and word by word and therefore, taking into consideration the contextual connotation and the scheme of the Act, its provisions in their entirety”

“'The key to the opening of every law is the reason and spirit of the law, it is the animusimponentis, the intention of the law maker expressed in the law itself, taken as a whole.” -Hon’ble SC

“The conclusion that the language used by the legislature is plain or ambiguous can only be truly arrived at by studying the statute as a whole. Words take colour from the context in which they are used, keeping pace with the time. Words used as an adjective draws colour from the context too. The same word may mean one thing in one context and another in different context, therefore, the same word used in different sections of a statute or even when used at different places in the same clause or section of a statute may bear different meanings. That is why it is necessary to read the statute as a whole in its context.”

Thanks,

With Regards

[Rakesh Garg]

I am sorry to say that we have been diverted from the main query..... which is.....

1. How and under what circumstances IGST (instead of CGST + SGST) is payable in RCM Transactions?

2. Having a macro analysis of the GST structure... tax is payable in a manner ["C+S" or "I"] so that it should reach to the state where POS falls.

3. If the Recipient and POS are in the same state, and if the actual supplier is located in another State, should the Recipient pay RCM under the "IGST" or "C+S"?

Regds.

[Alkesh Jani]

Shri Rakeshji,

We are not diverted from the discussion, but as you know the definition of term supply is wider. Further, GST is indirect tax regime, consisting of supply of goods or services or both, therefore, interpretation for supply of goods and services are to be viewed as per the facts and circumstances of the case, terms and conditions of contract, transaction type, in short various factors are to be taken into account.

The point raised by you is general in nature and may not be applicable to specific supply. Therefore, few principles of interpretation were given. In either case, this can be endless discussion.

Thanks

Regards

[KASTURI SETHI]

Sh.Alkesh Jani Ji,

You have grasped, interpreted and analyzed the issue holistically and insightfully. The word, 'deemed' is the pillar of the whole discussion. You have not side-tracked at all.

[Shilpi Jain]

Rakeshji

The point here is that you cannot regard the recipient as the supplier while determining which tax has to be charged.

The recipient is still only the recipient only even though he is the person paying the tax. The location of the actual supplier and the PoS if in different State, IGST will apply.

There are many instances where IGST is liable for RCM.

Pls share your specific service to let you know when IGST can be charged.

[KASTURI SETHI]

If IGST is paid in lieu of CGST+SGST and vice versa, it will be treated as a procedural lapse, as no revenue loss is caused/involved. The assessee has not to pay interest in terms of Section 77(2) of CGST Act.Regarding the sharing of GST between Central Govt. and State Govt., revenue from IGST is also apportioned among Union and States. Articles 269 A(2) and 270(1A) of Constitution of India refer.

[Pavan Pathange]

Dear Rakesh Sir,

Thanks for the write up.

You have not discussed on the eligibility of input on RCM paid. In all the cases expect 6, i do not have any doubt. But where as for scenario created in 7, whether RCM paid is eligible for input??

The POS shall be Haryana and C+S of haryana should be discharged, instead IGST is being discharged. I guess department may object the input taken on the stand that tax head was changed to claim benefit of setoff.

What is your opinion??

Thanks

CA Pavan Kumar Pathange

[Amit Agrawal]

Dear Shri Rakesh Garg Ji,

W.r.t. your subject query read with your post at serial No. 6 above, with due respect. my views are as under:

A. Section 9 (1) of the CGST Act, 2017 reads as follows: Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person.

B. Section 9 (3) of the CGST Act, 2017 reads as follows: 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.

C. Main provision of Section 9 (5) of the CGST Act, 2017 reads as follows:

The Government may, on the recommendations of the Council, by notification, specify categories of services the tax on intra-State supplies of which shall be paid by the electronic commerce operator if such services are supplied through it, and all the provisions of this Act shall apply to such electronic commerce operator as if he is the supplier liable for paying the tax in relation to the supply of such services: ........

D. For the purpose of sub-section (3), such recipient is treated 'as if he is the person liable for paying the tax and NOT 'as if he is the supplier liable for paying the tax'.

