Services received from the Government-Liability to pay GST

After the implementation of GST, the person receiving services from the Government is liable to pay GST under Reverse Charge Mechanism subject to certain exception.

What is Reverse Charge Mechanism?

GST is an indirect tax and the person making supply of goods or services collects GST from its customer and deposit the same with the Government. In other words, the person making supply will collect the GST from the person who is the receiver of supply and deposit the said collected amount to the Government.

But there are certain categories of persons from whom if the goods or services are received, then the person receiving such goods or services is liable to pay GST directly to the government.  It is exactly opposite to the general principle where supplier is collecting and depositing the GST to the Government.  Therefore, this mechanism is termed as ‘Reverse Charge Mechanism’ or ‘Reverse Charge Basis’.

Which notification provide for liability of the recipient to pay GST under Reverse Charge Mechanism on receipt of services from the Government?

Notification No. 13/2017-CT(Rate) dated 28.06.2017 and Notification No. 10/2017-CT(Rate) dated 28.06.2017 provides that where services supplied by the Central Government, State Government, Union territory or local authority to a business entity located in India then such business entity is liable to pay GST on Reverse Charge Basis subject to certain exceptions.

What is the meaning of the above entry?

When any services are received by the business entity which is located in India from the Central Government, State Government, Union Territory or local authority then such business entity is liable to pay GST on receipt of such services.

What is the exception to the above liability?

There are certain exceptions to the above liability which are as under:

  • The amount paid for the services is less than INR 5,000/-;
  • The amount paid is against renting of immovable property;
  • The amount paid is against services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport;
  • The amount paid is against services received from Department of Post;
  • The amount paid is against services in the nature of transport of goods or passengers;
  • The turnover of the entity is below INR 20 Lacs or INR 10 Lacs, as the case may be;
  • Services supplied by the Panchayat is in relation to any function entrusted to it under article 243 G of the Constitution; and
  • Services supplied by the Municipality is in relation to any function entrusted to it under article 243W of the Constitution.

Illustrations:

1. Company A paid INR 5,500/- towards filing fees at Ministry of Corporate Affairs website. Is Company A liable to pay GST under Reverse Charge Mechanism?

Ans. Yes, Company A is liable to pay GST under Reverse Charge Mechanism.

 

2. M/s Anand Enterprises paid INR 4,500/- towards filing of Trademark Application. Is M/s Anand Enterprises liable to pay GST under Reverse Charge Mechanism?

Ans. No, the amount paid is less than INR 5,000/-.

3. A newly incorporated LLP paid INR 10,000/- towards filing fees at Ministry of Corporate Affairs website. Is the LLP liable to pay GST under Reverse Charge Mechanism?

Ans. No, as the LLP is newly incorporated its turnover is below INR 20 Lacs.

Anshul Jain

Anshul Jain is a practicing lawyer and has more than 3 years of professional experience in handling assignments on Tax planning & advisory, Compliance with Corporate Laws, litigation support under GST, Central Excise, Service Tax, Customs and FTP. He has also represented various MNCs, PSUs, Public Limited Companies etc. before Indirect Tax Tribunal and quasi-judicial authorities.

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