Charge + Place of Supply | Goods & Service Tax | CA Inter Jan/May 25 | Revision & Practice Session

The session begins with a review of the 'Supply Under GST' chapter, focusing on key concepts and addressing any difficulties. Amendments related to warranty treatments were covered, and the schedule for daily classes was confirmed.

A quick recap of supply concepts is provided, including sales, barter, exchange, licenses, and activities under Schedule I and Schedule II. The introduction to the 'Charge of GST' chapter highlights Section 9 and Section 10, emphasizing its simplicity and ease compared to previous topics.

The concept of a 'charging section' in GST, specifically Section 9, is explained, outlining how GST is applied once a supply occurs. The two main types of supply – inter-state and intra-state – are differentiated, along with their respective tax rates (e.g., half-half for intra-state and full for inter-state).

Certain goods (petroleum crude, high-speed diesel, motor spirit, natural gas, aviation turbine fuel) are identified as exempt from GST. It's noted that tobacco products are subject to both GST and VAT. The maximum GST rate under the Central Goods and Services Tax (CGST) Act is stated as 40%, translating to 20% each for CGST and SGST in intra-state transactions.

The two primary methods of GST chargeability are introduced: Forward Charge Mechanism (FCM) and Reverse Charge Mechanism (RCM). FCM is the standard where the supplier collects tax from the recipient and remits it to the government, requiring supplier registration. RCM shifts the tax liability to the recipient, who directly pays the government, typically for specific goods and services.

A list of goods subject to RCM (e.g., cashew nuts, bidi wrapper leaves, tobacco leaves, lottery, silk yarn, used vehicles, raw cotton) is provided. It's clarified that while these exist, CA students are generally not required to memorize this list for exams, although this may differ for CMA students.

The first major service under RCM is Goods Transport Agency (GTA). If a GTA provides road transportation of goods to specified recipients (registered factories, societies, registered persons under GST, government entities, companies, partnership firms, AOPs) and charges a 5% GST rate, RCM applies. If the GTA charges 12% GST, FCM applies, and the GTA can claim Input Tax Credit (ITC). GTAs can opt for FCM even at 5% if they issue a declaration on their tax invoice.

RCM applies to legal services provided by advocates (including firms of advocates) to business entities. Similarly, services by an arbitral tribunal to a business entity are subject to RCM. The purpose of arbitral tribunals as an alternative dispute resolution mechanism is explained.

Most services provided by the Central Government, State Government, Union Territory, or Local Authority to a business entity are covered under RCM. However, four specific services are exempt from RCM and fall under FCM: renting of immovable property (unless to a registered person for business, then RCM applies), services related to aircraft/vessels at ports/airports, transportation of goods/passengers, and services by the Department of Post or Ministry of Railways.

RCM applies to the renting of a residential dwelling to a registered person. This provision was introduced to ensure that commercial activities conducted from residential properties by registered businesses are taxed under GST. Clarifications extend this to include services provided by Parliament, State Legislatures, and courts/tribunals.

Services by RBI's overseeing committee to RBI are under RCM. Services by a direct selling agent (excluding companies, partnership firms, or LLPs) to a banking company, financial institution, or NBFC are under RCM. Services by a business facilitator to a banking company are under RCM. Lastly, services by an agent to a business correspondent are under RCM.

Security services provided by way of supplying security personnel to a registered person are under RCM, with exceptions for government agencies registered only for TDS and persons under the composition scheme. The transfer of development rights or Floor Space Index (FSI) for project construction to a promoter, and long-term leases of land for development, are also under RCM.

Sponsorship services provided to any body corporate or partnership firm are under RCM. Renting of a motor vehicle (designed to carry passengers, where the cost of fuel is included in the consideration) by any person other than a body corporate to a body corporate is subject to RCM, provided a 5% GST rate is charged without ITC. If a 12% rate is chosen, FCM applies.

The lending of securities under SEBI's Securities Lending Scheme, 1997, is subject to RCM, where the borrower (recipient of service) is liable to pay GST to the government.

A series of practical questions from past exams and study materials are reviewed to solidify understanding of RCM. Cases covered include arbitral tribunal services, sponsorship services to individuals, government services (renting of immovable property), insurance agents, recovery agents, security services, and GTA services.

Section 9(4) discusses GST rates for new projects by promoters/builders. For affordable housing (specific area and value criteria), the GST rate is 1%. For other than affordable housing and commercial apartments, the rate is 5%. No ITC is allowed in either case. Builders must procure 80% of inputs and input services from registered persons. Cement and capital goods must be 100% from registered persons, with RCM applying if procured from unregistered persons.

Section 9(5) governs electronic commerce operators (ECOs). In certain specified services, the ECO (e.g., Amazon, Ola, Uber, Rappido) is solely responsible for collecting and remitting GST to the government, not the actual supplier. This aims to simplify compliance due to the typically small-scale nature of individual suppliers.

Specific services under Section 9(5) where the ECO pays GST include: transportation of passengers (radio taxi, motor cab, maxi cab, motorcycle, etc., excluding omnibuses from company suppliers), accommodation services (hotels, guest houses, clubs, etc., unless the supplier is GST registered), housekeeping services (plumbing, carpentry, unless the supplier is GST registered), and restaurant services (excluding those in premises where accommodation charges are ₹7500/day or more).

