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Analysis of Reverse Charge Mechanism Under GST

Baburam, the owner of a goods transportation agency, hurried inside the office of Kushal who was a CA by profession and looked after Baburam’s files.

“Baburam ji!” Kushal greeted, “Long time. How are you doing?”

“I ain’t doing any fine,” Baburam retorted as he sat, “For truck owners and transporters like us, GST has hit us like a speeding truck!”

“Well, GST has indeed hit the country,” Kushal smiled, “But of all the people, I thought you’d be happy with the “truck” known as GST!”

“Why would we be happy? The companies are asking for our GST registration! There’s a lot of confusion. Some say, we don’t need to apply, others are jabbering about Ridiculous Charge Mechanism!”

“Ha, ha, ha!” Kushal laughed, “It’s not Ridiculous but Reverse Charge Mechanism!”

“Whatever,” Baburam said, “everthing looks ridiculous nowadays!”

“Well, speaking of your business, Baburam ji, you have a Goods Transportation Agency,” Kushal explained, “And in your case, you are generally exempted under the umbrella of GST.”

“How come?” Baburam was eager to know.

Kushal explained:

“Normally a service provider is required to pay taxes, but in case GTA provides the services to the following persons, recipient of services is required to pay GST under reverse charge:-

  1. any factory registered under or governed by the Factories Act,1948;
  2. any society registered under the Societies Registration Act, 1860 or under any other law for the time being in force in any part of India;
  3. any co-operative society established by or under any law;
  4. any person registered under CGST/SGST/UTGST Act;
  5. any body corporate established by or under any law; or
  6. any partnership firm whether registered or not under any law including association of persons;
  7. casual taxable person.”

“That sounds good,” Baburam said, “You mean to say that if I am transporting cement bags of a cement company from one place to another and I am charging Rs 25000.00 freight from them, then I don’t have to do anything about GST?”

“Exactly, “Kushal said, “In such a case the company will pay you Rs 25000.00 and the company will also pay the GST @ 5 % on Rs 25000.00. The company will be able to take the credit of such tax paid.”

“Hmmm…okay. But even if we are exempt, do we have to apply for GST registration?” Baburam asked.

“No.” Kushal said, “As per a recent notification by the Government, GTA are not required to obtain registration under GST. Furthermore, following Services provided by a goods transport agency, by way of transport in a goods carriage are exempted:

  • agricultural produce;
  • Value of consignment does not exceed Rs 1500
  • Value of consignment per consignee does not exceed Rs 750
  • goods, where gross amount charged for transportation of all such goods for a single consignee does not exceed rupees seven hundred fifty;
  • milk, salt and food grain including flour, pulses and rice;
  • organic manure;
  • newspaper or magazines registered with the Registrar of Newspapers;
  • relief materials meant for victims of natural or man-made disasters, calamities, accidents or mishap; or

(h) Defense or military equipments”

In the above case, both GTA and recipient are exempted from GST “

“That’s very good.” Baburam nodded.

“But there are some rare cases which require GTA to take GST registration.” Kushal said.

“Oh…please explain,”

“As I have said, the category of Recipients include, among others, any person registered under CGST/SGST/UTGST Act.

If the GTA provides service other than exempted services to anyone who is not registered under GST, then in such a case, the GTA needs to take registration under GST and is required to collect GST taxes from the unregistered dealer and pay it to the Government. The rate of Tax shall be 5% and GTA will not be allowed to take ITC. However, if GTA chooses to avail ITC, then tax rate shall be 18%

 “Yeah, we generally provide our service to big corporations and firms and so no GST for us.” Baburam observed and said, “Furthermore, on rare occasions, we provide GTA service to unregistered small parties. But per consignment value is always less than Rs 1500. And so we don’t need to have GST registration such case either.

“Right you are!” Kushal said.

“Thank you so much for all the clarifications!” Babruram said as he stood up.

“You are always welcome!”

Comments 2

Sam

September 30, 2017

In case GTA provides service to a Registered taxable person but the freight on the same is less than Rs.750, let’s say Rs.250 then is the Registered person required to deposit the tax i.e. GST to government under reverse charge mechanism?

Sushree

February 13, 2018

Hey Admin, that’s a very effective way of presenting the GST impact on GTAs.. the example will help me memorize the provisions easily now. However, if I’m not wrong the tax rate for GTAs that claim ITC is 12%..