GST Duniya. (Part – 2)

GST Duniya. (Part – 2)

Hello Readers,

Hope you had read the 1st part of the GST Duniya series, if not, then read it from here:

Part 1: Basics

Today we will discuss about the Reverse Charge under GST and some other concepts.

Let’s start:

REVERSE CHARGE

Normally, the supplier pays the tax on supply. In certain cases, the receiver becomes liable to pay the tax, i.e., the chargeability gets reversed which is why it is called reverse charge.

The concept of reverse charge mechanism is already present in service tax. In GST regime, reverse charge will be applicable for goods (new) as well as services.

In earlier system of Service Tax, similar provisions of Reverse Charge are available in for the services like-

  • Insurance agent
  • Services of a director to a company
  • Manpower supply
  • Goods Transport Agencies
  • Non-resident service providers
  • Any service involving aggregators

Reverse Charge under GST

Reverse charge means the liability to pay tax is by the recipient of goods/services instead of the supplier.
In GST system,Reverse charge may be applicable for both services as well as goods.

Situations where reverse charge will apply

  1. Unregistered dealer selling to a registered dealer
  2. Services through an E-commerce operator

# Explanation of above points:

  1. Unregistered dealer selling to a registered dealer

In such a case, the registered dealer has to pay GST on the supply.

  1. Services through an e-commerce operator
  • If an e-commerce operator supplies services then reverse charge will apply on the e-commerce operator. He will be liable to pay GST.

For example, UrbanClap provides services of plumbers, electricians, teachers, beauticians etc. UrbanClap is liable to pay GST and collect it from the customers instead of the registered service providers.

  • If the e-commerce operator does not have a physical presence in the taxable territory, then a person representing such electronic commerce operator for any purpose will be liable to pay tax. If there is no representative, the operator will appoint a representative who will be held liable to pay GST.

Registration
All persons who are required to pay tax under reverse charge have to register for GST irrespective of the threshold
[Threshold:- turnover in a financial year exceeds Rs 20lakhs (Rs 10 lakhs for North eastern and hill states)].It means even if turnover of person is below 20lakhs, even in that case,person liable to pay tax has to register for GST

Time of supply for goods under reverse charge:

In case of reverse charge, the time of supply shall be the earliest of the following dates—
(a) the date of receipt of goods OR
(b) the date of payment OR
(c) the date immediately after THIRTY days from the date of issue of invoice by the supplier (60 days for services)

If it is not possible to determine the time of supply under (a), (b) or (c), the time of supply shall be the date of entry in the books of account of the recipient.

For clause (b)- the date of payment shall be earlier of-
1. The date on which the recipient entered the payment in his books
OR
2. The date on which the payment is debited from his bank account

Example:

  1. Date of receipt of goods 15th june 2018
  2. Date of payment  20th July 2018
  3. Date of invoice 1st july 2018
  4. Date of entry in books of receiver 18th june 2018

Time of supply of goods 15thjune 2018
Time of supply for services under reverse charge

In case of reverse charge, the time of supply shall be the earliest of the following dates—
(a) The date of payment
OR
(b) The date immediately after SIXTY days from the date of issue of invoice by the supplier (30 days for goods)

If it is not possible to determine the time of supply under (a) or (b), the time of supply shall be the date of entry in the books of account of the receiver of service.

For clause (a)- the date of payment shall be earlier of-
1. The date on which the recipient entered the payment in his books
OR
2. The date on which the payment is debited from his bank account

When supplier is located outside India

In case of ‘associated enterprises’, where the supplier of service is located outside India, the time of supply shall be-

  1. the date of entry in the books of account of the receiver OR
  2. the date of payment

-whichever is earlier

Mixed Supply & Composite Supply under GST

Composite supply in GST regime is similar to the concept of bundled services under Service Tax Laws. However, the concept of mixed supply is entirely new.

Composite supply

Composite supply means a supply is comprising of two or more goods/services, which are naturally bundled and supplied  with each other in the ordinary course of business, one of which is a principal supply. The items cannot be supplied separately.

Two main conditions to be fulfilled to consider services or goods as a composite supply are :

  1. Supply of 2 or more goods or services together and
  2. Must be Natural Bundled i.e. goods or services are usually provided together in normal course of business. They cannot be separated.

Illustration in Revised GST law: Where goods are packed, and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply. Insurance, transport cannot be done separately if there are no goods to supply. Thus, the supply of goods is the principal supply.

Rate of tax applicable to the principal supply will be charged to the whole composite bundle.

But if 2nd condition is not fulfilled, then it becomes a mixed sully means if goods or services are not naturally bundled, they comes into category of mixed supply

For tax under GST, a mixed supply comprising two or more supplies shall be treated as supply of that item which has the highest rate of tax.

Illustration in Revised GST law: A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drink and fruit juices,soft drinks when supplied for a single price is a mixed supply. All can be sold separately. Assuming aerated drinks have the highest GST rate, aerated drinks will be treated as principal supply.

One more illustration,ifa shop offer a free box with 10 chocolates,then it will be considere as mixed supply because goods are not naturally bundled.

Continuous Supply of Goods and Services under GST

Continuous supply, as the phrase suggests, is an ongoing process. The goods/services are supplied periodically and the payments are also made periodically, often monthly. Telecom and internet services provided by telecom companies are some examples of continuous supply of services.

Under Central excise or VAT/CST law, There is no concept of continuous supply of goods.
And for continuous supply of services, service tax liability arises on at earliest of:

  • date of invoice or
  • date of completion of service or
  • date of receipt of payment.

If the service is determined periodically on completion of events as per contract entered, which requires receiver to make payment to service provider, the completion of such event is a point of taxation.

Under GST Regime,

Continuous supply of goods means

  • supply of goods which is provided or will be provided
  • continuously or on recurrent basis,
  • under a contract.
  • It may be through means of a wire, cable, pipeline or other conduit.
  • The supplier sends invoice to the recipient on a periodic basis.

Continuous supply of services means

  • supply of services which is provided or will be provided
  • continuously or on recurrent basis
  • under a contract
  • for a period exceeding three months
  • with periodic payment obligations

Today’s session ends here.

Hope you find this article knowledgeable. Now,I will explain further concepts of GST in next part of GST DUNIYA series. Stay connected with us.

In the next part we will discuss about:

  • Registration Procedure under GST
  • Exempted Goods & services

So, Don’t miss it.

In case of any query related to above article, the questions can be asked by commenting in the comment box or the author can be contacted personally at bansalaayushi1992@gmail.com or  info@atulkhurana.com 

For any type of Consultancy services, Click here

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