RCM provisions on RWA (Residents Welfare Association), Goods and Services Tax - GST

[PANKAJ CHUGH]

Respected Members,

Kindly guide on the following query:

Brief Fact:

the person is a Resident welfare association registered under Societies Registration Act, 1860. It's source of funds is monthly maintenenace collected from residents and also from advertisement, canopy.

The monthly maintenance is less than ₹ 7500/- per member. and annual turnover is also less than ₹ 20 lac.

RWA deploys security guards through a security agency (proprietorship).

Query:

1. whether RWA is required to deposit gst on RCM basis on Security Services ? in terms of Section 9(3) of the CGST Act ?

2. Whether security agency can charge gst in his bill raised to RWA ?

Thanks & Regards

Posts / Replies

[SOWMYA CA]

Notification No. 13/2017 has notified the list of services where the recipient of the service is liable to pay GST on reverse charge basis. It provides that where the supplier of security services is any person other than a Body Corporate, then the recipient of the services located in the taxable territory has to pay the tax on RCM basis. So the answer to Q1 is Yes if the security agency is not a body corporate, the RWA is required to deposit GST on RCM basis in terms of section 9(3) of the CGST Act.

With respect to the second question, the answer is No. Since the liability of discharging tax is on the RWA, the security agency cannot raise a tax invoice. The RWA needs to raise an invoice and can claim Input tax credit on the same

[PAWAN KUMAR]

dear sir,

As per my view,

if the contribution share is less than ₹ 7500/- per member per month, GST is exempt.

RWA turnover is less than ₹ 20 lakh then there is no requirement for obtain GST registration,

However under RCM it is not apply, RWA need to take registration.

ans for q1-Yes, RWA need to register and need to pay GST on RCM basis.

ans for q2 - NO.

[Shilpi Jain]

Reverse charge on security services is applicable only when the services are provided to a registered person. The society being unregistered, no liability under reverse charge is applicable and thereby no requirement to take registration.

Also in this case since there is no RCM the security agency is required to pay the applicable GST

[KASTURI SETHI]

I strongly agree with the views of Madam Shilpi Jain.

[PAWAN KUMAR]

Dear sir,

In case of forward charge, the requirement to obtain registration subject to ₹ 20 Lakh Threshold limit, but in case of RCM, irrespective of threshold, rwa need to take registration and there will be be rcm liability. plz check, you cannot say rwa is unregistered.

[KASTURI SETHI]

Dissent is decent.

[Alkesh Jani]

Dear Experts,

In this regards, Notification No.13/2017-CT (Rate) as amended from time to time, at column No. 4 of Sl.No.14 (as applicable to Security service), it is mentioned "A registered person, located in the taxable territory." The definition of 'registered person' is given at Section 2 (94) of CGST Act, 2017 and reads as under

"registered person" means a person who is registered under section 25 but does not include a person having a Unique Identity Number"

Section 25 (1) says that (1) Every person (refer S.2(84)) who is liable to be registered under section 22 or section 24 shall apply for registration in every such State or Union territory in which he is so liable within thirty days from the date on which he becomes liable to registration, in such manner and subject to such conditions as may be prescribed..."

The question is Section 24 will be applicable to the registered person, and if Societies are excluded from the Section 24 How?

This is purely for knowledge purpose.

Thanks

[KASTURI SETHI]

Sh.Alkesh Jani Ji,

What is brewing in your mind I know and what is brewing in my mind you know very well. Even then I intend to answer to your question on this public forum. My views may not be okayed by you or other experts/readers but it is my moral as well as ethical duty to answer your question as I have strongly supported the views of Madam Shilpi Jain.

(i) RWA is a person as per Section 2(84) of CGST Act. Not in dispute.

(ii) In case RWA's maintenance charges are less than ₹ 7500/- and annual turnover is less than ₹ 20 lakhs, RWA is exempted from GST. If exempted from GST, no need to obtain registration. Not in dispute.

(iii) As per Section 24 (iii) of CGST Act, compulsory registration is for those  persons who are required to pay tax under reverse charge. Not in dispute.

(iv) If service provider (security agency) is individual, firm, trust etc. recipient is liable to pay GST under RCM but if the recipients is unregistered (may be virtue of value based exemption), the service provider himself is liable to pay. Here RWA is out of gamut of Section 24 (iii) . RWA being legally unregistered.

(v) Now liability is on provider of security agency and service provider will pay GST only if his turnover is more than twenty lakhs. If his turnover is less than threshold limit, he will also not pay GST.

(vi) Security Service has been brought under RCM w.e.f 1.1.19 but brining this service under RCM is subject to the conditions laid down in the RCM notification.

Hence in this scenario registration is not compulsory for RWA and RWA is not liable to pay GST.

These are my views in response to your question. With due regards to you as I consider you a very very knowledgeable person.

Difference of views is meant for welfare of all the visitors.

[KASTURI SETHI]

If the conditions mentioned in RCM notification do not bind the recipient of security service, the recipient is out of Section 24 meant for compulsory registration.

