RCM ON PURCHASE OF WOOD FROM UNREGISTERED DEALAR

[FARIDUDDIN AHMAD]

AUDITORS DOING AUDIT U/S 65 OF CGST ACT RAISED ONE OBJECTION REGARDING RCM ON PURCHASE OF WOOD(RAW MATERIAL) FROM UN REGISTER DEALAR FOR MANUFACTURING OF PLYWOOD. FACTS ARE RCM ON RAW MATERIAL WAS DEPOSITED AND THE CREDIT IS AVAILED IN THE 3B RETURNS AGAINST TAX ON OUTWARD SUPPLY. OBJECTION OF THE AUDITOR IS CREDIT OF RCM ON RAW MATERIAL IS NOT ALLOWED.KINDLY PROVIDE CLARIFICATION OF THE NOTIFICATION ISSUED FOR RCM EXEMPTION. ALSO IF ANY CASE LAW AVAILABLE.

[Amit Agrawal]

I am of the view that Dept's objection got no legal basis with understanding that output (i.e. plywood) are taxable / non-exempted under GST.

Can you please explain nature / reason of audit-objection? Is it because you were not liable to pay taxes under RCM against woods purchased but still paid the same and hence, as per Dept, ITC is not available?

[Padmanathan KV]

Dear querist,

Pls specify the tax period under question and also on what basis the auditor is objecting the availment of RCM credit.

[FARIDUDDIN AHMAD]

only reason stated by the auditor is RCM was exempted by some notification. period of audit is 2017-2018 to 2019-2020.nature of bussiness is manufacturing. raw material wood is purchased from unregistered and is used for manufacturing of plywood board.

[Amit Agrawal]

It is presumed that Dept's auditor is talking about exemption for RCM liability under Notification No. 38/2017 – Central Tax (Rate) as amended by Notification No. 22/2018 – Central Tax (Rate) as well as Notification No.8/2017-Central Tax (Rate) as Rescinded vide Notification No. 01/2019-Central Tax (Rate) dated 29-01-2019.

And as clarified in earlier post from the querist, period of audit-objection - it seems - is from 13.10.2017 to 31.03.2019.

In my view, ITC can NOT be denied on the ground that the subject GST was paid under RCM wrongly (i.e. when same was not required to be paid under RCM as per law, but still paid).

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

[Padmanathan KV]

Dear Querist,

RCM on inward supply from unregistered supplier was covered under section 9(4) of CGST Act, 2017/ Section 5(4) of IGST Act, 2017.

The Central Government vide Notification No. 08/2017- Central Tax (Rate) dated 28.06.2017 exempted RCM on inward supplies up to Rs. 5000 per day from Un-registered supplier.

Further Central Government amended Notification No. 08/2017- Central Tax (Rate) dated 28.06.2017 vide Notification No. 38/2017- Central Tax (Rate) dated 13.10.2017 which states that any registered person procuring taxable goods/services from unregistered suppliers shall not be required to pay GST on RCM basis.

Thus, between 28.06.2017 to 12.10.2017, RCM was exempted on inward supplies from unregistered person up to Rs.5,000 and from thereon i.e., w.e.f 13.10.2017 RCM was exempted on all inward supplies from unregistered person.

Now the issue arises if you have paid RCM not with standing the exemption granted (under section 11 of the CGST Act), whether you are eligible for ITC.

You may put forward two arguments in this behalf:

1. The definition of input tax under section 2(62) states " tax charged on any supply of goods...". Therefore, ITC shall be available where there is a 'charge'. During the period under dispute, you can argue that there was a charge under section 9(4) of the Act and only an exemption was granted under section 11. Since the charge was there, ITC should be allowed on the tax paid. Unlike central excise regime, there is no provision under GST to state that tax cannot be paid on exempted supply. This point of differentiation between erstwhile law and GST regimes can also be highlighted.

2. The second argument is revenue neutrality. There is no loss to the Government on account of payment of RCM and availment of credit thereon by the assessee. Thus on one hand Govt cannot retain the tax wrongly paid by assessee and on the other hand disallow the ITC.

