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 ?

[VENU K]

Dear experts,

Thank you so much for the overwhelming response to the query and enlightening views. There was an audit note for payment of RCM on similar lines.

Now based on all your inputs, which I could understand, I propose to give the following reply.

The proposal to demand RCM on Audit Cost paid to Government of Kerala is disputed as being not a supply as per Sec 7 of the CGST Act and as such no RCM liability can be levied on such a payment.. As per Sec 7 a supply has to be in the course or furtherance of business. Further Sec 2 (17) defines business in clause 'i" among other things as " Any Activity or transaction undertaken by the Central Government , a state Government, or any local authority in which they are engaged as public authorities".It is the uniquivocal position of the tax payer that Audit of a Cooperative Society is a statutory duty performed by the Government and that it cannot be deemed to be a supply as per Sec 2(17)(i) by any stretch of imagination. Audit is a statutary administrative function performed by the Government and as such it is not a supply liable for taxation and therefore not liable for RCM.

Any further comments are welcome.

[KALLESHAMURTHY MURTHY K.N.]

Sri Venu Sir,  

How would you decide that the Cooperative audit is not in the course of furtherance business? If the activities of the Coerattives are not in the course of furtherance of business, then why they are registering under GST? Do you think, taxable transactions of the Cooperatives are out of the purview of the GST transactions?  Otherwise why the audit note is issued? 

Sir, you have not come out of confusion as mentioned at Sl. No. 30 by Bulbule Sir. 

 More discussion is expected. 

 With regards. 

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.