[PANKAJ CHUGH]

Respected Members,

Thanks for your guidance. your valuable inputs on the query enlightened many of us. I also support the view of our Hon'ble Expert Kasturi Sethi ji and Ms Shilpi Jain ji.

One question is also raised which i am adding to ongoing discussion which relates to Registration requirment for RWA:

1. RWA having annual turnover from Maintenance Receipts exceeding ₹ 20 lac in a year but monthly subscription less than ₹ 7500/-.per member.

RWA also have income from advertisement, canopy, display board, (generally from outsiders) which comes to ₹ 5 lac in a year.

kindly let us know whether RWA is required to get itself registered under GST ?

Thanks & Regards

[Alkesh Jani]

Shri Kasturiji Sir,

Thanks for your insight on the issue, as you know that you are one of the person who have / had sharpen and shaped my knowledge.

On going through your reply, I can conclude that it is not a litigation free matter as there are different interpretation available. I wrote an article, wherein, it was mentioned that if compulsory registration is to be obtained by Societies, maintaining the records and following the GST procedure will be added burden to its members. It was also urged that Government may issue circular to clarify the issue.

I raised the query, to gain knowledge, as I am in learning phase and wish to be in this phase, today and tomorrow.

Thanks,

With Due Regards,

[SOWMYA CA]

All,

Completely agree with you Shilpi mam and Kasturi Sethi sir... My opinion too is when the RWA is already registered under GST after crossing threshold limit effecting taxable supplies such as renting of common hall for hosting events, move in-move out charges etc. Thank you all for sharing your views. Best Regards

[KASTURI SETHI]

Sh.Alkesh Jani Ji,

I appreciate your humbleness and discipline. I agree with your views at serial no 11 above. In order to avoid unnecessary litigation and save precious time, money and energy of the tax payers, Board should issue clarification. I also suggest that Trade and Industry should make a representation to the Board or GST Council.

[KASTURI SETHI]

Sh.Pankaj Chugh Ji,

With reference to your query at serial no.10 above, in this scenario registration is required and Madam Sowmya CA has already replied to your query. If RWA or any person is registered for any service and that person receives Security Agency's services from individual, firm, trust etc. RCM will be applicable.

[Shilpi Jain]

Also, one more aspect i would want to highlight here is that first we look at section 22 and then 23. As per 23 all exempt supplies by society. So not taking registration is as per section 23. Also section 24 overrides only 22 and not 23. On this ground as well one can take a view that registration not required and RCM liability does not exist.

Though manynmay not agree to this ground.

[KASTURI SETHI]

Whenever there is conditional exemption for any goods or services, it is out of the scope of the concept of 'wholly exempt'.

[Alkesh Jani]

Shri / Ku. Shipliji,

When you say many may not agree, I got nothing to comment.

[KASTURI SETHI]

Sh.Alkesh Jani Ji,

Are you one of those 'many' who do not agree ? If so, will you please clarify with reasoning. Just for quenching my thirst for seeking more knowledge on the issue. Humble request and not to be taken otherwise.

[Amit Agrawal]

I agree with view by way post No. 3 by Ms. Shilpi Jain Mam, duly & beautifully expounded by Shri Kasturi Sethi Ji in past No. 8.

I most respectfully disagree with potential 'additional grounds' (to defend non-liability of RWA to get registered under GST) of post No. 15, though from post itself, it is clear that Ms. Shilpi Jain Mam herself very well knows the counter-arguments.

However, considering previous post No. 18, I think Shri Alkesh Jani Ji deserves first chance to respond.

P.S. All above should be treated as strictly personal views of mine only and not a professional advice or suggestion.

[Amit Agrawal]

*In above post, please read as 'Post No. 8' and not past No. 8.

[Alkesh Jani]

Shri Kasturiji Sir,

In this regard, First let us see section 9(3) of CGST Act, 2017 as on 01.02.2019 and is reproduced below for ready reference: -

“(3) The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, 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.”

The definition of reverse charge is given at Section 2(98) of CGST Act, 2017 as below:-

"(98) "reverse charge" means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or sub- section (4) of section 5 of the Integrated Goods and Services Tax Act;"

For this purpose, Section 24 of CGST Act, 2017 is given below:-

"24. Compulsory registration in certain cases.- Notwithstanding anything contained in sub-section (1) of section 22, the following categories of persons shall be required to be registered under this Act,…

(iii) persons who are required to pay tax under reverse charge;"

On going through the above, section 9(3) it is mentioned ‘categories of supply’ and has also mentioned as the person liable, here term ‘Person’ is used, and is defined at Section 2(84) at (i) includes co-operative societies, this makes ample clear that Section 9(3) is applicable to the ‘Person’. The various court has held section 9 as charging section, moreover, the preamble of the act, has made clear the purpose of enacting the act for the purpose of levy of tax.

When comes to charging section, it should be construed strictly.

