Status of Reverse Charge Mechanism 2019

Reverse charge mechanism law with respect to goods or services or both received from an unregistered person by a registered person was never simple since the time it were introduced. The basic provision of reverse charge mechanism with respect to goods or services or both received from an unregistered person by a registered person is contained under section 9 (4) of the Central Goods and Service Tax Act, 2017. Recently the Government has changed the reverse charge mechanism applicability vide notification no. 02/2019 – Central Tax dated 29th January 2019. In this post, we look at the applicability of GST reverse charge mechanism in the year 2019.

GST Reverse Charge

Reverse charge Provisions Till 31St January 2019

Section 9 (4) of the Central Goods and Service Tax Act, 2017 requires the central tax to be paid by the registered person, on a reverse charge basis, in as much as they have received taxable goods or service or both from an unregistered person.

That means, as per the basic provision, the tax would be payable by the registered person on reverse charge basis without any consideration to the quantum or value of the transaction. On every single rupee transaction of taxable goods or services or both received by the registered person from the unregistered person reverse charge was applicable.

The above said provisions obviously have a very wide impact and would hinder the business of the unregistered person to a large extent. Seeing the complexity of the same, the Central Board of Indirect Taxes and Customs, vide notification no. 8/2017 – Central Tax (Rate) dated 28th June 2017 exempted transactions up to an amount of aggregate value of INR 5,000 per day.

But still considering complexity of reverse charge and hindrances faced by tax payers,  another notification no. 38/2017 – Central Tax (Rate) dated 13th October 2017, was issued and entire central tax payable by the registered person, on a reverse charge basis, on receipt of taxable goods or services or both from the unregistered person was exempted till 31st March 2018.

The said deadline of exemption till 31st March 2018 was extended various times and vide last notification no. 22/2018 – Central Tax (Rate) dated 6th August 2018 the exemption date was extended till 30th September 2019.

Applicable Provisions Effective from 1St February 2019

Recently, through notification no. 02/2019 – Central Tax dated 29th January 2019, the Central Goods and Service Tax (Amendment) Act, 2018 was made effective from 1st February 2019.

With the introduction of the Central Goods and Service Tax (Amendment) Act, 2018, the entire provisions of section 9 (4) was substituted. The provisions of the substituted section 9 (4) are being narrated hereunder –

• As per the new provisions, instead of coverage of all the registered person, now, the Government shall specify the class of the registered person who shall be liable to pay tax under reverse charge basis;
• As per the new provisions, instead of coverage of all the taxable supply of goods or services or both, the Government shall specify categories of goods or services or both on which reverse charge provisions are applicable when such goods or services or both is received from the unregistered person.

Conclusion of the New Provisions

With the introduction of the new provisions, the scope of section 9 (4) of the CGST Act, 2017 has been restricted. From now, only on the specified categories of a taxable supply of goods or services or both from the unregistered person by only the specified category of a registered person shall be liable to pay the tax on a reverse charge basis.

After the introduction of the new provisions of section 9(4) till now, the Government has neither specified the class of registered person to whom to provisions are applicable nor has provided the specified categories of a taxable supply of goods or services or both.

What is Advance Tax

Advance tax means income tax should be paid in advance instead of lump sum payment at the end of the year end. It is also known as ‘pay as you earn tax’. You need to pay them in installments as per due dates provided by the income tax department.

If your total tax liability is Rs 10,000 or more in a financial year, you have to pay advance tax. Advance tax applies to all taxpayers, salaried, freelancers, and businesses. Senior citizens, who are 60 years or older but do not run a business, are exempt from paying advance tax.

The taxpayers who have opted for presumptive taxation scheme have to pay the whole amount of their advance tax in one instalment on or before 15 March. They also have an option to pay all of their tax dues by 31 March. 

Due Dates for payment of Advance Tax

FY 2021 - 2022 ( AY  2022 - 2023 )

Due Date	Advance Tax Payable
On or before 15th June	15% of advance tax less advance tax already paid
On or before 15th September	45% of advance tax less advance tax already paid
On or before 15th December	75% of advance tax less advance tax already paid
On or before 15th March	100% of advance tax less advance tax already paid

Non payment of advance tax will result in levy of interest under 234B and 234C of the Income tax Act, 1961.

Now Recover Your Bad Debts with Ease: IBC a boon to Industry.

If we take a look at current business scenario in India, more than 90% of the payments are made with delay. Few of the scenarios are as under:

• Debtor do not pay 
• Debtor pays after tremendous follow up that too after delay
• Advance loan given to any organization are not being repaid
• The builder does not give possession of the flat
• The builder is not refunding the money

Due to lack of any result oriented laws, the legal battles for such issues like recovery suit, arbitration etc takes a long period to get resolved. Further, even after an order from the court, execution becomes another nightmare.

