RCM on Audit Fee

[VENU K]

In case of Cooperative Banks in Kerala audit is done by the Kerala State Cooperative Department auditors. The department collects audit fee from the banks relating to the salary cost of staff auditors assigned for the work.

The Audit Fee paid to cooperative department is an item of expenditure in the financial statements of the respective societies.

Is this amount liable for RCM ?

[Sadanand Bulbule]

Dear Sir

RCM is not applicable to audit fees in terms of Notification No.13/2017- Central Tax (Rate) dated 28th June, 2017

[KASTURI SETHI]

Sh.Venu K Ji,

A fee is always charged in lieu of some service. The Audit fee is charged as professional fee. It is taxable but does not fall under RCM.

I concur with the views of Sh.Sadanand Bulbule, Sir Ji.

[VENU K]

Respected Sadanand Bulbule Sir,

Thank you so much for your kind response.

But ...

NOTIFICATION No. 13/2017   Serial Number 5 says

 Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding,-

(1) renting of immovable property, and

(2) services specified below-

(i) services by the Department of Posts [xxx]5 ;

(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.

So can you clarify which specific entry exempts RCM on audit fees ?

Or is there any other specific notification ?

[VENU K]

In continuation let me clarify that the audit fee is paid to Cooperative department of Govt of Kerala by these cooperative societies towards audit of their accounts

[Sadanand Bulbule]

Dear Venu Sir

Tax Audit and Account fee is not specified in Section 9[3]. Hence reverse charge is not applicable in this case. In my opinion, such audit by the State Government, being mandatory in nature, does not fall under the category of services supplied by it. 

[KASTURI SETHI]

Sh.Venu K. Ji, 

What is the constitutional status of Kerala State Cooperative Department  ? Can we term it as fully Govt.  or not ?  Does it conform to the definition of Government  under CGST Act or Kerala GST Act  ?  Your opinion please.

[VENU K]

Dear KASTURI SETHI Sir,

Department of Cooperation is  a Government department as I understand it

1.It is under a Minister  of Cooperation

2. Under whom there is a Special Secretary to Govt Cooperation Department who is an IAS

3.Under the Special Secretary there is  Registrar of Cooperative Societies who is also an IAS and is the head of the department. 

In my understanding they are all treated as Government employees. The major function of the Department is the proper implementation of Kerala State Cooperative Societies Act  

[KASTURI SETHI]

Sh.Venu K Ji,

I humbly request you to clarify the following :

(i) Department of Cooperation is a Government department as I understand it.

What is correct word, 'co-operative' or 'cooperation' ? World of difference between the two words.

1.It is under a Minister of Cooperation.

Is it 'cooperation' or 'cooperative societies' ?

2. Under whom there is a Special Secretary to Govt Cooperation Department who is an IAS.

What is the correct nomenclature ?

3.Under the Special Secretary there is Registrar of Cooperative Societies who is also an IAS and is the head of the department.

An IAS being Head/Registrar of cooperative societies does not mean constitutional status is of State Govt. in full.

In my understanding they are all treated as Government employees. The major function of the Department is the proper implementation of Kerala State Cooperative Societies Act.

Does Kerala Co-operative Society qualify the definition of Govt. as per CGST Act/SGST Act ?

[VENU K]

KASTURI SETHI  Sir,

Yes Cooperative Department is a department of Government of Kerala and all its employees are Government employees as per GST law and also Govt of Kerala Service Rules etc.

[KASTURI SETHI]

Dear Sir,

In my view, the employees of the office of the Registrar of Cooperative Societies do not enjoy the status of "100% State Govt Employee'. Pl. re-check. 

[KALLESHAMURTHY MURTHY K.N.]

Dear Sir, 

The Cooperative Department is a Government Authority of the State Government under which the Registrar of Co-operatives function and regulates the Cooperatives. The department does not raise tax invoice for the fees payable by the Co-op Society on the audit but the fee is determined based on the turnover of the Society at a prescribed rate.  

The Department conducted the audit of the Cooperative Bank as a statutory function and charged a certain fee which is a consideration for audit service fall u/s 7(1) of the CGST Act. 

