RCM Liability on Director for services used by company

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A construction company used company funds and GST registration under the director's name for royalty payments on leased property. The GST department has issued a notice to the director for Reverse Charge Mechanism (RCM) on these royalties, despite the company already paying RCM and accounting for the expense. This situation is complex as royalty is sometimes viewed as a service, but case law also treats it as a tax, making the RCM applicability an unsettled matter.

CA Shubam Goyal

CA Shubam Goyal (Querist)

24 February 2023 Dear sir
A construction company has taken lease license in the name of director and taken GST registration in the name of director. The payment of Royalty has been done by the company and company has used the material in his construction work. Now department issue notice to Director for RCM on Royalty.
Whether there is any such case law of this type and how to deal with this notice?

CA Altamush Zafar

CA Altamush Zafar (Expert)

24 February 2023 All services by director to company in the capacity of director is covered under RCM

CA Shubam Goyal

CA Shubam Goyal (Querist)

25 February 2023 Notice is served to director by GST Department for RCM on Royalty since the lease license was in the name of Director. The company has already paid the RCM on such royalty and booked the expenditure of royalty in its books. The director has not done anything in his books regarding this transaction.

CA Altamush Zafar

CA Altamush Zafar (Expert)

27 February 2023 Currently the department is looking at royalty to government as services provided by government and getting covered under RCM. However there are various case laws where royalty is treated as tax and not consideration for services. Its an unsettled topic. Study various case laws and decide the course of action. Take a certified professional opinion if required

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