2.reverse Charge Mechanism

SIRC OF THE ICAI
REVERSE CHARGE
MECHANISM
INTERPLAY OF NOTIFICATION
13/2017- CTR
WITH 12/2017- CTR
&
11/2017- CTR
By:
CA Rajender Arora
GST की राह मे, आपका दोस्त
1
Sec 2 sub-sec (98):
Reverse “Reverse Charge” means the liability to pay tax by the

recipient of supply of goods or services or both instead of
Charge – the supplier of such goods or services or both under sub-
Meaning section (3) or sub-section (4) of section 9, or under sub-
section (3) or sub-section (4) of section 5 of the
Integrated Goods and Services Tax Act;
2
CA RAJENDER ARORA GST की राह मे, आपका दोस्त
2
Phone No.: 9891112120
Concept of RCM was introduced in service tax first time on services provided
by GTA and service provided by Clearing and forwarding agents in 1997.
As per the notification, the recipient of service was made liable to pay the tax.
Section 68(2) of chapter V of the Finance Act, 1994 did not provide for recovery
of tax from the recipient of service.
Therefore, the recovery of tax from recipient of service was challenged.
Introduction “Laghu Udyog Bharati Vs Union of India (112) E.L.T. 365 (SC) provision of
reverse charge was ultra vires the Act itself.
After this Supreme Court Judgment, section 68 was amended by incorporating

sub-section (2) which empowers the government to specify the service and the
person liable to pay tax by notification.
After the said amendment, the constitutional validity of this reverse charge
tax was upheld by Hon’ble Delhi High Court in the case of Orient Crafts Ltd Vs
UOI (2006) (4) STR 81 (Del).
CA RAJENDER ARORA GST की राह मे, आपका दोस्त Phone No.: 9891112120
3
Normal Provisions – Tax is paid by supplier and is borne by the recipient.
RCM - tax is not only borne by receiver of goods/services but is also paid to the credit
of government by receiver only.
Already existing in service tax.
Facilitates tax administration.
CONT.. Reduced the number of assesses.
Motive behind this is to ensure more tax compliance especially where the receiver of
goods/services is from organized sector and supplier is from unorganized sector.
No exemption limit
Government to notify goods and/or services on which RCM will be applicable.
4
Reverse charge – legal provisions
2 TYPE OF REVERSE CHARGE SCENARIOS IN GST REGIME
First is, dependent on the nature of supply and/or nature of supplier.

This scenario is covered by section 9 (3) of the CGST/ SGST (UTGST) Act
and section 5 (3) of the IGST Act where by tax is to be paid by recipient
on notified categories of supply.
Second scenario is, covered by section 9 (4) of the CGST/SGST (UTGST) Act
and section 5 (4) of the IGST Act where taxable supplies by any
unregistered person to a registered person was being covered. Now, There
is a change in second scenario, where only specified goods and services
shall be covered if, supplied by any unregistered person to specified
registered person. WEF 1-2-2019 5
Contd...
Unlike Service Tax, there is no concept of partial reverse charge under
GST regime. The recipient has to pay 100% tax on the supply if
covered under RCM.
The person who is required to pay tax under reverse charge has to
compulsorily register under GST irrespective of the aggregate limit.
ITC in respect of tax paid on RCM shall be available after payment of

same and subject to the provisions of section 16 and 17 of the Act.
Registration of supplier is not important. If notified supplies are

made, RCM shall continue to apply irrespective whether supplier is
registered or not.
6
➢ Determination of type of supply whether notified u/s 9(3) – Not. 04/2017
CTR for Goods and Not. 13/2017 CTR for Services.
➢ Determination of Tax rates – Not. 01/2017 CTR for Goods and Not. 11/2017
CTR for Services
Steps to
determine tax ➢ Determination of exemption, if any, available – whether absolute of
conditional – Not. 02/2017 CTR for Goods and Not. 12/2017 CTR for
liability Services.
➢ Determination of Time of Supply – Sec 12(3) for Goods and Sec 13(3) for
Services.
➢ Determination of Value – Section 15

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Phone No.: 9891112120
24. Compulsory registration in certain cases
(1) Notwithstanding anything contained in sub-section (1) of section 22, the
following categories of persons shall be required to be registered under this
Act, ––
(i) …………………………
Requirement (ii) ………………………..
of (iii) persons who are required to pay tax under reverse charge;
registration
Means Persons liable to pay tax under RCM are required to get
registered under GST irrespective of the turnover.
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Phone No.: 9891112120
Section 12: time of supply of goods
Earliest of:
(a) the date of the receipt of goods; or

(b) the date of payment or date on which the payment is
debited in his bank account, whichever is earlier; or
(c) 31st day from date of issue of invoice/document
When not determinable as per above Rule, TOS shall be

date of entry in the books of account of the recipient of
supply.
9
Section 13: time of supply of services
Earliest of:
(a) date of payment or the date on which the payment is debited in his
bank account, whichever is earlier; or
(b) 61st day from date of issue of invoice /document
When not determinable as per above Rule, TOS shall be date of entry in
the books of account of the recipient of supply.
Associated Enterprises: When Suppler is outside India, TOS shall be Earlier

of:
• date of entry in the books of account of the recipient of supply or
• the date of payment
10
Rule 36: Documentary requirements for claiming input
tax credit
➢ Invoice issued by Supplier: as per section 31
➢ Invoice issued by Recipient incase of reverse charge mechanism: as per Section 31 (3) (f)
➢ Debit note issued by a supplier : as per section 34
➢ Bill of entry for assessment of integrated tax on imports: as per Customs Act, 1962 or rules
made there under
➢ Input Service Distributor invoice or Input Service Distributor credit note: as per Rule 54(1)
11
31(3)(f) a registered person who is liable to pay tax under sub-section (3) or sub-
section (4) of section 9 shall issue an invoice in respect of goods or services or both
received by him from the supplier who is not registered on the date of receipt of
goods or services or both
A SELF-INVOICE IS REQUIRED TO BE ISSUED ONLY IN CASE WHERE SUPPLIES