Hence, in my opinion, the fee paid for the audit service of the Co-operative Bank conducted by the Cooperative Department is liable to RCM u/s 9(3). 

This as per my understanding not to be construed as legal advice. 

[Sadanand Bulbule]

My dear Murthy

Plz examine, as far as services supplied by the State Government by way of audit of Co-operative societies/ entities, will it not be exempt services covered under Sl. No. 6 ((Chapter 99) of Notification No.12/2017 dated 28/06/2017? 
 

[KASTURI SETHI]

Sh.Kalleshamurthy Murthy Ji,

Sir, The Govt. Authority is not covered under the definition 'Government'. Only Central Govt., State Govt., U.T Govt. and Local Authority are covered as per GST laws.

[KALLESHAMURTHY MURTHY K.N.]

Sri Kasturi Sethi Ji, 

Sir, 

The Registrar of Co-operative Societies is a unit of the State Government under the Ministry of Co-operation. All the employees are recruited for Government services.

With respects. 

[KALLESHAMURTHY MURTHY K.N.]

 Dear Sadanand Bulbule Sir,

In my opinion, the Nil Tax rate is applicable as per Notification No. 12 /2017 dated 28-06-2017 relates to the tax payable under the forward charge since it is notified for application for sub-Sec. (1) of Sec. (9) of the CGST Act.  Whereas, Notification 13/2017 dated 28-06-2017 is notified for application of Sec. 9(3) meant for RCM. The first one is about the furtherance of business. Latter is in the theme of accountability of transactions where no loss or profit is effected.  So there is a distinguishing between the nil rate and taxable supplies under different conditions in both notifications.

Sir, while I'm submitting the reply on the above issue, I have kept in mind the Hon'ble Supreme Court Judgement rendered on 25-07-2024 - 2024 (7) TMI 1390 - SUPREME COURT (LB) that the Royalty is not a tax from which the Taxpayer in the mining business is liable to pay tax under RCM for services received by the Mining & Geology department. In the same way, I have considered the Fee paid by the Co-operative Bank is liable to RCM for the service received from the Cooperative Department. 

 With respects,

The contents are solely for discussion purposes.

[Sadanand Bulbule]

Dear Murthy

Hapay Dussera festival. Thanks for your response. 

[Sadanand Bulbule]

Dear all
The employees and the Registrar of the Co-Operative  Department are on the pay rolls of the State Government and enjoy the status of 100% Government employees. Whereas the employees of the Co-operative societies are on the rolls of respective societies/entities and therefore they don’t enjoy status of  100% Government employees. 

[KASTURI SETHI]

Dear All,

Sharing just for discussion sake

A statutory body, corporation or authority created by the Parliament or a State Legislature is neither 'Govt'. nor a 'local authority'

It is a settled position of law that the manpower of such statutory authorities or bodies do not become officers subordinate to the President under Article 53 (1) of the Constitution and, similarly, to the Governor under Article 154 (1)--------Supreme Court in the case of Agarwal Vs. Hindustan Steel 1969 (12) TMI 109 - SUPREME COURT.

In this context, Para No.2.4.10 of CBE & C's Education Guide released on 20.6.2012 pertaining to pre-GST era is worth reading. This is clarification about the regulatory bodies and other autonomous entities.

[KALLESHAMURTHY MURTHY K.N.]

Dear all,

Wishes "Happy Dussera Festival' to all Experts in TMI.

[Sadanand Bulbule]

I endorse the  thoughtful clarification given by Sri Sethi Sir.

AI Summary

Reverse charge on audit fees: applicability hinges on whether statutory government audits are taxable services or non supply. The dispute asks whether audit fees paid by cooperative societies to a State cooperative audit department attract reverse charge. The question hinges on whether the audit is a supply (taxable service) or a statutory governmental function (non supply under Schedule III), whether the department qualifies as Government for GST exemptions, and whether operational facts (departmental officers performing audits versus approval of private auditors) change characterization. If the audit is a taxable supply to a business entity, RCM may apply; if it is a statutory function or covered by government-service exemption, RCM would not apply.