puchase of soil, Goods and Services Tax - GST

[Ankur Agarwal]

Dear Sir/Madam,

I wanted to start a business of supplying soil to the builders and for that I started studying the market for purchase of soil at first. from the vendor to whom the government has allotted the land for mining is not issuing a proper bill for the sale of soil and instead just issuing a challan for dispatch. So, it is not possible for me to take the material as there is no bill. so what can be done if any one can help in this case. Someone suggested to pay it under RCM and issuer bill to party but as far as I checked for soil it is not covered under RCM but there are people in industry doing the same. Please suggest how to proceed.

Thanks In Advance

ANKUR AGARWAL

Posts / Replies

[Shilpi Jain]

The person who is the holder of the mining license is required to pay GST under RCM. However, if you intend to take this material and want to ensure that there is no violation of payment of royalty then you can take out a challan in the name of the owner of the land and pay the royalty. 

By this you will ensure compliance along with no RCM liability on royalty

[Ankur Agarwal]

Dear Mam,

Since, he is liable to pay GST under RCM but he is issuing only a challan and not giving any invoice so how can I further raise a invoice to any party whom I’m supplying as I don’t have a proper purchase bill of the same. Or that challan itself will work as a purchase bill for me’ but even if that work there is no GST on that challan as I have seen from the specimen. I’ m very new to this matter so please ignore if my question is too long or if it’s repetitive. Just want to be sure before starting Any venture.

thanks for the above reply.

[YAGAY andSUN]

Starting a business of supplying soil to builders is a good idea, but dealing with vendors and ensuring that you comply with the legal and tax norms can be tricky, especially in situations like this where the vendor isn't issuing proper bills for the sale of soil. Below are some steps and suggestions that may help you proceed:

1. Understanding the Taxability of Soil:

First, it is important to confirm whether soil is taxable under GST. In India, soil, being a natural resource, typically falls under the HSN code 2505 (earth and soil), but its GST treatment can vary depending on the type of transaction (whether it’s a sale or supply).

• Generally, soil is not taxable under GST when it is sold for agricultural purposes.
• If the soil is being used for construction, it might fall under GST and should ideally be taxed accordingly.

The issue with Reverse Charge Mechanism (RCM) is that soil is not covered under RCM, meaning you cannot pay the tax directly under RCM as per the GST laws unless the soil is categorized under some specific situation or use case, like when it is used for specific construction projects.

2. What Can Be Done When Vendor is Not Issuing a Bill?

The fact that the vendor is issuing only a challan for dispatch and not a proper bill can cause issues for you when you try to account for the soil purchase in your records and claim any Input Tax Credit (ITC). Here’s what you can do:

• Talk to the Vendor: The first step is to address the issue directly with the vendor. Explain the need for a proper GST invoice and highlight that it is essential for your own accounting and compliance. Without a proper bill, you cannot legally account for the material or pass on GST credits.
• Request for GST Registration: If the vendor is not GST-registered, they may not be issuing a proper GST bill. Ask if they can register for GST, especially if they supply soil in significant quantities to businesses. This would allow you to get proper GST invoices for your purchases.
• Check the Vendor's Status: If the vendor is registered under GST, they are required to issue a proper tax invoice. A challan alone will not suffice for legal and tax purposes. If they are issuing a challan instead of an invoice, they might be in violation of tax regulations, and you should escalate the issue to the GST authorities.
• Ask for Delivery Challan with Reference to Agreement/Invoice: In case the vendor is reluctant to issue an invoice, ask them to provide a delivery challan that clearly references a sales invoice or any formal sales agreement. This can be helpful when documenting your purchase.

3. RCM (Reverse Charge Mechanism) Misunderstanding:

As you mentioned, there is a suggestion to pay under RCM and issue a bill to the party. While this approach might work in certain industries (like if the vendor is unregistered), soil is not typically covered under RCM for construction material. RCM under GST is generally applicable to specific goods/services, and soil (unless specifically categorized under a provision of GST law) is usually not one of them.

• In case of unregistered vendors, you may need to treat the transaction under RCM (as per section 9(4) of the CGST Act), but you will still need proper documentation to justify the transaction. Check with a qualified GST consultant or CA to confirm if the RCM route is applicable based on your specific case.
• Issue Bill under GST: If the vendor is unregistered and you proceed under RCM, then you, as the purchaser, may need to pay GST under RCM and issue the tax invoice on behalf of the vendor. However, you should verify the vendor's status (whether they're registered or not) and consult with a tax expert to ensure compliance.

4. Dealing with the Lack of a Bill from the Vendor:

If the vendor is not issuing a proper bill, it is important to raise this issue with the appropriate authorities:

• Contact the GST Authorities: If the vendor is a GST-registered entity and refuses to provide proper invoices, you may want to file a complaint with the GST department. If they are violating GST rules, the authorities can investigate and issue appropriate penalties.
• Evaluate Vendor’s Compliance: You can also request a written explanation from the vendor regarding why they are not issuing a bill and whether they are registered under GST. If the vendor cannot provide a valid reason, you might want to explore other vendors who are compliant with tax laws.

5. Suggestions on How to Proceed:

• Consider Alternative Suppliers: If the current vendor is unwilling to issue proper bills, consider exploring alternative vendors who comply with GST regulations and can provide valid tax invoices. This would make your transactions more transparent and ensure compliance.
• Consult a GST Expert or Tax Consultant: Given the complexity of the situation and the potential legal implications, consulting with a tax consultant or GST expert will be critical. They can provide clarity on how to proceed under the Reverse Charge Mechanism (RCM) (if applicable), how to issue invoices correctly, and ensure your transactions are legally compliant.
• Check for Proper Agreements: Make sure that you have a formal contract or agreement with the vendor for the supply of soil. This agreement should include the price, quantity, delivery schedule, and payment terms. This will protect your interests and help if any disputes arise.

6. Summary of Steps to Take:

• Request a proper GST invoice from the vendor.
• Confirm if the vendor is registered under GST or not.
• If the vendor is unregistered, determine whether RCM applies.
• Consult a GST consultant or tax advisor for advice on issuing invoices, whether RCM is applicable, and how to properly account for the purchase.
• Consider switching to a more compliant supplier if the current vendor is unable to provide the required documentation.

This will help you comply with GST norms, manage your business smoothly, and ensure that your transactions are legally sound.

[Ankur Agarwal]

Dear Sir,

This has solved my query upto a certain extent but as far as I understood this industry they are issuing a challan called royalty challan or something and not a proper bill and almost all the parties are taking in the same way. I don't know how is this working since such long time as one of the major cost of construction is soil and how is this getting account for in the industry is still unanswerable properly. Regarding change of vendor that I'm trying. Hope I'll be able to start this venture soon.

Thanks & Regards 

[Shilpi Jain]

Since the seller is not a registered person he is not required to issue any invoice in a particular format.

If the challan itself has the relevant details, that is good enough you can proceed to buy. Ensure you make payment to him via banking channels.

[Ankur Agarwal]

Dear Mam, 

This has made the concept clear and just one more question if I issue as sales invoice on that challan charging GST as applicable i.e 5% this is totally within the purview of GST? 

Thanks