ARE RECEIVED FROM AN UNREGISTERED PERSON. BASED ON WHICH TAX IS TO
BE DEPOSITED ON RCM AND THAT SHALL BE A DOCUMENT FOR THE PURPOSE
Self- OF CLAIMING ITC.
However, where such supplies are received from a person who is already registered
invoicing under GST, no self-invoice is required to be issued and tax will be paid based on the
invoice received from supplier and accordingly ITC can be availed.
under GST Proviso: a registered person may issue a consolidated invoice at the end of
a month for supplies covered under sub- section (4) of section 9, the
aggregate value of such supplies exceeds rupees five thousand in a day from
any or all the suppliers
A registered person who is liable to pay tax under section 9(3) or section 9(4)
shall issue a payment voucher at the time of making payment to the supplier.
12
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Phone No.: 9891112120
ITC can be availed till earlier of:
• the due date of return of September following the financial
year to which such invoice pertains
or
• due date of furnishing of Annual Return
Time limit for
availing ITC ❖ In case of registered person, no self-invoice is required to be issued and
invoice issued by supplier shall be the document based on which tax is
to be paid and ITC is to be availed. So ITC can be claimed in respect of
Section 16(4)
services for which tax was paid on reverse charge basis in 2019-20 but
invoice and services were received in 2017-18 by virtue of section 16(4)
❖ Now the question remains, whether ITC on RCM for 17-18 payable on
supplies by unregistered person supported by raising of self invoice u/s
31(3)(f) in 19-20 can be availed? Whether invoice "pertains" to 17-18 or
19-20.
13
13
Phone No.: 9891112120
❖ Supreme Court in Doypack Systems P Ltd 1988 AIR 782 has held
that " The expression "pertaining to" does not mean "forming
part of".......The word "pertain" is synonymous with the word
"relate", see Corpus Juris Secundum, Volume 17, page
693..........."
❖ Now section 16(4) of CGST limits ITC on Invoice to the due date
Cont….
of return for the month of Sep. following the FY to which "such"
invoice "pertains".
❖ Now if "pertain" and "relation to" are similar and not restricted
to "forming part of " then it implies that Invoice though issued in
19-20 'in respect of supplies for " 17-18 relates or pertains to 17-
18.
❖ Hence, no ITC can be claimed. 14

14
Phone No.: 9891112120
Every registered person shall keep and maintain a true and correct
account of :
 the goods or services imported or exported

 supplies attracting payment of tax on reverse charge along with the
relevant documents, including invoices, bills of supply, delivery
challans, credit notes, debit notes, receipt vouchers, payment
Accounts & vouchers and refund vouchers.
Records Every registered person, other than Composition Taxpayer, shall

maintain details ( Including recipient of Reverse Charge Mechanism):
 of tax payable
Rule 56(1)  tax collected and paid
 input tax
 input tax credit claimed
 register of tax invoice
 credit notes
 debit notes
 delivery challan issued or received during any tax period.
15
Recording RCM in Books of
accounts
❖ Separate ledgers for RCM liability is required to be maintained in the books of accounts to identify them
from normal ledgers: -
❑ Output IGST-RCM, Output CGST-RCM, Output SGST-RCM
❑ Input IGST-RCM, Input CGST-RCM, Input SGST-RCM
❖ The following entries shall be passed for recording the expenses under RCM: -
1.For recording the expense under RCM Expense A/c Dr 100
To Creditor 100
2. For recording GST on the RCM Expense incurred (in case RCM supply is creditable) Input CGST-RCM Dr 9
Input SGST-RCM Dr 9
To Output CGST-RCM 9
To Output SGST-RCM 9
Output CGST-RCM Dr 9
Output SGST-RCM Dr 9
3. When payment of RCM tax GST liability is made To Bank 18 16
Payment of
Reverse charge liability cannot be discharged by using
Tax Under input tax credit reflecting in electronic credit ledger. It
RCM has to be paid by debiting electronic cash ledger i.e. to
be paid in Cash.
Section 49(4)
of the CGST The credit of the same can be claimed by the recipient
in the same month itself, if eligible.
Act
17
17
Phone No.: 9891112120
Goods under Reverse
Charge not. no
4/2017 ct(r)
18
18
Phone No.: 9891112120
19
20
Services under
Reverse Charge not.
no 13/2017 ct(r)
21
21
Phone No.: 9891112120
SERVICES BY AN ADVOCATE INCLUDING SENIOR ADVOCATE AND FIRM OF ADVOCATE
(LEGAL SERVICES)
ADVOCATE
OTHERS
LAWYERS
REGD. IN BAR COUNCIL
LAW CA, CS, CWA

