A partnership firm is having contract of supply of labour to ONGC and other big employers. He is charging them on the basis of labour supplied say 10 person @ ₹ 1,000/- per day. On the reverse side he is getting similar labour from various contractors say 10 person @ ₹ 800/- per person per day. The turnover during the year comes to more than ₹ 50 lakh.
Kindly advise whether GST (Service Tax) is payable by our contractor and at what rate. I presume on the inward labour he has to create liability and claim, input credit when he raise Bill to ONGC?
Yes. The GST Act covers both, Supply of Goods and Services. Therefore, providing labour to ONGC is also supply as per the GST Act and tax will be payable. Since the turnover is exceeding ₹ 20 lakh, contractor is liable for registration and discharge liability.
Since, contractor is also having inward supply of labour from unregistered person, he has to pay RCM under section 9(4) of the CGST Act and he can claim ITC of the same.
GST – Tax Free Goods
Mr. A sells tax free goods. His turnover is about ₹ 1 crore. Every time he pays lorry freight about ₹ 5,000/-.
Mr. A and lorry operator both are unregistered.
In the circumstances, as to whether is he liable to pay RCM. u/s. 9 ?
It appears that since A deals in exempted goods, he not liable to obtain the registration under GST. Section 9(4) of the CGST Act reads as under:
“(4) The Central Tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.”
It can be seen that if the supply from unregistered person is to registered person, then only RCM is required to be paid. Since that is not the position in present case, no RCM will apply.
GST – Adatiya Transaction
Mr. B is engaged in Kachhi Adat (Dalali) only. Whether is he liable to pay GST and obtain Registration Certificate? What is difference between Kachha adatiya and Pakka adatiya and liability on Pakka adatiya?
Even if receipt is from Kachhi Adat i.e. dalali (may be termed as brokerage), it will be towards supply of services. If the receipts are more than ₹ 20 lakh, registration and payment of GST will be required.
There is also query about Pakka Adatiya. Agents are known by various names. The relationship depends upon the particular terms and conditions. However, normally, Kachha adatiya brings the seller and buyer together and the actual sale/purchase transaction is done between the seller/buyer. Kachha adatiya will not be liable for GST on sale made by seller. He will only get commission which is his income and on which he will pay GST.
In market, Pakka adatiya is one who stores the goods of the principal and disposes of the same on behalf of principal. If these are the facts between principal and Pakka adatiya, then the dispatch of goods to Pakka adatiya will amount to supply as per entry (3) in Schedule I to the CGST Act. In such case, principal has to pay outward tax and pakka adatiya will take ITC and dispose of the goods by paying outward liability.
In such case, the Pakka adatiya will get commission from principal, which will be supply of services to the principal and for which Pakka adatiya has to discharge GST liability as supply of services.
Thus, even if B is engaged in Pakki Adat still there will be receipt from the supply of services and tax will be required to be discharged subject to turnover limit as discussed above.
GST – RCM
If the person from whom T.F. purchases are effected pays lorry freight on behalf of customers and charges lorry freight in his bill, then what will be the position of GST and particularly RCM ?
Freight will be part of transaction value of the supplier and there is no freight payment as such by the recipient. This is position is clear from section 15 of CGST Act. The relevant portion is reproduced below.
“15. (1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.
(2) The value of supply shall include –
(a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier;
(b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both;
(c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;”
Though in the query all terms and conditions are not available, since freight is incurred by supplier and claimed in the invoice, it is presumed that it is prior to giving delivery and hence part of transaction value.
Otherwise also it will fall in composite supply and therefore also no separate freight expenses for recipient and hence no RCM liability.
However, if the freight is considered to be paid on behalf of recipient then it will cease to be part of supplier transaction value. Still there will not be RCM liability on recipient as he is not paying freight directly to GTA. The liability of RCM in case of GTA is on the person who pays to GTA.