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TMI BlogRCM on Audit FeeX X X X Extracts X X X X X X X X Extracts X X X X ..... In case of Cooperative Banks in Kerala audit is done by the Kerala State Cooperative Department auditors. The department collects audit fee from the banks relating to the salary cost of staff auditors assigned for the work. The Audit Fee paid to cooperative department is an item of expenditure in the financial statements of the respective societies. Is this amount liable for RCM ? - Reply By Sadanand Bulbule - The Reply = Dear Sir RCM is not applicable to audit fees in terms of Notification No.13/2017- Central Tax (Rate) dated 28th June, 2017 - Reply By KASTURI SETHI - The Reply = Sh.Venu K Ji, A fee is always charged in lieu of some service. The Audit fee is charged as professional fee. It is taxable but does not fall under RCM. I concur with the views of Sh.Sadanand Bulbule, Sir Ji. - Reply By VENU K - The Reply = Respected Sadanand Bulbule Sir, Thank you so much for your kind response. But ... NOTIFICATION No. 13/2017 Serial Number 5 says Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding,- (1) renting of immovable property, and (2) services specified below- (i) services by the Department of Posts [xxx ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ]5 ; (ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) transport of goods or passengers. So can you clarify which specific entry exempts RCM on audit fees ? Or is there any other specific notification ? - Reply By VENU K - The Reply = In continuation let me clarify that the audit fee is paid to Cooperative department of Govt of Kerala by these cooperative societies towards audit of their accounts - Reply By Sadanand Bulbule - The Reply = Dear Venu Sir Tax Audit and Account fee is not specified in Section 9[3] . Hence reverse charge is not applicable in this case. In my opinion, such audit by the State Government, being mandatory in nature, does not fall under the category of services supplied by it. - Reply By KASTURI SETHI - The Reply = Sh.Venu K. Ji, What is the constitutional status of Kerala State Cooperative Department ? Can we term it as fully Govt. or not ? Does it conform to the definition of Government under CGST Act or Kerala GST Act ? Your opinion please. - Reply By VENU K - The Reply = Dear KASTURI SETHI Sir, Department of Cooperation is a Government department as I understand it 1.It is under a Minister ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Cooperation 2. Under whom there is a Special Secretary to Govt Cooperation Department who is an IAS 3.Under the Special Secretary there is Registrar of Cooperative Societies who is also an IAS and is the head of the department. In my understanding they are all treated as Government employees. The major function of the Department is the proper implementation of Kerala State Cooperative Societies Act - Reply By KASTURI SETHI - The Reply = Sh.Venu K Ji, I humbly request you to clarify the following : (i) Department of Cooperation is a Government department as I understand it. What is correct word, 'co-operative' or 'cooperation' ? World of difference between the two words. 1.It is under a Minister of Cooperation. Is it 'cooperation' or 'cooperative societies' ? 2. Under whom there is a Special Secretary to Govt Cooperation Department who is an IAS. What is the correct nomenclature ? 3.Under the Special Secretary there is Registrar of Cooperative Societies who is also an IAS and is the head of the department. An IAS being Head/Registrar of cooperative societies does not mean constitutional status is of State Govt. in full. In my understanding they ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e all treated as Government employees. The major function of the Department is the proper implementation of Kerala State Cooperative Societies Act. Does Kerala Co-operative Society qualify the definition of Govt. as per CGST Act /SGST Act ? - Reply By VENU K - The Reply = KASTURI SETHI Sir, Yes Cooperative Department is a department of Government of Kerala and all its employees are Government employees as per GST law and also Govt of Kerala Service Rules etc. - Reply By KASTURI SETHI - The Reply = Dear Sir, In my view, t he employees of the office of the Registrar of Cooperative Societies do not enjoy the status of 100% State Govt Employee'. Pl. re-check. - Reply By KALLESHAMURTHY MURTHY - The Reply = Dear Sir, The Cooperative Department is a Government Authority of the State Government under which the Registrar of Co-operatives function and regulates the Cooperatives. The department does not raise tax invoice for the fees payable by the Co-op Society on the audit but the fee is determined based on the turnover of the Society at a prescribed rate. The Department conducted the audit of the Cooperative Bank as a statutory function and charged a certain fee which is a consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for audit service fall u/s 7(1) of the CGST Act . Hence, in my opinion, the fee paid for the audit service of the Co-operative Bank conducted by the Cooperative Department is liable to RCM u/s 9(3) . This as per my understanding not to be construed as legal advice. - Reply By Sadanand Bulbule - The Reply = My dear Murthy Plz examine, as far as services supplied by the State Government by way of audit of Co-operative societies/ entities, will it not be exempt services covered under Sl. No. 6 ((Chapter 99) of Notification No.12/2017 dated 28/06/2017 ? - Reply By KASTURI SETHI - The Reply = Sh.Kalleshamurthy Murthy Ji, Sir, The Govt. Authority is not covered under the definition 'Government'. Only Central Govt., State Govt., U.T Govt. and Local Authority are covered as per GST laws. - Reply By KALLESHAMURTHY MURTHY - The Reply = Sri Kasturi Sethi Ji, Sir, The Registrar of Co-operative Societies is a unit of the State Government under the Ministry of Co-operation. All the employees are recruited for