GST Update on The Language Game

The language of the sections relating to reverse charge is quite ambiguous. It reads as “.....the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.” Let’s see two cases:

1. Accommodation

As per Section 12(3)(b) The place of supply of services, by way of lodging accommodation by a hotel, inn, guest house, home stay, club or campsite, by whatever name called, and including a house boat or any other vessel; shall be the location at which the immovable property or boat or vessel, as the case may be, is located or intended to be located.
Example, Mr. A of ABC Co. Ltd. (Rajasthan) goes for marketing tour to Maharashtra. He stays at an unregistered hotel. Since the hotel is unregistered, ABC Co. Ltd. shall be liable to pay GST on the room rent on reverse charge basis. Now two situations shall arise:

Situation 1: Going by the practical approach
Place of supply shall be Maharashtra while Location of Supplier is Maharashtra-CGST and SGST of Maharashtra shall be charged. In such a case since the hotel being unregistered, the company will have to take a registration in Maharashtra as a casual taxable person and then pay off GST on reverse charge basis. But taking registration as casual taxable person is very difficult as one has to tell his estimate liability while applying for registration which will be very difficult in such cases.

Situation 2: Literal interpretation of language aforementioned
Place of supply remains Maharashtra. Since as per language of Section 9(3)/(4) the recipient will step into the shoes of supplier so location of supplier will be Rajasthan. Thus, IGST shall be charged.

While we were preparing this update, the Government has clarified vide its twitter account that there is no need to pay tax on such transactions but legal validity of such clarification is to be seen.

2. Goods Transport Agency
As per Section 12(8) the place of supply of services by way of transportation of goods, including by mail or courier to,––
(a) a registered person, shall be the location of such person, i.e. location of recipient of goods;
(b) an unregistered person, shall be the location at which such goods are handed over for their transportation.

Example 1, suppose ABC Co. Ltd. is located in Rajasthan. A GTA located in Gujarat sends the goods to the company. The company being a body corporate shall be liable to pay GST on reverse charge basis.

Situation 1: Going by the practical approach
The place of supply as per section 12(8)(a) will be location on recipient of goods, i.e. ABC Ltd. so Rajasthan is place of supply. Location of supplier is Gujarat. Thus since it’s an interstate transaction IGST shall be chargeable.

Situation 2: Literal interpretation of language aforementioned
The place of supply continues to be same as above, Rajasthan. Since as per language of Section 9(3)/(4) the recipient will step into the shoes of supplier so location of supplier will be Rajasthan. Thus, CGST and SGST of Rajasthan shall be charged.

Again in this matter also, the Government is acting very fast and has clarified in its twitter account that CGST and SGST will be charged.
We are very impressed with the pace of Government clarifications that they are acting faster than us. As we were preparing update to bring the problems but they are clarifying the things as and when these are brought to them.

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GST Update on The Language Game

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