GRADUATES BUT ETC.
By Individual advocate By Senior Advocate
& Partnership Firm of NOT REGD IN
Advocates To Advocate – BAR COUNCIL
Taxable @ 18% ALL SERVIES
under FORWARD ALL SERVICES TAXABLE @18%
To Advocates - Exempt
CHARGE TAXABLE @18% FORWARD
FORWARD CHARGE
To Other than B/E - Exempt To Other than CHARGE
B/E- EXEMPT
To CG, SG, UT, LA and GE -
EXEMPT To CG, SG, UT ,LA ,GA AND LEGAL SERVICES: means any service provided in relation to advice, consultancy or
GE- EXEMPT assistance in any branch of law, in any manner and includes representational
To Unregistered B/E with services before any court, tribunal or authority;
aggregate turnover below To Unregistered B/E with
threshold limit – EXEMPT aggregate turnover below
threshold limit – EXEMPT
To B/E with turnover max 20 lacs UT – Union Territory

in taxable territory (i.e. B/E – Business Entity
To Other than above(Entity> LA – Local Authority
registered B/E – Taxable @ CG – Central Government
threshold limit): taxable GA – Govt Authority
18% under RCM SG – State Government
under RCM @ 18% GE – Govt. Entity
22
SERVICES BY ARIBTRAL
TRIBUNAL
TAXABLE EXEMPT
ENTRY NO. 45
998215
NOTIFICATION 12/2017-CT(R)
ARBITRUTION AND CONCILIATION
TAX @ 18%
OTHER THAN BUSINESS ENTITY

ANY BUSINESS ENTITY IN
TAXABLE TERRITORY BUSINESS ENTITY WITH
TURNOVER BELOW THRESHOLD
LIMIT (UNREGISTERED)
RCM @ 18%
CENTRAL GOVT. STATE GOVT.,
ENTRY NO. 3
UNION TERRITORY, LOCAL
NOTIFICATION 13/2017 CT(R)
AUTHORITY, GOVT. AUTHORITY,
GOVT. ENTITY
23
Intangible property ROYALTY PAID FOR INTELLECTUAL PROPERTY
that is the result of
creativity, such as
patents, copyrights,
etc. TO AUTHOR
FOR WORK FOR ORIGINAL LITERRARY WORK
TO ARTIST
NOT COVERED (CAUSED UNDER COPY RIGHT ACT)
(MUSIC COMPOSER, PHOTOGRAPHER
UNDER ENTRY NO. 17(i)
ETC.)
COPY RIGHT ACT HSN 9973 TAX @ 12%
FOR ORIGINAL DRAMATIC, MUSICAL
OR ARTISTIC WORKS
(CAUSED UNDER COPY RIGHT ACT)
FORWARD CHARGE
ENTRY NO. 17(i) RCM
TAX@ 12%
HSN 9973 TAX @ 12% ENTRY NO. 9A
RCM RECIPIENT PUBLISHER IN

ENTRY NO. 9 TAXABLE TERRITORY
Tax will be paid on forward charge basis where author is

RECIPIENT - MUSIC CO. PRODUCER ETC registered and makes a declaration with jurisdictional
IN TAXABLE TERRITORY Commissioner or Where author makes a declaration on
invoice issued to publisher to that effect.
24
SERVICES TO RBI
OTHERS
BY MEMBERS OF OBSERVING
COMMITTEE
FORWARD CHARGE
IN OTHER CAPACITY IN CAPACITY OF TAXABLE UNDER
Eg. RENTAL SERVICES MEMBERS OF RESPECTIVE
COMMITTEE HSN AND TAX RATE
FORWARD CHARGE
TAXABLE UNDER PERFORMING SERVICES
RESPECTIVE HSN AND TAX OF COMMITTEE
RATE
REVERSE CHARGE
ENTRY NO. 10
NOTIFICATION 13/2017
CT(R)
RECIPIENT OF SERVICE WILL
BE RBI 25
SPONSORSHIP SERVICES
EXEMPT
TAXABLE ENTRY NO. 53 (9985)
@ 18% (9985) NOTIFICATION
12/2017 CT(R)
SPORTING EVENTS
TO BODY CORPORATE NATIONAL SPORTS FEDERATION

TO OTHERS
OR PARTNERSHIP FIRM
ASSOCIATION OF INDIAN UNIVERSITIES, INTER-
UNIVERSITY SPORT BOARD, SCHOOL GAMES
FEDERATION, ALL INDIA SPORTS COUNCIL FOR
FORWARD CHARGE RCM @ 18% DEAF, PARALYMPIC COMMITTEE OF INDIA
@ 18%
ENTRY NO. 21 CENTRAL CIVIL SERVICES CULTURAL &SPORTS
NOTIFICATION 11/2017 CT(R) BOARD
ENTRY NO. 4
NOTIFICATION 13/2017 INDIAN OLYMPIC ASSOCIATION
CT(R)
PANCHAYAT YUVA KREEDAUR
KHEL ABHIYAAN SCHEME 26
DSA Services to Banks/ NBFC
By Individual By other than

Individual
Reverse Charge
Mechanism Forward Charge
Entry No.- 11
Notification No.
13/2017 CT(R) Entry No. 23
HSN 9985
Tax @ 18%
Notification No.
Entry No. 23 11/2017 CT(R)
HSN 9985
Tax @ 18%
27
Business Facilitator Services to Banking Company
"business facilitator or
business correspondent"
means an intermediary
appointed under the Taxable Exempt
business facilitator model or
the business correspondent
model by a banking Other Branches To Banking company with
company or an insurance respect to accounts in its
company under the rural area branch
guidelines issued by the Entry No. 23
Reserve Bank of India; HSN 9985
Tax @ 18%
Entry No.- 39
HSN 9985
Reverse Charge Notification No.
Mechanism 12/2017 CT(R)
Entry No.- 12
Notification No.
13/2017 CT(R) 28
By agent of Business Correspondent
To a Business Correspondent
HSN 9985
Tax @ 18%
Reverse Charge Mechanism

Entry No.- 13
Notification No.
13/2017 CT(R) 29
Services of Lending of Securities
"scheme" means Securities Lending

