GST liabilty on unregistered person

[Priyesh Mamnani]

My client is a mutual fund broker. Since the inception of GST, the mutual companies give brokerage inclusive of GST irrespective whether the broker is registered or unregistered under GST.

In 2018-19, my client received brokerage of Rs. 9,50,000 which also includes GST. As per GST law, GST registration was not required as turnover is less than 20 lakhs.

Now GST department is asking my client to pay the GST received from mutual fund companies for 2018-19 even there was not registration requirement at that time.

Whether we need to pay the GST or not

Request the experts to provide your views on the above issue

[VENU K]

As per GST law , under Sec 76, Government can proceed for recovery of Tax Collected but not paid to Government without any time limit. It is likely that  in the brokerage statement as well as in the broker agreement  the  fact that brokerage was being paid along with applicable GST extra would have been recorded .Then it will be very difficult for the agent to deny the fact of having collected GST. Once this fact is established , there is no option for the agent but to pay the tax with interest and face other consequences.

Whether it is right on the part of mutual funds to do such a thing to their agents is an altogether different issue. Any way this is very unfortunate.

Based on my  understanding of the law.

[Shilpi Jain]

Here examination of the agreement terms, invoices issued and other related docs is critical to comment on this aspect.

If the broker has not charged GST in his invoice and the agreement simply mentions inclusive of all taxes, then there should be no further liabiliity of the broker.

[Padmanathan KV]

I agree with views of Shilpi Ma'am. The invoice of broker also plays a crucial role here.

[GAURAV SHARMA]

Circular No. 57/31/2018–GST Dated 4-9-2018 was issued by CBIC stating the category of agents who do not require compulsory registration under the CGST Act. Hence Mutual Fund broker not required for compulsory registration.

I will request Shilpi mam to kindly share high court judgement, if any, on the stated subject.

TIA

[Abhinav Jandial]

 I have a query for Shilpi mam

The department has issued an SCN to my client (who is a unregistered mutual fund distributor) under section 76. His overall receipts exceeded 20 lakhs from 2022-23 but in ignorance he did not obtain registration till 2024-25. he has not issued any invoice to any AMC nor any bill to any of the other companies. But since mere mentioning of "commission will be inclusive of all taxes" in the terms and conditions of the agreement with AMC, the department is charging him under Section 76. Whereas the client has already deposited the due tax under Section 73 and filed DRC-03. please advise how to convince the department to change their stand on this point.

AI Summary

GST Collected by Mutual Fund Broker Below Threshold Must Be Paid Under Section 76; Examining Agreements Crucial A mutual fund broker received brokerage inclusive of GST in 2018-19 but was not required to register for GST as the turnover was below 20 lakhs. The GST department is now requesting payment of the GST collected. One expert noted that under Section 76, tax collected but not paid must be recovered, making it difficult for the broker to deny liability if GST was included in agreements and statements. Another expert suggested examining agreements and invoices to determine liability. Circular No. 57/31/2018-GST exempts certain agents from compulsory registration. A query was raised regarding a similar issue for a broker exceeding the turnover limit in later years.