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Goods and Service Tax Act introduced a new provision -Section 9(4) of CGST Act, wherein an unregistered person supplies certain specified taxable goods or services or both to certain specified recipients who are registered under GST, then such recipients must pay tax on such procurements on reverse charge basis.

In this case referring the Notification No 07/2019- Central Tax (Rate) dated 29th March 2019, a registered promoter/ developer will be regarded as a specified recipient for the purpose of section 9(4) and hence is liable to pay tax on reverse charge basis on the goods or services procured from an unregistered supplier. This Provision has been made effective from 01st April 2019. The promoter/ Developer shall pay tax on reverse charge on inputs and input services used in construction of the project if the procurement from registered suppliers falls short of 80% of the total purchases. Hence, minimum 80% of the value of input and input services, used in supplying the outward service shall be received from registered person only.

Clarification of how to compute shortfall- (Notification No 03/2019- Central tax (Rate)

  • While computing the total value of inputs and input services– following are to be excluded.
  • Supply received by way of grant of development rights, long term lease of land (against upfront payment in the form of premium, salami, development charges etc.) or FSI (including additional FSI),
  • Electricity, high speed diesel, motor spirit, natural gas,
  • Inputs and Input services on which Tax is already paid under Reverse charge u/s 9(3) of CGST Act will be deemed to be procured from registered person and will be included under 80% of the value of procurement made from registered person.
  • Inward supplies of exempted goods/services shall be included in the value of supplies from unregistered persons while calculating threshold of 80% - FAQ (Part II- issued by CBIC vide Circular F No. 354/32/2019-Tax Research Unit dated 14-5-2019)
  • GST Rate: The GST rate liable will be 18% even if the actual rate of GST in case of some of inputs or input services is lower than 18% – (Sr No. 452Q of Schedule III of Notification No. 08/2019-CT (R) dated 28-6-2017 as inserted w.e.f. 1-4-2019.)
  • Expenditure such as salaries, wages etc should not be considered in calculating the 80% threshold of input and input services because these are not supplies under GST Schedule III. [FAQ(II)-Real estate-sector-1405]
  • In cases where the procurements from registered person to the extent it falls short of 80% of total amount, the computation is to be done at the end of the financial year and liability, if any, to be added to his output tax liability in the month not later than the month of June following the end of the financial year. Tax rate will be 18%.
Reverse Charge Provisions for Builders

Illustration I

A promoter has procured following goods and services for construction of a residential real estate project during a financial year.

Sr No

Name of Input goods and services

% Of input goods and services received during the year

If Inputs received from registered supplier?

1

Tiles

10

Yes

2

Painting

20

No

3

Wooden bars

20

Yes

4

Sand and Bricks

10

Yes

5

Engineer services

30

Yes

6

Other material

10

Yes

In this case, the developer has purchased 80% of the inputs from registered dealers hence they are not liable to pay tax under RCM.

Illustration 2

Sr No

Name of Input goods and services

% Of input goods and services received during the year

If Inputs received from registered supplier?

1

Tiles

10

Yes

2

Painting

30

No

3

Wooden bars

20

Yes

4

Sand and Bricks

10

Yes

5

Engineer services

30

Yes

6

Other material

10

Yes

In this case, the developer has purchased 70% of the inputs from registered person. Hence, there is shortfall of 10% (80-70), so the developer is liable to pay tax on reverse charge on 10% of the total purchases at the rate of 18%.

Timing of payment and Tax Rate

As per Notification No.11/2017 as amended by Notification No 03/2019- Central Tax (rate) dated 29th March 2019 -

  • Tax on cement received from unregistered person shall be paid in the month in which cement is received. Tax rate will be 28%.
  • It is necessary to maintain project wise account of inward supplies from registered and unregistered supplier and calculate tax payments on the shortfall at the end of the financial year and details thereof are required to be submitted the prescribed form electronically on the common portal by end of the quarter following the financial year.
  • Input Tax Credit not availed shall be reported every month by reporting the same as ineligible credit in GSTR-3B [Row No. 4 (D)(2)].
  • Although ITC may not be available, it is mandatory to account for such ITC on inward supplies in the books of accounts and report the same in GSTR-3B every month. This will also enable the assessee to identify supplies received from registered persons.
 

References to Notifications

  • Notification No 03/2019 Central Tax Rate dated 29th March 2019.
  • Notification No 07/2019 Central Tax Rate dated 29th March 2019.
  • Notification No 24/2019 Central Tax Rate dated 30th September 2019.

Disclaimer: Nothing contained in this article is to be construed as a legal opinion and is to be used strictly for educative purposes only.

 

The author is a practicing CA in Mumbai. she is more into IDT advisory and Litigation.

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