Import of service by a supplier of exempt service, Goods and Services Tax - GST

[Lalitha Krishnamurthy]

The services provided by a client of ours are wholly exempt and he is not registered under the CGST Act by virtue of section 23. He now proposes to import certain services from abroad for his business purposes. Is he required to pay IGST under reverse charge and if so, liable to get himself registered? Section 24, which provides for compulsory registration refers only to section 22 and not 23.

Would there be any difference if the service being imported is OIADB access or retrieval service?

Thank you for your guidance.

Posts / Replies

[KASTURI SETHI]

Dear Sir,

"He now proposes to import certain services from abroad for his business purposes".

What are the services to be imported ? Specific services pl. ?

[Lalitha Krishnamurthy]

Thank you Shri Sethi Ji.

The client is an educational institution and the services proposed to be imported are mainly course contents and instructional modalities. These may be supplied online to the client institution. Apart from this the foreign supplier may offer business consultancy and business support services too.

1)If GST is payable on import of course content supplied online, who is liable to get registered and pay the GST - supplier or recipient?

2) In case business consultancy/support services are also imported, should the client who is currently not required to be registered, take registration and pay GST on RCM basis?

The import of services may be just a one-time exercise and not continuous. Can GST on RCM basis be paid without taking registration? Since the client's output services are exempt there won't be any ITC credit issue.

Thank you for your valuable assistance.

[Yash Shah]

IMHO - Through Finance Act 2023 (Section 140), Section 23 has been given overriding effect over 22 & 24, thus if the services given are totally exempt, even if something is falling under RCM no need for compulsory registration to be taken. This was brought through Notification No. 28/2023-Central Tax dated July 31, 2023 w.e.f 01st July 2023.

With respect to OIDAR services, the person liable to pay tax is the non-taxable unregistered service provider and hence liability lies on him to take the registration and pay tax.

[Padmanathan Kollengode]

Dear Yash sir,

I beg to differ due to following:

Section 23(2) has been amended to override section 22 and section 24 vide Finance Act, 2023. However, Section 23(1) has not been amended in similar ways.

Section 23(1) provides that any person engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax under this Act or under the Integrated Goods and Services Tax Act shall not be liable for registration.

Section 24 requires a person who are required to pay tax under reverse charge to obtain registration. Thus, it seems the educational institution here may be required to be registered u/s 24 for the payment of RCM as it is not covered under section 23(1) [and not section 23(2)].

[Lalitha Krishnamurthy]

Thank you, Shri Padmanathan Kollengode and Shri Yash Shah.

While Section 24 specifically overrides Section 22(1), it does not override Section 23(1) or 23(2).

If there is a contradiction between Sections 23 and 24 which one would prevail? And is it possible to pay tax on RCM basis without registration when no ITC of tax paid is involved?

[Yash Shah]

I stand corrected to the extent brought out to my notice by Padma, as words "Notwithstanding" has been put out specifically for Sec. 23(2) - it would have effect on such goods or services which would be notified by the government and not on all exempted goods or services. (Not full Section 23)

Regarding the question of paying the tax under RCM, without registration, even ITC available or not is second question but whether payment of GST either under RCM or FCM is possible without registration ?

IMHO - No, as unregistered person is allowed only to refund in case of cancelled contracts, apply for advance ruling or applying as supplier to ECO. For payment of tax under RCM, specific registration ought to be taken either by recipient in case of RCM or by supplier in case of FCM.

[Padmanathan Kollengode]

Dear Lalitha ma'am,

To answer your query:

If there is a contradiction between Sections 23 and 24 which one would prevail? And is it possible to pay tax on RCM basis without registration when no ITC of tax paid is involved?

To my understanding:

If contradiction between 23(1) and section 24, section 24 prevails (your case)

if contradiction between 23(2) and section 24, section 23(2) will prevail due to Amendment made by FA, 2023 inserting "notwithstanding..."

It is not possible to pay RCM without registration. You may be required to get registered and pay RCM

[Shilpi Jain]

It would be relevant to examine the amended section 23(2), as amended by section 140 of the Finance Act, 2023

140. In section 23 of the Central Goods and Services Tax Act, for sub-section (2), the following sub-section shall be substituted and shall be deemed to have been substituted with effect from the 1st day of July, 2017, namely:—

"(2) Notwithstanding anything to the contrary contained in sub-section (1) of section 22 or section 24, the Government may, on the recommendations of the Council, by notification, subject to such conditions and restrictions as may be specified therein, specify the category of persons who may be exempted from obtaining registration under this Act.".

This amendment is to take effect from 01-07-2017.

As on date I am not sure if there is any notification is issued in this regard. If that be the case then registration and pyament under RCM by your client seems to be an inevitable conclusion here.