However, Insolvency and Bankruptcy code, 2016 (IBC) has brought a mechanism where either the default is made good otherwise such company shall be put to insolvency process-

What is Insolvency and Bankrupcy Code ?

The Insolvency and Bankruptcy code, 2016 (IBC) is the new act which came into the picture on 28th May 2016 with an objective to protect the interests of all the stakeholders, creditors or persons who have to recover some dues from the corporate persons.

With this objective, the National Company Law Tribunal (NCLT) is entrusted to decide the applications filed against the companies, under IBC. Both the types of creditors (financial and operational) can approach NCLT to recover their dues at earliest possible.

Earlier recovery mechanisms

Before enactment of IBC, there were other recovery mechanism or acts which were prevailing in the country to help the individuals or creditors to recover their stuck money. But those methods were not effective enough to provide quick and effective relief to the creditors, therefore many creditors used to avoid such mechanisms or filing any case under other enactments.
The central government has come up with a recovery mechanism which is timely in nature and provides efficient redressal to the aggrieved by enacting IBC.

Process under IBC

Now under IBC, the creditors have been provided with a recovery mechanism which is quicker and more efficient than the conventional methods which existed initially.

If any company is not making the payment as per agreed terms, then an insolvency petition may be filed u/s 7 or 9 based upon the facts, before NCLT to initiate the insolvency proceedings. Most of the company settle their issues on notice. If the default is proved then insolvency proceeding is started against such company.

Under IBC, the whole procedure adopted under IBC has to be completed within 180 days or 270 days including the extension period of 90 days, provided the extension is reasonably justified.

Secondly, the IBC is creditor-oriented and not promoter oriented, thus making the IBC a better recovery weapon from the defaulting companies.

Recovery through IBC till now

As per Govt resources, IBC has helped the creditors to fasten the recovery of around 3 Lakh crores since its inception in 2016. Out of whole 3 lakh crore, recovery of Rs. 71,000 crore relates to the resolution of 60 odd cases and Rs. 1,20,000 crore has been recovered from the IBC warning only, via settlement arriving at the initial stage. Moreover Rs. 45,000 crore – Rs. 50, 0000 has been recovered through repayments made by borrowers to convert NPAs into standard accounts.

Promoting the recovery of such a huge amount within 2 years is a significant  and the same is expected to increase dramatically in the coming future.

Conclusion

In the light of above data and the objective of IBC, it’s advisable to all the creditors or stakeholders of the company to recognize their rights under IBC and proceed to recover their money which is stuck or not being repaid. Also, approach NCLT as earliest as possible to bring a quicker resolution for the defaulting companies.

Kindly contact on anandmutha@armutha.in to know more.  

Composition scheme for supplier of services with a tax rate of 6% : A big relief to Sevice Providers

The Central Government vide Notification No. 2/2019-Central Tax (Rate) dated 07^thMarch, 2019 notified Composition scheme in case of intra-State supply of goods or services or both, at the rate along with the conditions specified below:

Description of supply	Rate (per cent)	Conditions
First supplies of goods or services or both up to an aggregate turnover of Rs. 50 lakhs made on or after the 1st day of April in any financial year, by a registered person.	3	1. Supplies are made by a registered person, - (i) whose aggregate turnover in the preceding financial year was Rs. 50 lakh or below; (ii) who is not eligible to pay tax under sub-section (1) of section 10; (iii) who is not engaged in making any supply which is not leviable to tax; (iv) who is not engaged in making any inter-State outward supply; (v) who is neither a casual taxable person nor a non-resident taxable person; (vi) who is not engaged in making any supply through an electronic commerce operator who is required to collect tax at source under section 52; and (vii) who is not engaged in making supplies of: Ice cream and other edible ice, whether or not containing cocoa. Pan masala Tobacco and manufactured tobacco substitutes 2. Where more than one registered persons are having same PAN, central tax on supplies by all such registered persons is paid at the given rate. 3. The registered person shall not collect any taxfrom the recipient nor shall he be entitled to any credit of input tax. 4. The registered person shall issue, instead of tax invoice, a bill of supply. 5. The registered person shall mention the following words at the top of the bill of supply, namely: - ‘Taxable person paying tax in terms of Notification No. 2/2019-Central Tax (Rate) dated 07.03.2019, not eligible to collect tax on supplies’. 6. Liability to pay central tax at the rate of 3% on all outward supplies notwithstanding any other notification issued under section 9 or section 11 of said Act. 7. Liability to pay central tax on inward supplies on reverse charge under sub-section (3) or sub-section (4) of section 9 of said Act. Explanation: For the purposes of this notification, the expression “first supplies of goods or services or both” shall, for the purposes of determining eligibility of a person to pay tax under this notification, include the supplies from the first day of April of a financial year to the date from which he becomes liable for registration under the said Act but for the purpose of determination of tax payable under this notification shall not include the supplies from the first day of April of a financial year to the date from which he becomes liable for registration under the Act.

