REVERSE CHARGE MECHANISM AND IMPACT ON TRANSPORT AGENCY IN GST

REVERSE CHARGE MECHANISM AND IMPACT ON TRANSPORT AGENCY

India is a country where there are organized, partly organized and unorganized sectors, which require continuous monitoring for better tax compliance and coverage. To carry out this function smoothly, the government had introduced REVERSE CHARGE MECHANISM. Under present scenario, the reverse charge is there in Service Tax and is applicable to only services and not goods. Under service tax, generally, service providers are liable to collect and deposit tax. Although the incidence of the tax is placed on consumers ultimately, it is the duty of the supplier to deposit the tax.

However, in certain cases, charge ability gets reversed from supplier to the recipient which is why it is called reverse charge. There are 15 services in which reverse charge is applicable under service tax such as Insurance agent, Manpower supply, Goods Transport Agency etc.

What is Reverse Charge in GST?

It is a new concept that is introduced in GST in India, to increase tax revenues, coverage and compliance from partly or unorganized sectors. Earlier goods were exempt from this scheme, now the collection of GST will increase tremendously. In GST, the supplier will be liable to collect tax on goods and services provided. But the central government has the power to notify categories of supplies against which service recipient has to discharge the tax liability. Hence, all the provisions of the Act will now be applicable to the recipient of such goods or services as if he is the supplier of such goods or services. When a person becomes liable to pay tax on the reverse charge, certain provisions like threshold exemption, time of supply, availing of input credit changes. There is a threshold limit for turnover aggregating to Rs.20 Lakhs for registration for normal tax payers but under reverse charge, there is no such limit. The person has to be registered under GST irrespective of the aggregate limit.

Situations Where The Reverse Charge Will Apply

1.    Services supplied by an Electronic Commerce Operator will attract reverse charge and they will be liable to pay GST. If the assessee has no physical presence in the taxable area, then the representative of such e-commerce operator will be liable to pay tax. If there is no representative, then the assessee has to appoint one who will be liable to pay GST.For Example:UrbanClap supplies services of a plumber, a beautician, an electrician, etc. hence, instead of registered service providers, UrbanClap have to pay GST and collect from customers.

2.    If the registered dealer is buying goods or services from an unregistered dealer then, the registered dealer will be liable to pay tax on supply.

3.    All other categories of supplies will be notified by Central or State government that will fall under reverse charge.

Time Of Supply For Goods Under Reverse Charge

Provisions are different under reverse charge than normal scenario. Time of supply will be the earliest of the below dates:

·         When the goods are received i.e. the date of receipt.

·         When the amount is paid i.e. the date of payment.

·         Date of payment shall be earliest of ‘The date on which payment has been debited from supplier’s bank account’ Or ‘When the recipient records the payment in his books of account’

·         The date immediately after 30 days from the date the supplier issues invoice.

If the assesse fails to determine the time of supply from the above-mentioned clauses, then the time of supply shall be the date on which recipient enters in his books of account.

For Example:

Date of receipt of goods –	16th May 2017
Date of Payment –	16th July 2017
Date of Invoice –	1st June 2017
Date of Entry in books by recipient –	18th May 2017

Thus, Time of supply will be – 16th May 2017. If by any chance time of supply could not

be determined under mentioned clauses then it will be 18th May 2017, i.e. Date of entry.

Time of Supply for Services Under Reverse Charge

Similarly, provisions are different for services under reverse charge. Time of supply will be the earliest of the below dates:

·         When the amount is paid i.e. the date of payment OR

·         Date of payment shall be earliest of – ‘The date on which payment has been debited from supplier’s bank account’ Or ‘When the recipient records the payment in his books of account’.

·         The date immediately after 30 days from the date the supplier issues invoice.

If the assesse fails to determine the time of supply from the above-mentioned clauses, then the time of supply shall be the date on which recipient of service enters in his books of account.

For Example:

Date of Payment –	16th June 2017
Date of Invoice –	1st July 2017
Date of Entry in books by recipient –	18th June 2017

Thus, Time of supply will be – 16th June 2017. If by any chance, time of supply could not be determined under mentioned clauses then it will be 18th June 2017, i.e. Date of entry.

If the supplier is located outside India, then the time of supply shall be the earliest of ‘When the amount is paid i.e. the date of payment’ OR ‘When the recipient records the payment in his books of account’.

 

Impact on transportation agency

Goods Transport Agency means any person who provides service in relation to transport of goods by road and issue Consignment, by Whatever name called. Therefore, issue of Consignment Note (C/N) is integral and mandatory requirement before any road transport can be said to be GTA. Consignment Note mean a document, issued by a goods transport agency against the receipt of goods for the purpose of transport of goods by road in a goods carriage, which is serially numbered, and contains the names of the consignor and consignee, registration number of the goods carriage in which the goods are transported, details of the goods transported, details of the place of origin and destination, person liable for paying service tax whether consignor, consignee or the goods transport agency.