Scheme, 1997 for lending of securities Taxable
through an approved intermediary to a HSN 9971
borrower under an agreement for a Tax rate @ 18%
specified period with the condition that the Entry No. 15 (VII)
borrower will return equivalent securities
of the same type or class at the end of the
specified period along with the corporate
benefits accruing on the securities Reverse Charge
borrowed. Mechanism
Entry No.- 16
Notification No.
13/2017 CT(R)
Securities Securities
Lender Approved Intermediary Borrowed
Supplier Recipient 30
Service by Recovery agent
To Banking Companies / NBFC
Entry No. 23
HSN – 9985
Tax @ 18%
Notification No. 11/2017 CT(R)
RCM
Entry No. – 8
31
Services by an Insurance Agent
To Insurance Companies
Entry No. – 15
HSN – 9971
Tax Rate @ 18%
RCM
Entry No. – 7
32
Security Services
To Others To Educational
Institution
Taxable Exempt
Entry No. 23 Entry No. 66(b)
HSN- 9985 Notification No.
Tax@18% 12/2017 CT(R)
By other than By Body Corporate

Body Corporate
Reverse Charge Forward Charge

Entry No.14
Notification no.13/2017 CT(R) 33
Renting of Motor Vehicles of Passengers (including Fuel cost)
Entry No. 10(i) | [ Notification No. 11/2017 CT(R)] | HSN 9966
Registered Supplier Unregistered Supplier Registered Supplier
Tax @ 5% without
ITC(except same 12% with ITC
To others To Body Corporate
line of business)
NIL Reverse Charge Forward Charge
Mechanism
By other than By Body Corporate @ 5%
Body
Corporate Forward Charge
To Other than Body To Body Corporate located in Taxable Territory (TT)

Corporate or Body
Corp. in NTT Reverse Charge
Entry No. 15 34
Forward Charge
Notification No. 13/2017 CT (R)
TRANSPORTATION
OF GOODS BY ROAD
BY GTA BY OTHER THAN GTA
TAXABLE EXEMPT
ENTRY NO.9 ENTRY NO. 21 EXEMPT
NOTIFICATION NO. NOTIFICATION NO. ENTRY NO. 18
11/2017 CT(R) 12/2017 CT(R) NOTIFICATION NO.
12/2017 CT(R)
RATE OF TAX 5% WITHOUT AGRICULTURE PRODUCE

12% WITH ITC ITC
SINGLE CONSIGNMENT ≤ 1500
MULTIPLE CONSIGNMENT ≤ 750
“Goods Transport Agency" means any
REVERSE CHARGE MILK, SALT, FOOD GRAINS, person who provides service in relation to
ENTRY NO. 1 ORGANIC MANURE transport of goods by road and issues
FORWARD NOTIFICATION NO.
13/2017 CT(R) NEWSPAPER/ MAGAZINES, consignment note, by whatever name
CHARGE RELIEF MATERIAL, DEFENCE called;
EQUIPMENT
35
Person liable to pay tax under GTA services
GTA charging GST

Other GTA
@12%
Recipient is one Recipient is other than Specified

of the Specified Recipients (i.e. Unregistered Forward charge
Recipient Individual end Consumer and
persons who are registered only
for purpose of TDS
Reverse charge Person liable to pay
GST is GTA
Person liable to Exempt from GST

pay GST is such
recipient
Specified Recipient: Factory, Society, Co-operative Society, Body
Corporate, Partnership Firm (Redg. or Unreg.), AOP, CTP in TT,
Person regd. under CGST Act.
Person who pays or is liable to 36

Recipient of GTA services
pay freight
GTA ISSUES ❖ Difference between GTA and GTO – what if consignment note not
issued - KISAN SAHKARI CHINI MILLS LTD. (All HC)
❖ Transaction between two GTA where vehicles are taken from

other transporters
❖ Incidental services in addition to transportation – circular no.

186/5/2015
❖ 5% taxable under RCM – whether ITC is eligible?
❖ Transporter charged tax @ 5% under forward charge – whether

liability under reverse charge?
❖ Whether tax charged wrong under forward charge – ITC is

eligible? 37
❖ Nature of tax liability – transporter outside State?
❖ Can GTA issue invoice under both methods i.e. RCM as well as 12%
FCM?
❖ Services of transportation of goods by person not issuing

CONT.... consignment note is exempt from GST.
❖ A person owning only a single conveyance providing services of

transportation of goods in most cases does not issue a consignment
note.
➢ Will there be a liability to pay tax on same on reverse charge

basis?: NO
38
Notification No. 20/2017-Central Tax (Rate) dt. 22.08.2017
39
SERVICES BY A DIRECTOR
NON EXECUTIVE DIRECTOR

