The Central Board of Indirect Tax and Customs (CBIC) has issued a Notification No 01/2019 – Central Tax (Rate) dated 29th January, 2019 to be effective from 1st February, 2019. The said notification has created a lot of confusion amongst the taxpayers regarding the applicability or otherwise, of the much controversial RCM on URD purchases. We help you break and analyse the said notification here to determine the final position of law.
Background:
Section 9(4) of the Central Goods and Services Tax Act, 2017 (the CGST Act) required every registered person to pay Goods and Services Tax (GST) on RCM basis in respect of purchases made by such person from an unregistered person. Further, the registered person was also required to prepare an invoice in respect of such purchases.
For example:
Mr A is a registered person and purchases taxable goods worth Rs. 10/- from Mr. B who is an unregistered person. Mr B, being unregistered, shall not charge GST on sales of Rs. 10/- made by him. In such a case, section 9(4) of the CGST Act required Mr A to pay GST on purchases of Rs. 10/- made by him under RCM and also to generate an invoice in respect of such purchases.
This involved humongous task of maintaining records of all such purchases from unregistered persons and paying GST under RCM on such purchases.
Subsequent relief by the Government:
Considering the difficulty faced by the industry, the CBIC issued Notification No 8/2017-Central Tax (Rate) on 28th June, 2017 which exempted payment of GST on URD purchases up to an amount of Rs. 5,000/- per day, which brought a partial relief to the businesses. The businesses were still required to pay GST on URD purchases exceeding Rs. 5,000/- per day under RCM.
Considering the representations from the businesses, the CBIC issued another notification on 13th October, 2017, deferring the requirement for payment of GST on URD purchases under RCM, irrespective of the amount of URD purchases, till 31st March, 2018. The CBIC, then time and again issued notifications deferring the requirement for payment of GST on URD purchases under RCM, till 30th September, 2019.
Decoding Notification No 01/2019 (Central Tax – Rate) dated 29th January, 2019:
However, CBIC on 29th January, 2019 issued Notification No 01/2019 to be effective from 1st February, 2019. The said notification rescinded Notification No 8/2017-Central Tax (Rate) dated 28th June, 2017 which exempted payment of GST on URD purchases.
Thus, Notification No 01/2019 effectively brings back payment of GST on URD purchases under RCM.
Does this mean a registered person has to pay GST on URD purchases under RCM w.e.f. 1st February, 2019?
The answer is NO.
The CBIC, along with issuing Notification No 01/2019 dated 29th January, 2019, also amended section 9(4) of the CGST Act.
The amended section 9(4) now requires only those registered persons as may be notified by the Government to pay GST under RCM on purchases of notified goods or services from unregistered persons. As of now, no such notification notifying registered persons or notifying taxable goods or services has been issued by the Government.
Thus, as it stands now, no GST is payable on URD purchases under RCM.