Clarifications regarding ECOs and restaurant services are discussed: ECOs are not required to collect TCS (Tax Collected at Source) under Section 52 for restaurant services on which they pay tax under Section 9(5). They also don't need separate registration for paying tax on these services. Importantly, even if the restaurant service supplier is unregistered, the ECO remains liable to pay tax. The revenue from sales through ECOs counts towards the restaurant's aggregate turnover, not the ECO's. Services provided via ECO are not considered 'inward supply' for the ECO concerning Section 9(4).

An in-depth example using services like Zomato/Swiggy and Haldiram's clarifies how ECOs manage output tax and Input Tax Credit (ITC). ECOs charge commission to restaurants (e.g., Haldiram's) and collect GST on this commission, which is their own output tax. They also collect GST from the final customer on behalf of the restaurant. The GST collected from the final customer is to be paid directly from the ECO's electronic cash ledger, without using ITC. However, the ECO can use its ITC (from its own inward supplies) to offset its output tax on commission from restaurants.

The general GST rates (0.125%, 0.5%, 2.5%, 6%, 9%, 14%) are discussed, with the understanding that SGST rates are equal to CGST rates, leading to total GST rates (e.g., 5%, 12%, 18%, 28%). The maximum CGST rate is 20%. If the applicable GST rate for a service is unknown, 18% is applied. If the nature of supply (inter-state or intra-state) is unclear, it is always treated as inter-state.

The Composition Levy (Section 10) is introduced as a simplified scheme for small taxpayers, aiming to reduce compliance burden. It allows payment of tax at concessional rates and simplified return filing (quarterly tax payments, annual return). Taxpayers under this scheme cannot collect tax from customers or issue tax invoices. They pay tax directly to the government on a concessional basis.

For goods suppliers, the aggregate turnover in the preceding financial year should not exceed ₹1.5 crore. For eight special category states (Arunachal Pradesh, Uttarakhand, Manipur, Mizoram, Meghalaya, Sikkim, Nagaland, Tripura), this limit is ₹75 lakh. Only goods suppliers are generally eligible for this scheme (Section 10(1) & 10(2)). The calculation of aggregate turnover includes all taxable, exempt, inter-state, intra-state, and export supplies across all GSTINs under the same PAN, but excludes GST taxes and RCM payments.

Certain persons are ineligible for the composition scheme: those making inter-state outward supplies, suppliers of non-taxable goods under GST, suppliers of services through an ECO (where the ECO is required to collect TCS), manufacturers of ice cream, tobacco products, aerated water, fly ash bricks, building bricks, and roofing tiles. Casual Taxable Persons (CTPs) and Non-Resident Taxable Persons (NRTPs) are also ineligible. An example of a CTP is provided using the Delhi Trade Fair scenario.

Goods suppliers providing marginal services can still opt for the composition scheme. 'Marginal services' are defined as services whose value does not exceed 10% of the aggregate turnover in the preceding financial year, or ₹5 lakh, whichever is higher.

Conditions for the composition scheme (goods suppliers): no ITC can be claimed, non-taxable goods cannot be supplied, and tax on RCM inward supplies must be paid at normal rates (not concessional). Tax rates: manufacturers pay 1% of total turnover (including exempt supplies), restaurant service providers pay 5% of turnover, and other eligible suppliers (traders) pay 1% of only their taxable turnover.

A numerical example demonstrates tax calculation for a trader under the composition scheme. Bhola Ram, a trader in Punjab and Rajasthan with aggregate turnover below ₹1.5 crore, sells both taxable and exempt goods. For traders, 1% of only taxable turnover is paid. The example illustrates how to break down sales by state and category (taxable/exempt) to compute the correct tax liability, distinguishing it from manufacturers (1% of total turnover).

Key rules for the composition scheme: all business segments under the same PAN must opt for (or opt out of) the scheme collectively; composition taxpayers must display 'Composition Taxable Person' on their signboards and issue 'Bill of Supply' instead of 'Tax Invoice'; they can procure goods inter-state but not make inter-state outward supplies. If aggregate turnover exceeds the limit (₹1.5 crore or ₹75 lakh), the taxpayer must apply online within 7 days and inform about inputs/capital goods within 30 days to claim ITC. The effective date of exiting the scheme cannot be earlier than the financial year's commencement.

To benefit small service providers, Section 10(2A) was introduced. Pure service providers (not restaurants) can opt for a simplified scheme if their aggregate turnover in the preceding financial year does not exceed ₹50 lakh. They pay tax at 6% (3% CGST + 3% SGST). Conditions (no ITC, normal tax on RCM, all business segments under scheme, etc.) are similar to those for goods suppliers. Application for this scheme must be made before the start of the financial year. New registrants can apply directly.