(AS DIRECTOR)
IN CAPACITY OTHER WHOLE TIME DIRECTOR,
THAN DIRECTOR MANAGING DIRECTOR,
EXECUTIVE DIRECTOR
NO EMPLOYER-EMPLOYEE (AS EMPLOYEE)
RELATIONSHIP
TAXABLE UNDER
FORWARD CHARGE EMPLOYER-EMPLOYEE
CONSULTANCY/SITTING FEES ETC. UNDER RESPECTIVE HSN RELATIONSHIP
CODE & TAX RATE
(Eg. RENTING SERVICES)
TAXABLE UNDER SCHEDULE-III
RESPECTIVE HSN CODE AND CLAUSE(1)
TAX RATE (NORMALLY-18%)
NOT SUPPLY
TAX UNDER RCM
ENTRY NO.6
NOTIFICATION 13/2017 CT(R) 40
Lot of discussions are going on concerning the taxability of director's remuneration
under GST subsequent to a ruling pronounced by Rajasthan AAR in the matter of
M/s Clay Craft India Pvt. Ltd. vide Order no. RAJ/AAR/2019-20/33 dated 20
February 2020.
In this matter, question that came up before the Rajasthan AAR is whether the salary paid to whole time director(s)
is covered under Notification No. 13/2017 - Central Tax (Rate) dated 28 June 2017 to attract GST under Reverse
Charge or covered under Entry no. 1 of Schedule - III of CGST Act, 2017 read with Section 7 of CGST Act, 2017 to fall
outside the ambit of taxable supply?
The Authority for Advance Ruling, in this matter, while holding that salary so paid to Directors is taxable under
reverse charge observed that the consideration paid to directors is against the supply of services provided by them
to the Applicant as directors are not the employee of the Company. It was further observed that Notification No.
13/2017 has given distinct identity to the services provided by the Director and specifically included in the category
of service on which GST will be payable under RCM.
Earlier, Karnataka AAR in the matter of Alcon Consulting Engineers (India) P. Ltd. vide Order No. KAR ADRG 83/2019
dated 25 September 2019, also pronounced a similar ruling.
41
It is important to note that both the rulings are pronounced sans considering the concept of different types
of director, as provided in Company Law, like Independent Director, Whole -Time Director, Managing
Director, Executive Director, etc. and the capacity in which the services is being rendered by these directors
to the Company.
Entry no. 1 of Schedule - III of CGST Act, 2017 read with Section 7 of CGST Act, 2017 provides that 'Services
by an employee to the employer in the course of or in relation to his employment' will not be treated as
either supply of goods or services and thus, no GST implication arises thereupon. However, the above two
rulings have clearly ruled out the possibility that director can be an employee of the Company, contrary to
what the position under Service tax regime was.
CBIC (then CBEC), had issued some circulars under Service tax regime which clearly provides that the
legislative intent has always been to differentiate between the services provided by directors in individual
capacity (taxable under RCM) from that provided in the capacity of employee (non-taxable).
42
Circular No. 115/09/2009 - S.T. dated 31 July 2009 observed that Manging Director (Whole - time or
Independent) perform management functions and generally do not provide any consultancy or advisory to
company. However, whether any separate service of consultancy or advisory is being provided depends on
case to case.
General Circular No. 24/2012 bearing F. No. 14/33/2012-CL. VII dated 09 August 2012 clarified that sitting
fee/commission payable to Non-Whole Time Director(s) of the company are taxable under Service tax.
Hon'ble Mumbai CESTAT in the matter of Rent Works India Pvt. Ltd. v. Commissioner of C. Ex., Mumbai - V,
reported in 2016 (43) S.T.R. 634 (Tri. -Mumbai) held that there is a difference between salary and
consultancy fee inasmuch as when the Income Tax Department considers payment in the nomenclature
'consultancy fee' as salaries, on which TDS is also made, THE SAID PAYMENTS CANNOT BE SAID TOWARDS
RENDITION OF TAXABLE SERVICE FOR LEVY OF SERVICE TAX
Hon'ble Mumbai CESTAT in the matter of Allied Blenders and Distillers Pvt. Ltd. v. C.C.E. & S.T., Aurangabad,
reported in MANU/CM/0499/2018, after going through the Articles of Association, resolution passed by
BOD for appointment of such directors, Form - 16 issued by the Company, Form - 32 filed by the Company
with ROC, etc. HELD THAT THE WHOLE TIME DIRECTORS WERE WORKING IN THE CAPACITY OF EMPLOYEE
AND THUS, SALARY PAID TO THEM IS NOT TAXABLE. 43
Hon'ble Kolkata CESTAT in the matter of Brahm Alloy Limited v. Commissioner of CGST & C. Ex., Durgapur,
reported in 2019 (24) G.S.T.L. 616 (Tri. - Kolkata) has also held that whether the services provided by the
director is in employer-employee capacity or as an independent service provider, depends on various facts,
like, terms of appointment of such director, how the payment of remuneration is made to director,
treatment of remuneration under Income Tax Act, etc.
Hon'ble Kolkata CESTAT in other matters of Concrete Pvt. Ltd. v. CCE, Siliguri, cited in 2018 (9) GSTL 391 (Tri.
- Kolkata) and Maithan Alloys Ltd. v. CCE & ST, Bolpur, cited in MANU/CK/0094/2018 has also observed that
consideration paid to whole time directors would be treated as PAYMENT OF SALARIES INASMUCH AS
THERE WOULD BE EMPLOYER - EMPLOYEE RELATIONSHIP AND IN SUCH CASES, THERE CANNOT BE ANY
LEVY OF SERVICE TAX.
CESTAT, Eastern Bench, Kolkata in case of Maithan Alloys Ltd vs C.C.E & S.T Bolpur [2020 (33) G.S.T.L 228]
Remuneration/ salary paid to whole time director. Such remuneration comprising of fixed as well as variable
components i.e commission payable based on the percentage of profit. Whole time director is an employee
of company and payment of variable pay does not alter/ dilute his employer-employee relationship with
company. Remuneration paid to whole time director on which tax deducted by company u/s192 of the
Income Tax Act, 1961 cannot be towards rendition of any taxable service and COMPANY NOT LIABLE TO PAY
SERVICE TAX THEREON UNDER REVERSE CHARGE MECHANISM. 44
Summing up, as can be inferred from above judicial pronouncements, it can be concluded that based upon
various factors (terms of engagement of director, treatment under Income Tax Act, etc.) and taking
reference from provisions contained in Companies Act, 2013, it must be ascertained that whether the
director to whom remuneration is being paid is providing the services in the capacity of employee or in
independent capacity as a consultant.
Where services are provided qua an employee to the Company, salary so paid to director either in the form
of commission or percentage or in any other form, shall fall outside the ambit of GST BUT WHERE
INDEPENDENT SERVICES ARE BEING PROVIDED BY DIRECTOR FOR WHICH CONSIDERATION IS RECEIVED IN
THE FORM OF COMMISSION, CONSULTANCY FEE, SITTING FEE, OR BY ANY OTHER NAME, IT SHALL BE
TAXABLE UNDER REVERSE CHARGE IN HANDS OF THE COMPANY.
Wen we say services by a Director, “IN CAPACITY” as directors has to be read as although the law is silent on that part.
ACCORDINGLY, SERVICES NOT IN THE CAPACITY OF DIRECTOR FOR EG. RENTING SERVICES WOULD NOT ATTRACT TAX
ON REVERSE CHARGE BASIS AND TAX ON SAME IS REQUIRED TO BE PAID ON NORMAL FORWARD CHARGE BASIS AS
OUTWARD SUPPLY SUBJECT TO THE PROVISIONS OF THE ACT.
45
Services By Government Other Than Renting of Immovable Property
Taxable Exempt
All other Services Entry No. – 4, 5, 6, 7, 8 ,9, 9C,