. The use of the phrase 'in relation to' has extended the scope of the definition of GTA. It includes not only the actual transportation of goods, but any intermediate/ancillary service provided in relation to such transportation, like loading/unloading, packing/unpacking, transshipment, temporary warehousing, etc. If these services are not provided as independent activities but are the means for successful provision of GTA Service, then they are also covered under GTA .

3. As per Section  7 of CGST Act, 2017, 'Supply' includes all forms of supply of Goods or Services or both made or agreed to be made for consideration by a person in the course or furtherance of business. Services of GTA is a Supply of Service Where Freight is the consideration and made by a person in the course of business. Hence it is a Supply.

4. As Per Rule 54(3), Where the supplier of service is goods transport agency supplying services in relation in relation to transportation of goods by road in a carriage, the said supplier shall issue a tax invoice or any other document in lieu thereof, by whatever name called , Containing gross weight of the consignment, name of the consigner and consignee, registration number of goods carriage in which goods are transported, details of place of origin and destination, Goods and Service Tax Number of Person liable for paying tax whether as Consigner, Consignee or goods transport agency and also containing other information as mentioned under rule 46.

5. Taxability : Services by way of transportation of goods by road are taxable, ONLY IF the same is provided by (i) a goods transportation agency; or (ii) courier agency. Services of Road Transport provided by all others are not taxable as exemption is provided under section 11.

6. Reverse Charge on GTA: Reverse charge is applicable only when taxable service provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road, where the recipient of Service is,

(a)		Any factory registered under or governed by the Factories Act 1948.
(b)		Any society registered under Societies Registration Act 1860 or under any other law for the time being in force in any part of India.
(c)		Any Cooperative Society established by or under any law
(d)		Any Person registered under CGST/SGST/UTGST Act.
(e)		Any Body Corporate established, by or under any law,
(f)		Any Partnership Firm whether registered or not under any law including association of Persons.
(g)		Casual Taxable Person; located in Taxable Territory.

So, The Person who pays or liable to pay freight for the transportation of goods by road in goods carriage, located in taxable territory shall be treated as person who receives the Service.

So it can be said that an Individual/Proprietorship Firm/HUF is not covered in the above category. So. If Freight is paid by an Individual/Proprietorship Firm/HUF then the GST shall be paid by GTA itself.

7. Reverse Charge on Courier Agency: Courier agency is not covered under reverse charge. Any person receiving services of a courier agency are not liable to pay GST on payment of courier charges.

8. Place of Service of GTA Service: As Per Section 12(1), Where the location of Supplier and Location of the recipient of service is in India, Place of Supply in case of Transportation of goods, to Registered Person, Shall be the location of such Person, and in case a person other than registered person, Shall be the location at which goods are handed over for their transportation.

Where the location of Supplier of Services or location of recipient of services is outside India, Place of Supply of Such goods shall be the place of destination of goods.

9. Exemption : Service Provided by goods transport agency, by way of transport in a goods carriage of

		Agriculture Produce
		Goods, when consideration charged for the transportation of goods on a consignment transported in a single carriage does not exceed Rs 1500.
		Goods, Where Consideration charged for transportation of all such goods for a single consignee does not exceed Rs 750.
		Milk, Salt and Food Grain including flour, pulses and Rice
		Organic manure
		Newspaper or Magazine registered with the Regsitar of Newspaper
		Relief material meant for victims of natural or man made disasters, calamities, accidents or mishap
		Defence or military equipments

10. Registration : Since their Services are in Reverse Charge, they are not required to take registration. They will be liable for registration only when Services Provided to Individual/ProprietorShip Firm/HUF.

11. Record Maintenance : Any person engaged in the business of transporting goods shall maintain records of goods transported, delivered and goods stored in transit by him alongwith the Goods and Services Tax Identification Number of the registered consigner and consignee for each of his branches.

Example:

(a)		Suppose A Partnership Firm, purchase goods from Kolkata and paid freight of Rs 20000 to the transporter. Who will pay GST?
		Ans: Since Partnership Firm, is falls in the Specified Recepient category, will be liable to pay GST on 20,000.
(b)		Suppose A Ltd Sells goods to X Ltd. The Freight for transportation of the goods has been paid by A Ltd. The Consignment Note is prepared on "Freight Paid Basis" . A Ltd collects this freight from B Ltd on actual basis. Who is liable for GST?
		Ans: A limited will be liable to pay GST.
(c)		A Company receives goods from a GTA in a Truck. No Other Goods are loaded in the Truck. The Company pays freight of Rs 1500.
		Ans: No GST.
(d)		ABC Ltd Sell goods to XYZ Limited on FOR Basis. Who will be liable to Pay GST?
		Ans: ABC Limited.
(e)		ABC Limited Sells TMT to XYZ Limited. (TMT GST Rate 18%). Charged Freight in Bill amounting to Rs 10000. What will be the taxability.
		Ans: It will be a Composite Supply. Freight will be taxable at the rate of 18 Percent.

12. Tax Rate : GST will be Paid at the Rate of 5 Percent. Person paying GST on Freight under Reverse Charge basis will be entitled to Input tax Credit.