The Government Department is required to take registration as a normal taxpayer only if it makes a taxable supply of goods and/or services and in such cases, the registration shall be obtained on the basis of PAN but Bank account is not mandatory. However, if it is not making any taxable supply of goods and/or services, it is required to register only as a deductor of tax at source on the basis of TAN/PAN.
Note: Reference to CGST Act, 2017 includes reference to SGST Act, 2017 and UTGST Act, 2017 also.
Whether an amount in the form of royalty or any other form paid/payable to the Government for assigning the rights to use of natural resources is taxable?
The Government provides license to various
companies including Public Sector Undertakings for
exploration of natural resources like oil, hydrocarbons, iron
ore, manganese, etc. For having assigned the rights to use
the natural resources, the licensee companies are required
to pay consideration in the form of annual license fee, lease
charges, royalty, etc to the Government. The activity of
assignment of rights to use natural resources is treated as
supply of services and the licensee is required to pay tax on
the amount of consideration paid in the form of royalty or
any other form under reverse charge mechanism.
Whether the deductee can claim the input tax credit on the deduction of tax at source amount?
No. The tax deducted at source is not input tax credit. However, the amount deducted shall be credited to the electronic cash ledger (upon being accepted by the deductee in his Form GSTR-2A) of the deductee and can be utilized for payment of output tax.
What is the concept called ‘tax deduction at source’?
As per section 51 of the CGST Act, 2017, the Government may mandate
(a) a department or establishment of the Central Government or State Government; or
(b) local authority; or
(c) Governmental agencies; or
(d) such persons or category of persons as may be notified by the Government
on the recommendations of the Council,
to deduct tax at the rate of one per cent on account of CGST and one percent on account of SGST from the payment made or credited to the supplier where the total value of the supply under a contract exceeds two lakh and fifty thousand rupees (excluding tax payable under the GST Acts). The deductor shall remit the deducted amount to the Government and is also required to furnish a certificate to the deductee by mentioning the details of the amount deducted and payment of such deducted amount.
Illustration: ABC Ltd supplies the service valued at Rs.3,00,000/- excluding tax to Government department. The department while making the payment of Rs. 3,00,000/-should deduct Rs. 3000/- on account of CGST and Rs. 3000/ on account of SGST and make a net payment of Rs. 2,94, 000/- to ABC Ltd. Thereafter, the department shall pay the amount of Rs. 3,000/- to the Central Government and Rs. 3,000/- to the State Government and furnish a certificate to the deductee, containing the details of such deduction including the details
of such deductee.
Can the supplier of services claim the tax paid under reverse charger mechanism as input tax credit?
Yes. The supplier of services may claim the input tax credit on the amount of tax paid under reverse charge mechanism subject to the provisions of Chapter V of CGST Act, 2017 read with Chapter V of the CGST Rules, 2017.
Would services in relation to supply of motor vehicles to Government be taxable?
- Supply of a motor vehicle meant to carry more than twelve passengers by way of giving on hire to a state transport undertaking is exempted from tax.
- The exemption is applicable to services provided to state transport undertaking and not to other departments of Government or local authority. Generally, such State transport undertakings/corporations are established by law with a view to providing public transport facility to the commuters.
- In some cases, transport undertakings hire the buses on lease basis from private persons on payment of consideration.
- The services by way of supply of motor vehicles to such state transport undertaking are exempt from payment of tax. However, supplies of motor vehicles to Government Departments other than the state transport undertakings are taxable.
Bogus purchases of certain amount added to income and Tribunal having found that assessee’s GP for year was 7 per cent adopted GP rate of 8 per cent on purchase , Tribunal was justified [ Gujrat High Court in Jagdish H Patel]
- The assessee was engaged in the business of refining and selling edible oils.
- The Assessing Officer having found that during the year the assessee had made bogus purchases worth of Rs. 5.66 crores from five different agencies added the said amount to the income of the assessee. He further having found that during survey operation carried out on the assessee, the latter in his statement had disclosed a sum of Rs. 61.05 lakhs on account of bogus
- Held that Adding the entire amount of bogus purchases would give a completely distorted figure and the gross profit would be higher than the total turnover. Such bogus purchases were for off-setting the purchases from producers and agriculturists directly who would not have the billing facility purchases also added said amount to the income of the assessee.
- In the business of crushing the oil seeds, sometimes purchases of the agricultural raw material was made directly from producers and agriculturists from whom purchase bills were not available. The entire lot of purchases could not be treated as bogus.
What is the scope of ‘pure services’ mentioned in the exemption notification No. 12/2017-Central Tax (Rate), dated 28.06.2017?
In the context of the language used in the notification, supply of services without involving any supply of goods would be treated as supply of ‘pure services’.
For example, supply of man power for cleanliness of roads, public places, architect services, consulting engineer services, advisory services, and
like services provided by business entities not involving any
supply of goods would be treated as supply of pure services.
On the other hand, let us take the example of a governmental
authority awarding the work of maintenance of street lights
in a Municipal area to an agency which involves apart from
maintenance, replacement of defunct lights and other spares.
In this case, the scope of the service involves maintenance
work and supply of goods, which falls under the works contract
services. The exemption is provided to services involves only
supply of services and not for works contract services.
Whether reverse charge is applicable to services provided by Government or local authorities?
Yes, reverse charge is applicable in respect of services provided by Government or local authorities to any person whose turnover exceeds Rs.20 lakhs (Rs.10 lakhs for Special Category States) excluding the following services:
(i) renting of immovable property;
(ii) services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Government;
(iii) services in relation to an aircraft or a vessel, inside or outside the precincts of an airport or a port;
(iv) transport of goods or passengers.
Thus, the recipient of supply of goods or services is liable to pay the entire amount of tax involved in such supply of services or goods or both.
What is reverse charge in GST?
As per 2(98) of the CGST Act, 2017, ‘’reverse charge” means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or subsection
(4) of section 9 of the CGST Act, 2017, or under subsection (3) or subsection (4) of section 5 of the IGST Act, 2017.