34A, 42, 47, 61, 62, 63, 64, 65,
65B
Other than ESM ESM other than to Notification No. 12/2017 CT(R)
business entities
To Business Entity To Others Forward Charge
RCM EXEMPT Note: HSN and Tax Rate will

be of respective service as
and when received
46
Exempt- Services By Government Other Than Renting of Immovable Property
Notification No. 12/2017 CT (R)
Entry no.4: Functions entrusted to municipality 243W
Entry no.5: Function entrusted to Panchayat 243G
Entry no.6: All Services (ESM)
Entry no.7: To Business Entity turnover below limit(ESM + renting of immovable property)
Entry no.8: By government to government (ESM)
Entry no.9: Consideration pf services < 500(ESM)
Entry no. 9C: By government entity to government + consideration as grants (ESM)
Entry no. 34A: By government to government entity/ PSUs of loan guarantee (ESM)
Entry no. 42: Allowing to operate as telecom SP or use radio frequently
Entry no. 47: Registration services like(Aadhar registration), testing, calibration, safety check, certification,
license for public at large.
Entry no. 61: Issuance of passport, visa, Driving License, Birth/ Death certificate.
Entry no. 62: tolerating non-performance pf contract,
Entry no. 63: Right to use natural resources to Indian farmer.
Entry no. 64: Right to use natural resources + 1 time license fees
Entry no. 65: Merchant overtime charges.
Entry no. 65B: SG to ERCC [ESM: Except Specifically Mentioned]
▪ Postal Services, Life Insurance and Agency Services to other than Govt.
▪ Services in relation to Aircraft or Vessel
▪ Transport of Goods or Passengers
▪ Any service, otherthan above, provided to business entities 47
AUTHORITY FOR ADVANCE RULINGS (RAJ.) – IN RE: M/S. ARAVALI POLYART PVT. LTD.
IN RE: M/S. ARAVALI POLYART PVT. LTD.

Dated:- 15-2-2019
In: GST
Other Citation: 2019 (23) G. S. T. L. 245 (A. A. R. – GST)
AAR No. RAJ/AAR/2018-19/34
Classification of services – royalty – lease transfer agreement for obtaining mining lease – N/N. 11/2017-CT (Rate)
dated 28.06.2017 – to be classified under 9973 specifically Licensing services for the right to use minerals including its
exploration and evaluation or as any other service?
Held that:- The activity undertaken by the applicant is classifiable under Heading 9973 (Leasing or rental services, with
or without operator), as mentioned in the annexure at Serial No. 257(Licensing services for the right to use minerals
including its exploration and evaluation) sub heading 997337 of notification number 11/2017-CT (Rate) dated
28.06.2017. The applicant is liable to discharge tax liability under reverse charge mechanism vide N/N. 13/2017-CT
(Rate), dated 28.06.2017 (as amended from time to time) of the CGST Act, 2017.
The activity undertaken by the applicant attracts 18% GST (9% CGST+ 9% SGST).
48
Renting of Immovable Property By Government
Taxable Exempt
Commercial Purpose Residential Purpose
Registered Person Unregistered
Note: HSN and Tax Rate will be

of respective service as and
Reverse Charge Forward Charge when received
49
Import of Services
Services by Person located in Non Taxable Territory
To Person located in taxable territory (other than non-taxable online Recipient)
Taxable at Respective Tax Rate
RCM
Entry No. 1 Note: HSN and Tax Rate
Notification No. 10/2017 IT(R) will be of respective
service as and when
received
50
Ocean Freight
Services by the person located in non taxable territory
To Importer
Taxable @ 5%
Entry No. 9
HSN – 9965
Notification no. 11/2017 CT(R)
RCM
Entry No. – 10
Notification No. 10/2017 IT(R)
51
Cont....
In Mohit Minerals (P.) Ltd. v. Union of India [2020] 33 GSTL 321 (Gujarat)The Hon’ble Gujarat High
Court decided on the issue of IGST on ocean freight.
By order dated 23/01/2020 the Hon’ble High Court held that ocean freight for services provided by a
person located in a non-taxable territory by way of transportation of goods by a vessel from a place
outside India upto customs station of clearance in India is not leviable to tax under the Act. The court
looked into the definition of recipient and after duly recording its reasons held that such process would be
unconstitutional and also declared Notification No. 8/2017-Integrated Tax (Rate), dated 28-6-2017 and
Entry 10 of Notification No. 10/2017-Integrated Tax (Rate), dated 28-6-2017 unconstitutional
52
Cont....
In our opinion, such observations, on the contrary, supports the case of the writ-applicants that in a case
of CIF contract, the contract for transportation is entered into by the seller, i.e. the foreign exporter,
and not the buyer, i.e. the importer, and the importer is not the recipient of the service of
transportation of the goods.
In view of the aforesaid discussion, we have reached to the conclusion that no tax is leviable under the
IGST Act, 2007, on the ocean freight for the services provided by a person located in a non-taxable
territory by way of transportation of goods by a vessel from a place outside India up to the customs
station of clearance in India and the levy and collection of tax of such ocean freight under the impugned
Notifications is not permissible in law.
53
Reverse Charge Mechanism in Real Estate Business
Capital Goods
from URP
(01.04.2019)
Inputs and Inputs