A case study of 'Wedding Bells,' a wedding photographer, illustrates the application of the composition scheme for service providers. The critical point is checking the preceding financial year's turnover for eligibility. If the business started in the current year, the preceding year's turnover is nil, qualifying for the scheme. The example demonstrates how the 50 lakh turnover limit affects eligibility during the current year, leading to an exit from the composition scheme and a shift to normal tax rates once the limit is crossed. It highlights that the registration limit (₹20 lakh) is considered for eligibility but not for calculating tax payable under the composition scheme.

The session transitions to the 'Place of Supply' chapter, emphasizing its importance in determining whether a transaction is inter-state or intra-state, and thus whether CGST/SGST or IGST applies. It's crucial to note that the relevant sections are from the IGST Act, not the CGST Act, to avoid quoting errors in exams. The focus is on transactions within India for CA students.

For goods, if movement is involved, the place of supply is the location where goods are delivered. If goods are delivered to a third person on a buyer's instruction ('bill-to-ship-to' model), the place of supply is the third person's business location. If no movement is involved (e.g., machinery sold while already installed), the place of supply is the goods' location at the time of delivery. A clarification addresses goods purchased over-the-counter and transported by the buyer to another state, where the delivery address on the invoice determines the place of supply (or supplier's location if address is unavailable).

When goods require installation or assembly, the place of supply is the location of such installation. For goods supplied on-board a conveyance (bus, train, aircraft), the place of supply is where the goods were taken on board the conveyance.

The general rule for services (Section 12 - IGST Act) states: if the recipient is registered, the place of supply is the recipient's location. If the recipient is unregistered, and their address is available on record, that address is the place of supply. If the unregistered recipient's address is not available, the place of supply is the supplier's location.

For services directly related to immovable property (e.g., architectural, interior design, lodging, marriage functions), the place of supply is the location of the immovable property. If the property is in multiple states, the supply is deemed proporationate to the value in each state, determined by contract or, if absent, by nights stayed (for hotels) or area (for other properties). For houseboats/vessels in multiple states, it's based on time spent in each state.

For restaurant, catering, personal grooming, fitness, beauty (including cosmetic surgery), and health services, the place of supply is where the services are actually performed. For training and performance appraisal services, if provided to a registered person (B2B), the place of supply is the recipient's location. If provided to an unregistered person (B2C), it's where the services are actually performed.

For admission to an event or amusement park, the place of supply is where the event or park is located. For event organization services, if to a registered person, it's the recipient's location; if to an unregistered person, it's where the event is held. If the event is outside India, the recipient's location is the place of supply. If an event is in multiple states with a consolidated charge to an unregistered person, each state where the event is held is a place of supply. For registered persons, method of apportionment (e.g., by number of events) is used.

For transportation of goods (including mail/courier): if to a registered person, it's the recipient's location. If to an unregistered person, it's the location where the goods are handed over for transportation. For passenger transportation services: if to a registered person, it's the recipient's location. If to an unregistered person, it's the place where the passenger embarks on the conveyance. For Right to Passage (e.g., smart cards), if the unregistered person's address is available, that's the place of supply; otherwise, it's the supplier's location. Return journeys are treated as separate journeys.

For services provided on-board a conveyance (e.g., in-flight entertainment), the place of supply is the location of the first scheduled point of departure of the conveyance. For telecommunication services: for fixed lines/leased circuits/DTH connections, it's the location of the fixed equipment. For post-paid mobile/internet, it's the billing address. For pre-paid mobile/internet (recharge vouchers), it's the selling agent/reseller's address. If multiple states are involved with a consolidated charge for leased circuits, it's apportioned based on points in each state.

For banking, stock broking, and other financial services: if the recipient's location is available in the supplier's records, that's the place of supply. If not, it's the supplier's location. For insurance services: if to a registered person, it's the recipient's location. If to an unregistered person, the place of supply is the recipient's address as recorded in the supplier's records. An example of this is provided from a previous exam.

For advertisement services to the government, the place of supply is each state/UT where the advertisement is broadcast/displayed, in proportion to the value attributable to each state. Specific methods of apportionment are detailed for different media: print media (based on ad editions/publications), printed material (based on distribution ratio), hoardings (location of hoarding), trains (length of track in each state), postal/telecom bills (number of bills/subscribers in each circle), train tickets (number of railway stations), radio/TV (viewership data from BARC, apportioned by population if consolidated), and internet/SMS (subscriber data from TRAI, apportioned by population if consolidated).

If the place of supply cannot be determined, it is always treated as an inter-state supply. For supplies made in territorial waters, the place of supply is deemed to be the nearest state or union territory from the baseline.

Practical questions from RCM and Place of Supply are discussed, including scenarios involving banking services (DD purchase), goods requiring installation, and goods transported across states. The importance of quoting the correct act (IGST Act) for place of supply is re-emphasized.

Services by an insurance agent to an insurance company are under RCM. Similarly, services by a recovery agent to a banking company, financial institution, or NBFC are subject to RCM.

Services provided by an author, music composer, or photographer to a publisher or business are under RCM. However, an author can opt for FCM if registered under GST and provides a declaration, a choice irreversible for one year.

Services provided by a director (not as an employee) to a company or body corporate are subject to RCM, with the company paying the tax. This excludes services provided by a director in a personal capacity (e.g., renting out immovable property), which remain under FCM.