Reverse Charge Mechanism (RCM) Archives

CBIC settles controversy over imposition of GST on directors’ income

June 12, 2020 admin Comments 0 Comment

The Central Board of Indirect Taxes and Customs (CBIC) on Wednesday clarified that remuneration to directors — whatever name they are referred to as (independent directors or whole time directors) — would attract goods and services tax (GST) in case they are not employees of the concerned companies. GST will be imposed on them on a reverse charge mechanism (RCM). This way, CBIC has settled an ongoing controversy related to the matter due to conflicting rulings by the authority for advance rulings (AARs).

Normally, a person or entity providing services pays tax to the exchequer, and recovers it from the receiver of the service.

But under RCM, the receiver of the service pays the tax by deducting it from the service provider’s compensation. In case they are employees of companies, part of their remuneration would draw GST, while the other part will not attract it. The CBIC relied on the Income Tax Act for the purpose of GST.

While independent directors have to be from outside the company concerned, the whole-time directors could be company employees or those rendering services from outside.

It said part of the employee directors’ income, which is declared as salary in the books of companies concerned and tax is deducted at source (TDS) under Section 192 of the I-T Act, would not draw GST. However, that part which is declared as “other than salaries” and TDS is imposed under Section 194 (j) would draw GST. This remuneration would be treated as fees for professional or technical services.

The clarification came amid contradictory rulings of the authorities for advance rulings (AARs).

Amit Maheshwari, managing partner , said, “We were seeing contradictory AAR rulings on this matter and there was confusion in the minds of taxpayers on how to treat director remuneration. Linking it with the treatment under the I-T Act would result in consistency across both the laws, providing more certainty to tax payers.”

Abhishek Jain, partner, said this clarification was sought for most businesses, especially on account of the contrary advance rulings and potential impact for businesses.

Earlier, the Karantaka AAR had ruled that remuneration of executive directors are not liable to GST since he is an employee of the company. It said non-executive directors will pay GST through RCM.

The order has stirred a controversy as other state AARs held that all directors are liable to pay GST.

In the case related to Craft, the Rajasthan AAR had ruled that the services rendered by a director to a company for which consideration is paid to him under any head is liable for GST under RCM. The situation would remain the same even when the director is a part-time director in another company. The AAR did not distinguish between executive director and non-executive director as was done by its Karnataka counterpart.

In a case relating to Consulting Engineers (India), the Karnataka AAR, in 2017, had also ruled that the consideration paid to a director in the form of remuneration is in relation to services provided by him or her to the company. Thus, the company is required to pay GST under RCM on remuneration paid to the director, it had held.

Source: Economic-Times.

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Relief for importers as Gujarat HC stays IGST levy on ocean freight

May 20, 2019 admin Comments 0 Comment

Importers can breathe easy as the Gujarat High Court has stayed the levy of Integrated Goods & Service Tax (IGST) on ocean freight. IGST is levied on all Inter-State supplies of goods and/or services. It is also applicable on any supply of goods and/or services in cases of import into and export from the country.

Under the GST, there is specific provision with respect to taxability on the component of ocean freight. The law specifically provides that the importers are required to discharge IGST at the rate of 5 per cent on ocean freight services under the Reverse Charge Mechanism (RCM). Under RCM, it is the duty of importer to pay IGST on behalf of foreign buyer. However, at the same time, customs duty on the CIF value (which includes the component of freight as well) of the goods imported into India is also paid by the importer. As a result, there is double taxation on the component of ocean freight under GST law which is an impediment and has bloated the cost of imports.

Keeping this in mind, a petition was filed with the Gujarat High Court. The petitioner, Mohit Minerals Pvt Ltd challenged vires of IGST related notification. The petition has principally three elements. First, having paid the tax under IGST Act on the entire value of imports (inclusive of the ocean freight), the petitioner cannot be asked to pay tax on the ocean freight all over again under a different notification. Secondly, in case of CIF (Cost, Insurance and Freight) contracts, the service provider and service recipient both are outside the territory of India. No tax on such service can be collected even on reverse charge mechanism. And thirdly, in case of High Sea sales, the burden is cast on the petitioner as an importer whereas, the petitioner is not the recipient of the service at all. It is the petitioner’s seller of goods on high sea basis who has received the services from the exporter/ transporter. The matter is pending.

A similar petition was filed by Ghanshyamlal and Company. The court took notice of order passed in the previous matter and granted stay. Now notice has been issued to the Central Government and both the matter will be heard on June 19.