TDR/FSI/Long Term Services from URP
Lease w.r.t contracts Promoter falling short of 80%
entered on or after value of annual
(01.04.2019) purchases
(01.04.2019)
Cement
from URP
(01.04.2019)
54
❑ The term "promoter" shall have the same meaning as assigned to it in in
clause (zk) of section 2 of the Real Estate (Regulation and Development)
Act, 2016 (16 of 2016);
Meaning of
promoter ❑ As per RERA, a promoter is a person who constructs or causes to be
constructed an independent building or a building consisting of
apartments, or converts an existing building or a part thereof into
apartments, for the purpose of selling all or some of the apartments to
other persons and includes his assignees
55
What is meant by Development Rights ?
 Permission given by land owner for development of land/building
 Apart from transfer of physical possession also authorises the Promoter
➢ To do all such acts/ apply before authorities for development of land/building.
➢ Create mortgage on the land in order to raise finance
➢ Advertise the project in such mode as may deem fit to the Promoter
➢ Sell, allot, lease, license etc. the saleable area and other spaces available in the project
 In nutshell landowner gives all its rights over the land and gives full authority to the promoter to enjoy the land in the
manner of his choice. For all purposes, therefore, the landowner extinguishes its interest in the land in favor of
promoter on execution of collaboration agreement.
56
Government Intends to Levy GST on Development Rights
Relevant notifications in this regard have been encapsulated hereunder:
Notification No 04/2018 – CT (R) dated 25.01.2018
• Time of supply in case of transfer of development rights by landowner and construction services provided by
Promoter.
• Conditional exemption to transfer of development rights [on or after 01.04.2019] w.r.t residential apartments.
• Reverse charge has been made applicable on the services supplied by way of transfer of development rights.
• Time of supply in case of development rights/FSI/Long term lease by the promoter. 57

Service by way of TDR
Taxable Exempt
Entry no. 41A
HSN- 9972
Commercial Residential Residential Apartments (Except

(Where consideration where consideration received
received after after the completion or first
Entry No. 16 completion) occupation)
HSN – 9972
Tax Rate @ 18%
Entry No. 16 Conditions for Exemption
HSN – 9972
RCM Tax Rate @ 18% Promoter to pay RCM on
Entry 5B Proportionate to Unbooked flats
Not. No. 13/2017 after completion of First Occupation.
RCM
Entry 5B
Not No. 13/2017 58
Long Term Lease of Land (30 yrs. or more)
Taxable Exempt
Entry 41B
Residential Residential Apartments

Commercial
(Where (Consideration received before
consideration the completion or first
received after the occupation)
Tax @ 18% completion or
HSN- 9972 first occupation)
Conditions
RCM Tax @ 18%

Entry 5C HSN- 9972 Promoter to pay RCM on Proportionate
Not. 13/2017 CT (R) to Unbooked flats after completion or
RCM First Occupation.
Entry 5C
Not. 13/2017 CT (R) 59
Exemption of transfer of development rights/FSI/Long term lease for Residential Apartments
[Entry 41A & 41B of N.No 12/2017-CT(R) inserted vide N.N 04/2019 dated 29.03.2019]
Exemption is available on transfer of development rights/FSI/Long term lease on or after

W.e.f. 01.04.2019
01.04.2019.
Available only in case of residential apartments which are sold prior to date of completion
Applicability
certificate/First Occupation.
(GST payable on TDR/FSI/Long term lease for Project X Carpet area of the residential
apartments in the project)
Amount of Exemption
Total carpet area of the residential and commercial apartments in the project
60
Promoter shall be liable to pay tax under RCM on proportionate value of development
If all residential Apartments
rights/FSI/Long term lease attributable to residential apartments not booked up date of
not booked
completion certificate/First occupation
(GST payable on TDR/FSI/Long term lease for residential apartments X Carpet area of un
Tax Computation booked-residential apartments)
Total carpet area of the residential apartments in the project
✓ 1%/5% of the value of un-booked residential apartments.

Maximum Liability
✓ Value shall be deemed to be equal to the value of similar apartments charged by the
promoter nearest to the date of issuance of completion certificate or first occupation,
as the case may be.
61
Liability in case of transfer of development rights/FSI/long term lease of land
[for 30 years or more]
Description On or After 01.04.2019
Promoter under reverse charge

Person liable for payment of GST [Sr Nos. 5B and 5C of Notification No. 13/2017-CT (R) as inserted vide
N.N 05/2019-CT(R) dated 29.03.2019]
Date of completion certificate of project or its first occupation,

Time of Supply whichever is earlier
[where consideration paid in form construction of [Notification No. 6/2019-CT (R) dated 29-3-2019]
residential/commercial apartments]
62
Description On or After 01.04.2019
Time of Supply Residential Apartment

Date of completion certificate of project or its first occupation, whichever is earlier
[In case of Monetary consideration] [Notification No. 6/2019-CT (R) dated 29-3-2019]
Commercial Apartment
Earlier of following:
✓ Date of payment
✓ Date immediately following 60 days from the issuance of invoice/any other document [Contract]
If not determinable from above then date of entry in books of accounts.