Government services. With respects. - Reply By KALLESHAMURTHY MURTHY - The Reply = Dear Sadanand Bulbule Sir, In my opinion, the Nil Tax rate is applicable as per Notification No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 /2017 dated 28-06-2017 relates to the tax payable under the forward charge since it is notified for application for sub-Sec. (1) of Sec. (9) of the CGST Act . Whereas, Notification 13/2017 dated 28-06-2017 is notified for application of Sec. 9(3) meant for RCM. The first one is about the furtherance of business. Latter is in the theme of accountability of transactions where no loss or profit is effected. So there is a distinguishing between the nil rate and taxable supplies under different conditions in both notifications. Sir, while I'm submitting the reply on the above issue, I have kept in mind the Hon'ble Supreme Court Judgement rendered on 25-07-2024 - 2024 (7) TMI 1390 - SUPREME COURT (LB) that the Royalty is not a tax from which the Taxpayer in the mining business is liable to pay tax under RCM for services received by the Mining Geology department. In the same way, I have considered the Fee paid by the Co-operative Bank is liable to RCM for the service received from the Cooperative Department. With respects, The contents are solely for discussion purposes. - Reply By Sadanand Bulbule - The Reply = Dear Murthy Hapay Dussera festival. Thanks for your response. - R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eply By Sadanand Bulbule - The Reply = Dear all The employees and the Registrar of the Co-Operative Department are on the pay rolls of the State Government and enjoy the status of 100% Government employees. Whereas the employees of the Co-operative societies are on the rolls of respective societies/entities and therefore they don t enjoy status of 100% Government employees. - Reply By KASTURI SETHI - The Reply = Dear All, Sharing just for discussion sake A statutory body, corporation or authority created by the Parliament or a State Legislature is neither 'Govt'. nor a 'local authority' It is a settled position of law that the manpower of such statutory authorities or bodies do not become officers subordinate to the President under Article 53 (1) of the Constitution and, similarly, to the Governor under Article 154 (1) -------- Supreme Court in the case of Agarwal Vs. Hindustan Steel 1969 (12) TMI 109 - SUPREME COURT. In this context, Para No.2.4.10 of CBE C's Education Guide released on 20.6.2012 pertaining to pre-GST era is worth reading. This is clarification about the regulatory bodies and other autonomous entities. - Reply By KALLESHAMURTHY MURTHY - The Rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly = Dear all, Wishes Happy Dussera Festival' to all Experts in TMI. - Reply By Sadanand Bulbule - The Reply = I endorse the thoughtful clarification given by Sri Sethi Sir. - Reply By KALLESHAMURTHY MURTHY - The Reply = Sri Kasturi Sethi Sir, I do agree with the contents in Sl. !8. Regarding Regulatory Bodies and other Autonomous Entities, for example, the Bengaluru Development Authority and similar authorities like the Delhi Development Authority are not constitutionally established units. They can't enjoy the status of either the Central Government or State Government or Union Territories. But the Registrar of Co-Operative Societies is a part of the State Government. - Reply By KASTURI SETHI - The Reply = Sh.Sadanand Bulbule Ji, Sir, This is w.r.t. your query at serial no. 12 above addressed to Sh. Kalleshamurthy Murthy Ji. Exemption at serial no. 6 Notification No. 12/2017 dated 28/06/2017 is admissible to the subject services, only if t hese service qualify the definition of 'Government 'as per GST laws i.e. services provided by Central Govt., State Govt. , U.T. or a Local Authority (here State Govt .). Otherwise not. It is obvious that the terms, 'Govt. Au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thority and Govt. Entity' both do not exist in the exemption notification at serial no.6. Now it is up to the querist to prove that the subject services conform to the definition of Govt.ie. subject services have been provided the Kerala State Govt. If exemption is admissible, there will be no issue of applicability of RCM. - Reply By Sadanand Bulbule - The Reply = Dear all In the State of Karnataka, there are two exclusive departments under the Ministry of Co-Operation. 1. The Registrar of Co- Operative Societies. 2' The Directorate of Co-Operative Audit. The functions of these two are defined separately. So the appointed officers under the supervision and guidance of the Director of Co-Operative Audit conduct the statutory audit of all such registered entities periodically and certain amount of fees fixed are to be paid to the Director of Co-Operative Audit, which is 100% Government entity. More or less similar dual system is prevailing PAN India. - Reply By VENU K - The Reply = Dear Experts Thank you all for your enlightening views. In this matter Notification No. 12/2017- Central Tax (Rate) at Sl No 6 says in case of Services by the Central Government, State Government, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Union territory the tax rate shall be NIL except in case of a b c (d) any service, other than services covered under entries (a) to (c) above, provided to business entities. NOTIFICATION No. 13/2017 Serial Number 5 says Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding ............. is liable for Reverse Charge. Notification 13/2017 declares services provided to a business entity as liable for RCM. Once we accept this proposition and look at Notification 12/2017 we understand that NIL rate is not applicable if services are supplied to Business entity and the tax rate ought to be 18% Since all cooperative societies are business entities, naturally the services provided to them by Govt becomes taxable and liable for RCM. So, in my opinion the only way for such societies to escape RCM is to prove that the Service provided by Department of Cooperative Audit is liable for Forward Charge Mechanism as it cannot be considered as State Govt. and as such the Cooperative Department should pay the same under Forward Charge. - Reply By Sadanand Bulbule - The Reply = Dear all As already I have stated, Co-Operative de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partment is the part and parcel of the State Government. The reason for doubting its such status be clarified. - Reply By Sadanand Bulbule - The Reply = Dear all To expand the discussion, I reproduce the relevant provisions relating to statutory audit of Co-Operative Societies : THE KARNATAKA CO-OPERATIVE SOCIETIES ACT, 1959. CHAPTER VIII AUDIT, INQUIRY, INSPECTION AND SURCHARGE. Section 63 Audit.