Commenting on the development, Harpreet Singh, Partner in KPMG, said this is indeed a positive development and should come as relief to importers at large. The issue of double taxation has been at the forefront of recommendations by various industry bodies. “While the present order grants stay on levy of IGST on ocean freight, it would be interesting to track this case as importers would be hoping the final outcome settles the long pending issue of double taxation,” he said.

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Source: The-Hindu -Business-line.

Suspension of GST RCM till 30th Sep 2019

August 7, 2018 admin Comments 0 Comment

Upon the recommendations of the GST council in its 28^th Meeting held on 21^st July 2018, CBIC (Central Board of Indirect Taxes and Customs) has issued notification no. 22/2018-Central Tax (Rate) and 23/2018-Integrated Tax (Rate) on 06^th August 2018.

The said notification has been issued on being satisfied that it is necessary in the public interest.

This notification is said to amend the Notification No 32/2017 dated 13^th October 2017 and last amended vide Notification No. 13/2018 dated 29^th June 2018. In the said notification, for the figures, letters and words “30^th day of September, 2018”, the figures, letters and words “30^th September, 2019 shall be substituted.

Explanation

Through the said notification, CBIC notifies that the reverse charge mechanism applicability have been postponed till 30^th September 2019. Earlier, CBIC had notified the applicability from 01^st April 2018, later the same was postponed till 30^th June 2018 and once again to 30^th September 2018. This time the applicability has been cancelled for another one year i.e 30^th September 2019.

Download Reverse Charge Mechanism (RCM) Notification No. 22/2018 – Central Tax (Rate)

Ministers’ group expected to finalise views on reverse charge under GST, to meet on July 8

July 6, 2018 admin Comments 0 Comment

Group of Ministers (GoM), along with a panel of government officials, will meet on Sunday to firm up their view on the possibility of bringing back the liability to pay tax on reverse charge, as well as on the issue of tax discount on digital payments under Goods and Services Tax (GST).

Both the groups will submit their report to the GST Council that is expected meet on July 21 in New Delhi.

Bihar Deputy Finance Minister Sushil Modi, Punjab FM Manpreet Singh Badal, Kerala FM Thomas Issac, Excise and Taxation Minister of Haryana, Capt. Abhimanyu, West Bengal FM Amit Mitra, among others, are expected to be present at the meeting.

Since the implementation of GST in July last year, reverse charge mechanism (RCM) — one of the key measures against tax evasion — has been deferred thrice, with the latest deadline of September 30.

Earlier this year, some states had insisted that RCM should be re-introduced, as it will help tax authorities plug revenue leakages. Thereafter, a GoM headed by Modi was formed to decide on the exact shape and form of RCM if the government decides to implement it.

The panel is also open to tweaking some of the rules, a senior government official said.

“For instance, RCM can be levied only on a particular category of taxpayer. Or there could be some kind of monetary exemption for which tax (on reverse charge basis) may not have to be paid,” the official said.

Reverse charge is a mechanism where the recipient of the good or service will have to pay GST, which is otherwise paid by the supplier. The charge is applicable on a registered dealer, if he buys goods from a dealer not registered under GST. However, the receiver of the good/service is eligible for input tax credit, while the unregistered dealer is not.

Registered taxpayers (supplier) were not willing to take the burden of paying tax, while small or unregistered taxpayers were running out of business as these registered dealers were hesitant to buy goods from them. Keeping this in mind, GST Council in October, 2017 had temporarily suspended RCM, as it was increasing compliance burden on taxpayers.

The idea was to discourage registered dealers to purchase goods or avail services from unregistered dealers, who are not under the ambit of GST or do not pay tax, which will ultimately boost the government’s revenue.

The first meeting of the GoM on reverse charge in April largely remained inconclusive. This will be the final meeting before the panel submits its report to the Council for approval.

The panel will also explore if RCM should be applicable for dealers under composition scheme. In January, the Council had already decided to re-introduce RCM, but only for dealers under composition scheme — a simpler scheme for small taxpayer aimed at easing compliance burden.

However, some officials fear that the move can lead to more tax evasion as dealers under the composition scheme are anyway portraying negligible tax liability and liability to pay tax on reverse charge will only affect compliance.

Another GoM on incentivising digital payments, also headed by Modi will be meeting for the second time and will look at offering discount to consumers making online payment.

The Council on May 4 discussed the proposal of a concession of 2 percent in GST rate (where tax rate is 3 percent or more) on B2C supplies, for which payment is made through cheque or digital mode. The ceiling for the discount will be capped at Rs 100 per transaction.

However, due to lack of consensus among states, Finance Minister Arun Jaitley had said that the GoM would deliberate on the subject and present their report to the Council in the next meeting.