RCM on commission charged on global sales by E-Marketplaces

In the instance of a conventional taxable supply, the supplier issues a tax invoice to the receiver, gets the money from the recipient including GST, and then discharges his GST responsibility to the government. It is known as a ‘forward Charge.’ In the case of ‘reverse charge,’ the supplier does not charge GST on the invoice and gets the payment from the receiver without GST. Furthermore, in the case of notified categories of supply, the recipient of such goods or services bears the tax burden rather than the supplier of such goods or services.

Reverse charge is a method that requires the recipient of goods or services to pay Goods and Services Tax (GST) rather than the provider.

Meaning of Reverse Charge Mechanism

Typically, the tax on supply is paid by the supplier of products or services. The reverse charge mechanism makes the recipient of goods or services obliged to pay the tax, reversing the chargeability.

The goal of transferring the cost of GST payments to the receiver is to broaden the scope of taxation on different unorganized industries, exempt particular groups of suppliers, and tax service imports (since the supplier is based outside India). The Reverse Charge Mechanism applies only to specific types of commercial enterprises.

Applicability of Reverse Charge Mechanism

The reverse charge possibilities for intrastate transactions are governed by Sections 9(3), 9(4), and 9(5) of the Central GST and State GST Acts. In addition, reverse charge possibilities for interstate transactions are governed under sections 5(3), 5(4), and 5(5) of the Integrated GST Act. Let’s get into more information about these scenarios:

• Supply of certain products and services as determined by the CBIC: The CBIC has produced a list of products and services that are subject to reverse charge under the authority granted by section 9(3) of the CGST Act, 2017.

• Supply to a certified dealer from an unauthorized dealer: According to Section 9(4) of the CGST Act, 2017 if a seller who is not registered for GST delivers products to a person who is registered for GST, reverse charge will apply. This means that the recipient will have to pay the GST instead of the provider. The registered buyer who is required to pay GST under reverse charge must self-invoice for transactions made.In the real estate business, the government mandated that promoters purchase 80 percent of their inward supplies from registered suppliers. If purchases from registered dealers fall short by 80%, the promoter must pay GST at 18% on the reverse charge to the amount that inbound supply falls short by 80%. If the promoter buys cement from an unlicensed source, he must pay a 28 percent tax. This computation must be performed regardless of the 80 percent calculation.The promoter must pay reverse charge GST on TDR or floor space index (FSI) issued on or after April 1, 2019. Even though a landowner is not engaged in a regular business of land-related operations, the transfer of development rights by such an individual to the promoter is taxable as a provision of service under Section 7 of the CGST Act, 2017. In addition, when one developer sells TDR to another, GST is levied at 18 percent on the reverse charge.

• Service provision via an e-commerce operator: E-commerce operators can be used as an aggregator by any form of business to sell items or deliver services. According to Section 9(5) of the CGST Act, 2017 if a service provider utilizes an e-commerce operator to deliver specified services, the reverse charge applies to the e-commerce operator, and he must pay GST. This section includes services such as:
  • Passengers are transported by radio-taxi, motor cab, maxi cab, and motorbike. For example, Ola and Uber.
  • Providing accommodation services in hotels, inns, guest houses, clubs, campgrounds, or other commercial places intended for residential or lodging purposes, unless the person supplying such service through an electronic commerce operator is required to register due to a turnover threshold exceeding the limit. For instance, Oyo and MakeMyTrip.
  • Housekeeping services, such as plumbing and carpentry, unless the person providing such services through electronic commerce operators is required to register owing to turnover above the threshold level. For example, Urban Company employs plumbers, electricians, instructors, beauticians, and other professionals.

  Furthermore, imagine the e-commerce operator has no physical presence in the taxable territory. In that situation, a person representing such an electronic commerce operator must pay tax for whatever reason. If there is no representative, the operator will choose one who will be responsible for GST.

RCM Registration Requirements

Section 24 of the CGST Act, 2017 specifies that anybody who is required to pay GST using the reverse charge method must register for GST. They will not be subject to the Rs.20 lakh or Rs.40 lakh threshold restrictions, as applicable.

Who Is Required to Pay GST Under RCM?

Under RCM, the recipient of goods/services must pay GST. However, under GST rules, the person supplying the goods must indicate on the tax invoice whether tax is payable under RCM.

Points to Ponder

When processing GST payments under RCM, keep the following considerations in mind:

• The Input Tax Credit on the tax amount paid under RCM can be claimed by the recipient of goods or services only if such goods or services are utilized for business or furthering of business.
• When discharging duty under RCM, a composition dealer shall pay tax at the regular rates, not the composition rates. They are also ineligible to claim any input tax credit for taxes paid.
• The GST compensation cess can be applied to the RCM tax due or paid.

RCM on commission charged on global sales by E-Marketplaces

Global e-marketplace deducts commission and other fees from export transactions made by Indian sellers using their platform. E-marketplaces, in general, do not have a permanent establishment in India and are thus classified as being in a ‘non-taxable region’ under the requirements of the CGST/IGST Act.

Is it true that commissions and other charges are subject to RCM under the GST Act? 

Because a unified solution is not viable in the case of the whole E-marketplace. In the instance of Amazon USA, we attempted to present facts and situations.

Opinion of Experts

Amazon USA is a facilitator who does not offer goods and services on his behalf; hence it qualifies as an intermediary under Section 2(13) of the IGST Act, 2017.

According to Section 13 of the IGST Act, 2017, the place of supply for Intermediary Services is the ‘Location of Supplier,’ which is the United States of America.

Import of Service is defined in Section 2(11) of the IGST Act, 2017 as follows:

“Services import” refers to the provision of any service, where—

In our particular example, the place of supply is the United States, which is outside of India (non-taxable area); hence the aforementioned transaction does not qualify as an import of service.

Section 2(109) defines “taxable territory” as the territory to which the Act applies. Section 1(2) goes on to explain that the Act extends to the whole country of India. Thus, in our opinion, the “Supply” with a Place of Supply outside India and a Service Provider outside India is beyond the scope of the CGST Act, 2017 and thus outside the Scope of Supply as stated in Section 7 of the CGST Act, 2017.

As a result, in our opinion, the CGST Act does not enable the government to charge GST on services with a place of supply outside India and a service provider situated in a non-taxable area under RCM, and we find that the present transaction is not subject to the Reverse Charge Mechanism.

However, there is a second point of view on depositing GST, which is supported by some on the basis of RCM Entry No. 1 of Notification No. 10/2017-IGST(R), which is reprinted below:

However, we believe that a literal reading of the aforementioned article should not be adopted because notifications cannot supersede legislation established by Parliament.

Conclusion 

In our perspective, law should take precedence over notification, although this may become a point of contention in the future. We may not receive relief/benefit from lower tax authorities unless legal precedents support our position. Because Input Tax Credit may be obtained by paying RCM GST, one may deposit the tax prudently or be prepared to litigate.

File your GST Registration through Legal Window. Connect to our Expert if you want to understand more about RCM.