It may be noted that while computing aggregate turnover in order to determine eligibility of a registered person to pay central tax at the rate of 3%, value of supply of exempt services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount, shall not be taken into account.

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GST Input Tax Credit Setting off Rules changed from 1st February 2019

The government has amended CGST Act 2017 vide CGST Amendment Act 2018 with various changes w.e.f and one of the important amendment was made in Section 49 of CGST Act by introducing new section 49A after the section 49, which is as under:


"Notwithstanding anything contained in section 49, the input tax credit on account of central tax, State tax or Union territory tax shall be utilized towards payment of integrated tax, central tax, State tax or Union territory tax, as the case may be, only after the input tax credit available on account of integrated tax has first been utilized fully towards such payment"
Impact of amendment Government has changed the order of setoff by introducing section 49A w.e.f 1st February 2019 and now IGST Credit should be set off fully before taking setting of CGST or SGST Credit. This has been Explained with a small Example

This has been Explained with a small Example 

Major relief to MSME including Small Traders announced in 32nd GST Council meeting held on 10th January 2019

Major relief to MSME including Small Traders were announced in 32nd GST Council meeting held today on 10th January 2019.

1.   Increase in Turnover Limit for the existing Composition Scheme:
The limit of Annual Turnover in the preceding Financial Year for availing Composition Scheme for Goods shall be increased to Rs 1.5 crore. Special category States would decide, within one week, about the Composition Limit in their respective States.
1.1    Compliance Simplification:
The compliance under Composition Scheme shall be simplified as now they would need to file one Annual Return but Payment of Taxes would remain Quarterly (along with a simple declaration).
2.    Higher Exemption Threshold Limit for Supplier of Goods:
There would be two Threshold Limits for exemption from Registration and Payment of GST for the suppliers of Goods i.e. Rs 40 lakhs and Rs 20 lakhs. States would have an option to decide about one of the limits within a weeks’ time. The Threshold for Registration for Service Providers would continue to be Rs 20 lakhs and in case of Special Category States at Rs 10 lakhs.
3.   Composition   Scheme for Services: 
A Composition Scheme shall be made available for Suppliers of Services (or Mixed Suppliers) with a Tax Rate of 6% (3% CGST +3% SGST) having an Annual Turnover in the preceding Financial Year up to Rs 50 lakhs.
3.1  The said Scheme Shall be applicable to both Service Providers as well as Suppliers of Goods and Services, who are not eligible for the presently available Composition Scheme for Goods.
3.2  They would be liable to file one Annual Return with Quarterly Payment of Taxes (along with a Simple Declaration).
4.     Effective date:
The decisions at Sl. No. 1 to 3 above shall be made operational from the 1^st of April, 2019.
5.    Free Accounting and Billing Software shall be provided to Small Taxpayers by GSTN.
 6.   Matters referred to Group of Ministers:
        i.   A seven Member Group of Ministers shall be constituted to examine the proposal of giving a Composition Scheme to Boost the Residential Segment of the Real Estate Sector.
      ii.    A Group of Ministers shall be constituted to examine the GST Rate Structure on Lotteries.
7.  Revenue Mobilization for Natural Calamities: 
GST Council approved Levy of Cess on Intra-State Supply of Goods and Services within the State of Kerala at a rate not exceeding 1% for a period not exceeding 2 years.

CA Anand Mutha

Recommendations made during 31 Meeting of the GST Council

The GST Council in its 31 meeting held today at New Delhi made the following policy recommendations: 

1. There would be a single cash ledger for each tax head. The modalities for implementation would be finalized in consultation with GSTN and the Accounting authorities.

2. A scheme of single authority for disbursement of the refund amount sanctioned by either the Centre or the State tax authorities would be implemented on pilot basis. The modalities for the same shall be finalized shortly.

3. The new return filing system shall be introduced on a trial basis from 01.04.2019 and on mandatory basis from 01.07.2019.

