GST liability under reverse charge on services received from Government

Taxpayers routinely pay various amounts to Government in form of taxes, cesses, fees etc. Some of the taxpayers are not aware of the fact that services received from Government are covered under reverse charge and they are liable to pay GST on such services. This update attempts to cover the scope of reverse charge on Government services.

  • The Government vide Notification No.10/2017-Integrated Tax (Rate) dated June 28, 2017 (‘Reverse Charge Notification’) has enlisted the services on which GST is payable under reverse charge (similar Notification has also been issued under CGST law).
  • No.6 of the Reverse Charge Notification covers services supplied by the Central Government, State Government or local authority to a business entity.
  • Some of the services received from Government are also exempted vide Notification No. 9/2017-Integrated Tax (Rate) dated June 28, 2017 (‘Exemption Notification’).
  • The taxpayers need to analyze whether reverse charge is applicable on these services and if applicable, any exemption is available or not. It is pertinent to note that reverse charge will not apply in case the activity undertaken by Government does not qualify as service at first place (like in case of taxes, penalty etc.) or where the supplier does not qualify as Government (like in case of Government companies, statutory bodies etc.)
  • We have tabulated below some of the regular Government payments made by the taxpayers and tax liability on the same:

 

Nature of amount

Tax payable

under reverse charge

Reasoning

Registration fee paid under various acts, for instance:

 

  • The Factories Act, 1948
  • The Shop and Establishment Act (State wise)
  • The Legal Metrology Act, 2009
  • The Food Safety and Standards Act, 2006

 

No

Registration fee paid to Government qualifies as a service. However, Serial No. 49 of the Exemption Notification exempts service by way of registration required under any law.

 

Renewal fee paid for various registration under the abovementioned Acts

Yes

Since registration fee and renewal fee are different in nature, renewal fee paid will not enjoy benefit of exemption discussed above. Hence, GST is payable in such a case.

Amount paid to Government for getting right to use natural resources

Yes

Allowing right to use natural resources qualifies as a service provided by the Government.

 

S.No. 66 of the Exemption Notification exempts services of Government by way of assignment of right to use natural resources to an individual farmer for cultivation.

 

S.No.67 of the Exemption Notification exempts one-time charges payable to Government for assignment of right to use natural resources where such right was assigned before April 1, 2016.

 

In all other cases of right to use natural resources, taxpayer is required to pay GST. 

 

License and tender fee paid to Government

Yes

When Government grants license for anything, it allows the person to carry on an activity. Similarly, in case of tender fee, the Government allows the person to participate in a bid.

 

Both these activities have an element of quid pro-quo and Government can be said to be providing a service for a consideration. Therefore, GST is payable in such cases.

 

Lease rentals paid to Government for immovable property

Yes

The services of renting of immovable property by the Government to a business entity, are specifically covered under Reverse Charge Notification effective January 25, 2018.

 

Taxes like GST, customs duty, income tax, municipal tax, water tax, fire tax, professional tax, gram panchayat duty and tax

 

No

These constitute to be a statutory levy and are not paid for any service. Hence, no GST is payable on the same. 

 

Fee paid to statutory bodies, for instance:

 

  • Bureau of International Standards (BIS)
  • Food Safety and Standards Authority of India (FSSAI),
  • Life Insurance Corporation (LIC),
  • Institute of Chartered Accountants of India (ICAI),
  • Securities and Exchange Board of India (SEBI),
  • Rajasthan State Industrial Development and Investment Corporation (RIICO)

 

No

All these bodies are distinct legal entities set up under an Act of Parliament or State Legislature. These are either Governmental authorities or Government entities but not Government itself. Reverse charge is applicable on services supplied by the Central Government, State Government or Local Authority.

 

Therefore, no reverse charge liability arises on services provided by these bodies.

 

Testing, calibration, safety check, certification or inspection fee paid to pollution control board, legal metrology department (weights and measurements department), electricity department, export inspection agency etc.

No

Such fee paid to Government qualifies as consideration for a service. However, Serial No. 49 of the Exemption Notification inter-alia exempts services provided by Government by way of testing, calibration, safety check or certification relating to protection or safety of public at large required under any law for the time being in force. Therefore, no GST is payable in this case.

 

Fee paid to Government departments, for instance:

 

  • MCA for return filing or increase in authorized capital
  • DGFT for issuance of advance authorization certificate or EPCG certificate

 

Yes

Government includes not only Central and State Government but also Departments of such Governments. Hence, fee paid to Government Departments will qualify as amount paid for provision of service and will attract GST.

 

Contribution and other payments to Employees Provident Fund Organization and Employees’ State Insurance Corporation

No

S. No. 31 and 32 of the Exemption Notification exempts services provided by these organizations. Thus, no GST is payable on the same.

 

Fee paid to Tribunal, High Court or Supreme Court

No

Schedule III of the CGST Act states that services by any Court or Tribunal established under any law for the time being in force, shall neither constitute to be supply of goods nor supply of services.

 

(Please note that Arbitral Tribunal is different from Tribunal and fee paid to Arbitral Tribunal is specifically covered under S.No.4 of the Reverse Charge Notification and taxpayer is required to pay tax under reverse charge in such cases)

 

        

          Disclaimer: The above list is illustrative in nature and we suggest that the taxpayers assess tax liability on each amount paid to Government independently.

Note: In addition to above, S.No.9 of the Exemption Notification exempts any service provided by Government where consideration for such service does not exceed Rs. 5,000. Hence, if value of consideration of any service received from Government does not exceed Rs.5,000, then no GST will be payable thereon.

NITYA Comments:

The taxpayers should endeavour to be fully compliant with GST law and timely deposit GST under reverse charge on services received from Government. It is notable that since such services are received by taxpayers in the course of their business, ITC of such GST will be eligible (subject to fulfilment of other conditions of availment of credit).

We also wish to highlight that in case taxpayers deposit GST and generate self-invoice now, the last date of availing ITC will be computed accordingly (i.e. due date of filing of return for September 2020 or filing of annual return for FY 2019-20, whichever is earlier). The time limit provided under Section 16(4) of the CGST Act is related to date of tax invoice (self-invoice in this case) and not from date when such services are received.

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