Section 24 also uses term ‘Person’ and also used the term ‘shall’ means it is mandatory if any person regardless of threshold limit, if receives the goods or services as specified shall obtain the registration within 30 days of such receipt and shall discharge the tax liability. Section 23 is for who supplies exempted supplies not as a recipient of supplies and in any case not touching the issue even remotely.

Even in the definition of reverse charge, term ‘recipient’ is used and not class of person or registered person.

Further, even for the co-operative societies, by way of fliers and circulars, it is clearly mentioned that which supplies are exempted to arrive at threshold limit and monthly subscription of more than 7500/- per member per month, to obtain registration.

Above all, in our discussion any authority of law which suggest that Security service (personal) is exempted service was not placed.

When department has so much of ground to issue SCN, how I can suggest not to take registration and push him/her to matter which can be disputed or may be a litigation matter in future.

When counter view was expressed, it was also suggested that clarification in the matter is required.

I preferred not to comment was because, the ground advanced by Shri/Ku. Shilpiji, is lacking legality and logically too. By using phrase ‘many may not agree’ indicates that she is not convinced by ground advanced by her and once she is not convinced, how others may be convinced?

Thanks,

With Due Regards

[Amit Agrawal]

W.r.t. post No. 21, I agree with Shri Alkesh Jani Ji to the extent that Section 23 cannot be used to override 'Requirement of compulsory registration u/s 24'.

However, as shared in my earliest post above, on the core issue under discussion here, I am in agreement with view by way post No. 3 by Ms. Shilpi Jain which is duly & beautifully expounded by Shri Kasturi Sethi Ji in post No. 8.

With due respect, I do not agree with the view that Section 24 (iii) forces a RWA - which is otherwise not liable to take registration either u/s 22 or 23, to take GST registration just because it is recipient of 'Security services (services provided by way of supply of security personnel)' from 'Any person other than a body corporate'.

And my reasoning in brief for above disagreement is as follows:

A. 'Category of supply' as notified u/s 9 (3) of CGST Act, 2017 read with serial No. 14 of Notification No. 13/2017- Central Tax (Rate) (as amended till date) is "Security services (services provided by way of supply of security personnel) provided to a registered person"

B. Till the time, RWA is not registered either due to Section 23 or due to aggregate turnover in a financial year not exceeding prescribed limits u/s 22, it will NOT be receiving ''Category of supply' as mentioned in Para A above.

C. Hence, question of compulsory registration u/s 24 (iii) for such RWA does not arise in my humble view.

D. Any other interpretation for Section 24 (iii) - for core issue which is raised by the Quriest and under discussion here - will result into changing the 'Category of supply' as notified u/s 9 (3) of CGST Act, 2017 read with serial No. 14 of Notification No. 13/2017- Central Tax (Rate) (as amended till date) to the followings: "Security services (services provided by way of supply of security personnel) provided to a person (INSTEAD of "a registered person").

E. As rightly said, charging section needs to be read strictly. And, in this case, RWA does not fall for levy under RCM as per said charging Section 9 (3) for above explained reasons. Hence, Section 24 (iii) will not come into play at all.

All above should be treated as strictly personal views of mine only and not a professional advice or suggestion. And I fully respect contrary views.

[Amit Agrawal]

As far as risk of dispute / litigation upon RCM is concerned, while such risk does exist, same is not sufficient in my humble view for RWA to take registration under GST due to following reasons:

i) Paying taxes under RCM by RWA also exposes risk of gst demand from tax-dept. upon service provider (assuming service provider's aggregate turnover in a financial year exceeding prescribed limits u/s 22) and resultant contractually disputes / chaos. This is more so because my views explained in the earlier posts and specially if RWA forces such service provider not to charge GST under forward charge but insist on paying it under RCM.

ii) Cost of ensuring GST compliance, Dept's audit / scrutiny etc. after taking registration under GST, specially in the context that a RWA.

iii) For any reason, if service provider is not charging gst under forward charge for his own and without RWA insisting for the same, then, why to increase cost for RWA by paying gst under RCM. In case a case, contract with service provider should ideally includes clause to the effect that charges for services includes all applicable taxes, if any.

However, I fully concur with my professional colleagues that it would be better if CBIC comes with a classificatory circular in this regard.

All above should be treated as strictly personal views of mine only and not a professional advice or suggestion. And I fully respect contrary views.

[Amit Agrawal]

To further clarify w.r.t. my Post at serial no. 22 above, 'Category of supply' (as notified u/s 9 (3) of CGST Act, 2017) quoted by me is what is specified at column No. 2 (& NOT what is mentioned at column No. 4) of Sl. No.14 of Notification No. 13/2017- Central Tax (Rate) (as amended till date).

This, in my humble view, eliminates the question whether said Notification No. 13/2017- Central Tax (Rate) exceeds the mandate of Section 9(3) of CGST Act, 2017.

I believe this is important to note, while dealing with the question of compulsory registration u/s 24 (iii) for such RWA.

[KASTURI SETHI]

Sh.Amit Agrawal Ji,

Your interpretation has substance. You really works hard, sir.