E. In view of clear distinction between wordings used in sub-section (3) & (5) of Section 9, I hold a view that for purpose of sub-section (3), recipient is NOT treated as 'Supplier' - on deeming basis or otherwise - for purpose of levy of tax, collection & payment of taxes u/s 9 from such recipient.

F. In the context under discussion, it is worth noting that levy of tax u/s 9 (1) is upon 'taxable person'. And taxable person - as per Section 2 (107) of the CGST Act, 2017 - means a person who is registered or liable to be registered under section 22 or section 24. And Section 24 (iii) makes it compulsory for the person, who are required to pay tax under reverse charge, to take registration under GST.

G. Thus, even the levy of tax u/s 9 (1) for intra-state supplies covers supplies where taxes needs to be paid under forward charge basis by the supplier as well as supplies where taxes needs to be paid under reverse charge basis by the recipient.

H. Only purpose of Section 9 (3) to shift only the collection / payment (NOT the 'levy' itself) of 'tax' - which got determined & levied u/s 9 (1) - to the recipient on the recommendations of the Council and NOT to change point of determination of supply as intra-state or inter-state by treating such recipient as supplier (on deeming basis) instead of actual supplier. There is no legal support / scope in these provisions to arrive at any contrary views in my humble opinion.

H. Furthermore, for the purpose of determination of place of supply under Section 12 & 13 of the IGST Act, 2017, one cannot change the 'supplier' itself unless there is specific provision as being tries to be done u/s 9 (5) of the CGST Act, 2017.

H1. It is worth noting that Section 9 (5) shifts 'collection / payment of taxes' under forward charge basis where 'supplier' of 'specified supplies' to the electronic commerce operator (on deeming basis) through which such supplies are made. Hereto & as the case with Section 9 (3), there is decent case to argue that, 'levy on intra-state supplies'u/s 9 (1) per se is NOT shifted to the electronic commerce operator (on deeming basis) but only collection of such taxes levied u/s 9 (1). But, there is ambiguity in this regard dues to wordings used in Section 9 (5) and I have not given much thought on this aspect as yet.

H2. And for purpose of this post, I have ignored all potential legal issues in determination of 'any supply as 'intra-state' u/s 8 of the IGST Act, 2017' - on deeming basis - for purpose of Section 9 (5) of the CGST Act, 2017 by treating the electronic commerce operator as 'deemed supplier'. In other words, whether nature of any supply can be changed from intra-state to inter-state and vis-a-versa for the purpose of levy of tax, due to wordings used in Section 9 (5) of CGST Act, 2017 or Section 5 (5) of the IGST Act, is ignored for purpose of this post.

I. In summary, for purpose of determination of any supply as 'inter-state u/s 7 of the IGST Act, 2017' or 'intra-state u/s 8 of the IGST Act, 2017', the fact - about underlying supply under such determination - is covered either under sub-section (1) or subsection (3) for the purpose of levy, collection & payment of tax on intra-state supplies u/s 9 the CGST Act, 2017 - is totally irrelevant in my view.

J. In other words, for paying taxes u/s 9 (3), nature of underlying supply should be 'intra-state' determined u/s 8 of the IGST Act, 2017 where 'location of actual / real supplier' is the basis of such determination and NOT by 'location of the recipient by treating him as deemed supplier'.

J1. And, on these cases, such recipient needs to ensure that taxes are paid under RCM u/s 9 (3) by ensuring that taxes are received by the state / UT where place of such supply lies.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion. And I respect contrary views.

AI Summary

Place of supply determines whether reverse charge attracts IGST or central and state tax based on supplier or property location. Reverse charge raises whether the recipient, though liable to pay GST, is to be treated as the supplier for determining place of supply and consequently whether IGST or CGST+SGST applies. The place-of-supply rules in the IGST Act are framed with reference to the supplier and to the location of immovable property where relevant; levy remains tied to the nature of supply (inter- or intra-State), while reverse-charge notifications shift the obligation to collect/pay to the recipient for limited purposes. Practical consequences include registration, input-credit issues, and correct tax head allocation.