3. You may refer to decision of Honble CESTAT in BAJAJ ALLIANZ GENERAL INSURANCE CO LTD VERSUS COMMISSIONER OF CENTRAL EXCISE 2014 (8) TMI 787 - CESTAT MUMBAI. In this case, the Appellant paid Service Tax on RCM on service provided by insurance agents, though it was not actually required. Dept denied the CENVAT Credit. CESTAT allowed the credit to the Appellant noting that whatever credit is taken by the appellant is nothing but the refund of tax erroneously paid by them.

[Amit Agrawal]

In the context of first argument put by my learned colleague Shri Padmanathan Kollengode Ji in earlier post, following 'explanation' u/s 11 of the CGST Act, 2017 worth noting:

"Explanation.––For the purposes of this section, where an exemption in respect of any goods or services or both from the whole or part of the tax leviable thereon has been granted absolutely, the registered person supplying such goods or services or both shall not collect the tax, in excess of the effective rate, on such supply of goods or services or both."

[Amit Agrawal]

One more thing: Blanket levy of gst upon recipient u/s 9 (4) (i.e. blanket levy against every supplies received from unregistered persons by a registered person) is removed w.e.f. 01.02.2019 due to amendment made effective from said date in Section 9 (4).

[Padmanathan KV]

Dear Amit ji,

Your insight is much appreciated. I stand corrected with regard to first argument.

[Amit Agrawal]

With regards to supporting case-law put by my learned colleague Shri Padmanathan Kollengode Ji in earlier post, I am in full agreement thereto.

I also feel that quoted case-law is directly on the issue raised by Dept's officer in subject query and in favor of the assessee / tax-payer.

And position taken by me above in post at serial no. 4 is my constant position as can be seen from my past posts on TMI (For example: My post at serial number 7 in Issue Id: - 117463 bearing subjectline: CASH PAID ON WRONG RCM).

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

[FARIDUDDIN AHMAD]

thank you amit and padmanathan sir for providing informations

[Ganeshan Kalyani]

ITC is allowed when the outward supply is taxable. In your case, furniture is your outward supply and it is taxable. Hence , ITC is allowed. ITC includes tax paid under RCM.

[Amit Agrawal]

ITC as per Section 2 (62) includes the tax payable under the provisions of sub-sections (3) and (4) of section 9 of the CGST Act, 2017 & the tax payable under the provisions of sub-sections (3) and (4) of section 5 of the Integrated Goods and Services Tax Act.

Amount paid (under heading of tax) under the querist under RCM was not 'tax payable'.

ITC (as availed in the subject matter under discussion here) cannot be denied because same is nothing but the refund of tax erroneously paid under RCM by the tax-payer.

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

[Amit Agrawal]

*Please read relevant line of my last post above as: Amount paid (under heading of tax) by the querist under RCM was not 'tax payable'.

[Shilpi Jain]

Liability under RCM for procurements from unregistered persons was fully exempted sometime from Oct 2017 - refer Notification No. 38/2017 – Central Tax (Rate) dated 13.10.2017.

The auditor may be stating no ITC on the ground that RCM tax paid when there is no liability existing so no credit eligible.

However there are cases which state that the moment tax has been accepted the department is bound to allow the credit also.

[Ashwin Patel]

we have purchased jungle wood from other state from unregistered person or from farmer. whether rcm is applicable on the purchase or not?
 

[Amit Agrawal]

Dear Shri Ashwin Paten Ji,

It is suggested that you should raise your query separately (instead of mixing it with the subject matter under discussion here). You will get better responses there.

[Ashwin Patel]

it is related query, so I have posted here

[Ashwin Patel]

can you help me for the same

AI Summary

Reverse charge mechanism on purchases from unregistered suppliers: input tax credit claimable when tax was paid despite exemption.
Whether tax paid under reverse charge mechanism on purchases from unregistered suppliers may be claimed as input tax credit when executive notifications exempted the reverse charge liability. Two principal arguments support credit: the statutory definition of input tax contemplates tax charged on supply so tax actually paid remains creditable despite an exemption, and revenue neutrality - the Government should not retain tax erroneously collected. Practical steps include identifying relevant notification coverage, preserving payment records, and relying on tribunal precedent allowing credit or refund where reverse charge was paid mistakenly.