4. The due date for furnishing the annual returns in FORM GSTR-9, FORM GSTR-9A and reconciliation statement in FORM GSTR-9C for the Financial Year 2017 – 2018 shall be further extended till 30.06.2019.

5. The following clarificatory changes, inter-alia, shall be carried out in the formats/instructions according to which the annual return / reconciliation statement is to be submitted by the taxpayers:

i. Amendment of headings in the forms to specify that the return in FORM GSTR-9 &FORM GSTR-9A would be in respect of supplies etc. ‘made during the year’ and not ‘as declared in returns filed during the year’;
ii. All returns in FORM GSTR-1&FORM GSTR-3B have to be filed before filing of FORM GSTR-9&FORM GSTR-9C;
iii. All returns in FORM GSTR-4 have to be filed before filing of FORM GSTR-9A;
iv. HSN code may be declared only for those inward supplies whose value independently accounts for 10% or more of the total value of inward supplies;
v. Additional payments, if any, required to be paid can be done through FORM GST DRC-03 only in cash;
vi. ITC cannot be availed through FORM GSTR-9 &FORM GSTR-9C;
vii. All invoices pertaining to previous FY (irrespective of month in which such invoice is reported in FORM GSTR-1) would be auto-populated in Table 8A of FORM GSTR-9;
viii. Value of “non-GST supply” shall also include the value of “no supply” and may be reported in Table 5D, 5E and 5F of FORM GSTR-9;
x. Verification by taxpayer who is uploading reconciliation statement would be included in FORM GSTR-9C.

6. The due date for furnishing FORM GSTR-8 by e-commerce operators for the months of October, November and December, 2018 shall be extended till 31.01.2019.

7. The due date for submitting FORM GST ITC-04 for the period July 2017 to December 2018 shall be extended till 31.03.2019.

8. ITC in relation to invoices issued by the supplier during FY 2017-18 may be availed by the recipient till the due date for furnishing of FORM GSTR-3B for the month of March, 2019, subject to specified conditions.

9. All the supporting documents/invoices in relation to a claim for refund in FORM GST RFD01A shall be uploaded electronically on the common portal at the time of filing of the refund application itself, thereby obviating the need for a taxpayer to physically visit a tax office for submission of a refund application. GSTN will enable this functionality on the common portal shortly.

10. The following types of refunds shall also be made available through FORM GST RFD-01A: i. Refund on account of Assessment/Provisional Assessment/Appeal/Any Other Order; ii. Tax paid on an intra-State supply which is subsequently held to be inter-State supply and vice-versa; iii. Excess payment of Tax; and iv. Any other refund.

11. In case of applications for refund in FORM GST RFD-01A(except those relating to refund of excess balance in the cash ledger)which are generated on the common portal before the roll out of the functionality described in point (10) above, and which have not been submitted in the jurisdictional tax office within 60 days of the generation of ARN, the claimants shall be sent communications on their registered email ids containing information on where to submit the said refund applications. If the applications are not submitted within 15 days of the date of the email, the said refund applications shall be summarily rejected, and the debited amount, if any, shall be re-credited to the electronic credit ledger of the claimant.

12. One more window for completion of migration process is being allowed. The due date for the taxpayers who did not file the complete FORM GST REG-26 but received only a Provisional ID (PID) till 31.12.2017 for furnishing the requisite details to the jurisdictional nodal officer shall be extended till 31.01.2019. Also, the due date for furnishing FORM GSTR-3B and FORM GSTR-1 for the period July, 2017 to February, 2019/quarters July, 2017 to December, 2018 by such taxpayers shall be extended till 31.03.2019.

13. Late fee shall be completely waived for all taxpayers in case FORM GSTR-1, FORM GSTR3B &FORM GSTR-4 for the months / quarters July, 2017 to September, 2018, are furnished after 22.12.2018 but on or before 31.03.2019.

14. Taxpayers who have not filed the returns for two consecutive tax periods shall be restricted from generating e-way bills. This provision shall be made effective once GSTN/NIC make available the required functionality.

15. Clarifications shall be issued on certain refund related matters like refund of ITC accumulated on account of inverted duty structure, disbursal of refunds within the stipulated time, time allowed for availment of ITC on invoices, refund of accumulated ITC of compensation cess etc.

16. Changes made by CGST (Amendment) Act, 2018, IGST (Amendment) Act, 2018, UTGST (Amendment) Act, 2018 and GST (Compensation to States) Amendment Act, 2018 and the corresponding changes in SGST Acts would be notified w.e.f. 01.02.2019.

 The requisite Notifications/Circulars for implementing the above recommendations of the GST Council shall be issued shortly.