[Section 13(3) of CGST Act, 2017]
Value of similar apartments charged by promoter from independent buyers nearest to the date on
which development rights/ FSI is transferred to promoter.
Plus
Value of Supply
Monetary Consideration
[Para 1A of Notification No. 12/2017-CT (R) dated 28-6-2017 inserted vide N.N 04/2019-CT (R) dated
29.03.2019]
GST Rate 18%
63
Section 9(5): special provisions w.r.t. E-commerce
It’s a kind of third party charge where

Government to notify services on which Note: Foregoing provision is applicable
neither the supplier nor the receiver is
tax will be payable by e-commerce only in case of services provided through
required to deposit tax rather the
operator where such services are supplied e-commerce operator and not in case of
facilitator or intermediary is required to
through it. goods.
deposit the same with the government.
Where an electronic commerce operator

Where an electronic commerce operator does not have a physical presence in the
does not have a physical presence in the taxable territory and also does not have a
This scenario is being covered by Section
taxable territory, any person representing representative in the said territory, such
9(5) of the CGST/SGST (UTGST) Act and
such electronic commerce operator for electronic commerce operator shall
section 5 (5) of the IGST Act.
any purpose in the taxable territory shall appoint a person in the taxable territory
be liable to pay tax for the purpose of paying tax and such
person shall be liable to pay tax.
64
1. services by way of transportation of passengers by a radio-taxi, motorcab,
maxicab and motor cycle;
2. services by way of providing accommodation in hotels, inns, guest houses,

clubs, campsites or other commercial places meant for residential or
lodging purposes, except where the person supplying such service through
electronic commerce operator is liable for registration under sub-section
(1) of section 22 of the said Central Goods and Services Tax Act.
Not. no. Explanation.- For the purposes of this notification,-

17/2017 a. “radio taxi” means a taxi including a radio cab, by whatever name called,
CT(R) which is in two way radio communication with a central control office and is
enabled for tracking using Global Positioning System (GPS) or General
Packet Radio Service (GPRS);
b. “maxicab”, “motorcab” and “motor cycle” shall have the same meanings as
assigned to them respectively in clauses (22), (25) and (26) of section 2 of
the Motor Vehicles Act, 1988 (59 of 1988).
65
REACH US AT :
+91 98911 12120,
EMAIL: GST.CAARORA@GMAIL.COM
66

2.reverse Charge Mechanism

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2.reverse Charge Mechanism

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SIRC OF THE ICAI

Reverse “Reverse Charge” means the liability to pay tax by the

Therefore, the recovery of tax from recipient of service was challenged.

After this Supreme Court Judgment, section 68 was amended by incorporating

Already existing in service tax.

Facilitates tax administration.

CONT.. Reduced the number of assesses.

Government to notify goods and/or services on which RCM will be applicable.

2 TYPE OF REVERSE CHARGE SCENARIOS IN GST REGIME

First is, dependent on the nature of supply and/or nature of supplier.

ITC in respect of tax paid on RCM shall be available after payment of

Registration of supplier is not important. If notified supplies are

➢ Determination of Value – Section 15

(a) the date of the receipt of goods; or

When not determinable as per above Rule, TOS shall be

Associated Enterprises: When Suppler is outside India, TOS shall be Earlier

➢ Debit note issued by a supplier : as per section 34

A SELF-INVOICE IS REQUIRED TO BE ISSUED ONLY IN CASE WHERE SUPPLIES

Self- OF CLAIMING ITC.

❖ Hence, no ITC can be claimed. 14

CA RAJENDER ARORA GST की राह मे, आपका दोस्त

 the goods or services imported or exported

Records Every registered person, other than Composition Taxpayer, shall

LAW CA, CS, CWA

To B/E with turnover max 20 lacs UT – Union Territory

OTHER THAN BUSINESS ENTITY

RCM RECIPIENT PUBLISHER IN

Tax will be paid on forward charge basis where author is

TO BODY CORPORATE NATIONAL SPORTS FEDERATION

By Individual By other than

Reverse Charge Mechanism

"scheme" means Securities Lending

To Banking Companies / NBFC

By other than By Body Corporate

Reverse Charge Forward Charge

Registered Supplier Unregistered Supplier Registered Supplier

To Other than Body To Body Corporate located in Taxable Territory (TT)

BY GTA BY OTHER THAN GTA

RATE OF TAX 5% WITHOUT AGRICULTURE PRODUCE

GTA charging GST

Recipient is one Recipient is other than Specified

Person liable to Exempt from GST

Person who pays or is liable to 36

❖ Transaction between two GTA where vehicles are taken from

❖ Incidental services in addition to transportation – circular no.

❖ 5% taxable under RCM – whether ITC is eligible?

❖ Transporter charged tax @ 5% under forward charge – whether

❖ Whether tax charged wrong under forward charge – ITC is

❖ Services of transportation of goods by person not issuing

❖ A person owning only a single conveyance providing services of

➢ Will there be a liability to pay tax on same on reverse charge

NON EXECUTIVE DIRECTOR

All other Services Entry No. – 4, 5, 6, 7, 8 ,9, 9C,

To Business Entity To Others Forward Charge

RCM EXEMPT Note: HSN and Tax Rate will

IN RE: M/S. ARAVALI POLYART PVT. LTD.

Commercial Purpose Residential Purpose

Registered Person Unregistered

Note: HSN and Tax Rate will be

Services by Person located in Non Taxable Territory

To Person located in taxable territory (other than non-taxable online Recipient)

Taxable at Respective Tax Rate

Services by the person located in non taxable territory