Page 49 - Banking Finance December 2020

FEATURES

Reverse charge system in GST, a

grey area

T he reconciliation of the tax liability as per the required to be paid under RCM by the recipient. It was held

that demand of tax again on the same service is not
books of account vis-àvis the GST returns is a
sustainable. A similar view was taken in CCE v. Om Tea
tedious exercise for filing of annual return and
Company (2012) 36 STT 91 (CESTAT) and Umasons Auto
GST audit.
Compo Pvt. Ltd. v. CCE 2017 (47) S.T.R. 377 (Tri. - Mumbai).
While undertaking the exercise of reconciliation, in some
cases the taxpayers may identify instances where the Similarly, in Sanjivani SSK Ltd. v. CCE [(2009) 241 ELT 431
supplier has discharged tax under forward charge, though (CESTAT)], excise duty on molasses was paid by the
the tax was required to be paid by the recipient under manufacturer (though it was payable by procurer). It was
reverse charge. The nuances in this regard need to be held that the duty cannot be demanded from the procurer
understood. as it would lead to double taxation on the same goods.

The reverse charge mechanism (RCM) on supply of service was Applying the ratio of the above decisions, a view may be
first introduced with effect from January 1, 2005, under taken that where the tax is already paid by the supplier,
Finance Act 1994. Initially, a few services were brought under though the same was required to be paid by the recipient,
the ambit of RCM. Later, vide Notification No. 30/2012-S.T. there cannot be a demand of tax on the recipient.
of June 20, 2012, a number of services were added. Continuing with the example discussed, in case the sponsor
supplies services to a body corporate and discharges tax on
The above was also continued under the GST laws and
services where tax is payable under RCM, which was notified forward charge basis, then a question may arise whether
vide Notification No. 13/2017-Central Tax (Rate) of June 28, the recipient will be entitled to take ITC (input tax credit)
2017, as amended from time to time (for brevity of taxes paid by the said supplier.
"RCM Notification"). Will the tax paid by service provider In terms of Section 16(1) of the CGST Act, every registered
under forward charge absolve the recipient from payment person shall, subject to such conditions and restrictions as
of tax? Let us take the example of Entry No. 4 to the RCM prescribed, be entitled to take credit of input tax charged
on any supply of goods or services or both to him which are
Notification. In the said entry, if services are provided by way
of sponsorship to any body corporate or partnership firm, used or intended to be used in the course or furtherance of
his business.
then the corporate or partnership firm located in the taxable
territory is liable to pay tax under RCM on the said services. The condition prescribed under Section 16(1) is that the
recipient is entitled to take ITC of tax charged on any supply
Reverse charge mechanism
A perusal of the above entry will lead to the conclusion that The provision does not contemplate any scenario where ITC
the recipient of service will be liable to pay tax under RCM can be availed of only if tax was liable to paid on such
where the services are supplied by way of sponsorship to a supplies by the supplier or recipient. Therefore, a view can
be taken that the recipient would be entitled to take credit
company. The recipient company may not be absolved from of tax charged on the supplies. In this regard, reference can
payment of GST even in case the sponsor has discharged GST
by virtue of Entry No. 4 to the RCM Notification. be to the decision of CESTAT, Mumbai, in the Sanjivani SSK
Ltd case wherein it was held that the procurer can get
It may however be noted that in the case of Lilason Cenvat credit of duty paid by manufacturer on molasses, as
Breweries v. CCE [(2010) 24 STT 279 (CESTAT SMB)], service what matters is whether duty was paid on the inputs and
tax was paid by transporters themselves though the tax was not whether duty was payable thereon. (Source: BL)

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