- (1) Every Cooperative society shall get its accounts audited at least once in a year before the first of September following the close of the cooperative year by an auditor or an auditing firm appointed by the general body of the cooperative society from a panel of auditors or auditing firms approved by the Director of cooperative audit; provided that the Director of co-operative audit shall be the authority competent to prepare and maintain a list of auditors and auditing firms who satisfy the prescribed qualification and experience for undertaking the audit of accounts of co-operative societies in the state. Provided further that, the National Bank shall prepare a list of auditors and auditing firms who satisfy, the prescribed qualification and experience for undertaking the audit of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounts of State Co-operative Bank and District Central Co-operative Banks. Analysis: In terms of the mandatory audit of the Co-Operative Societies/entities [supra], the audit shall be conducted by a team of auditors approved by the Directorate of Co-Operative Audit. Normally the Chartered Accountants holding DISA Certificates are appointed for this purpose. Meaning. the audit is being conducted by the private audit teams which are duly approved by the Directorate and not by the Directorate itself. Since the Directorate of Co-Operative Audit,being integral part of the State Government, does not conduct the audit by itself, there is no supply of services by the State Government to the taxable person. As such, in my personal opinion. the recipient of such services is not liable to pay GST under RCM. Experts to add further. - Reply By Sadanand Bulbule - The Reply = Dear all As per the list available with me, 272 audit firms are approved by the Directorate of Co-Operative Audit,Karnataka to conduct audit of the Co-Operative societies/entities under Section 63 of the Karnataka Co-Operative Societies Act. This information is to supplement my last post. - Reply By KALLESHAMURTHY MURTHY - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Reply = Sir, There were my friends in the Co-Operative department appointed as auditors and they performed their functions. Their nature of audit work is different from that of Chartered accountants' audits. CA's conduct audits for the preparation of balance sheets. As I have stated in my previous post, the amount of the audit fee is determined by the turnover involved in the audit. - Reply By VENU K - The Reply = Thank you experts for the scholarly discussions on the topic. As regards audit of Cooperative Societies in Kerala are concerned, audit is conducted even today by Department of Cooperative Audit,Government of Kerala. Audit by Chartered Accountants are applicable only in the case of Urban Cooperative Banks and other cooperative banks coming under Banking Regulation Act.This shift happened because of insistence of RBI. Even they were subjected to dual audit for some time. A departmental audit as well as a CA audit. Now department audit has been stopped in case of these banking establishments coming under Banking Regulations Act For all other cooperative societies , including Service Cooperative Banks (These Primary Agricultural Credit Societies (PACS) doing banki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng business are not under Banking Regulation Act) audit is done by Department of Cooperative Audit ,Government of Kerala. They also collect a fee from these cooperative societies and it is expensed in the profit and loss account of these societies under the head Audit Fee Since Department of Cooperative Audit is a part and parcel of the Government of Kerala, I feel RCM should be applicable on the transaction. - Reply By Sadanand Bulbule - The Reply = Dear Venu Sir Looking at the track of discussion, there is frequent fluctuations in your understanding. Plz say whether it is taxable or otherwise to come out of confusion. - Reply By KASTURI SETHI - The Reply = Sh.Sadanand Bulbule Ji, Sir, In response to your observations at serial no. 26 above, my views are as under :- (i) Auditing of Co-operative Society is mandatory as per Section 64 of Kerala Co-operative Societies Act, 1969. Section 64 starts with the word, 'SHALL' and hence the word, 'SHALL' signifies mandatory requirement of auditing of Co-operative Society. Section 64 is pari materia to Section 63 of Karnataka Co-operative Societies Act mentioned by you. (ii) Auditing is a statutory duty/function/responsibility ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Registrar Co-operative Societies of Kerala State Govt. Co-operative Societies department who further appoints Director of Audit for the purposing of auditing of the statutory records and other related records. It is also administrative control, supervision and monitoring by Kerala State Government via Office of the Registrar of Co-operative Societies Department. It is verification and examination of the records of the Co-operative Society. Hence Auditing is not service at all. (iii) In view of (i) (ii) above, the Auditing is covered under Clause 3-(b) (c) of Schedule-III under Section-7 of CGST Act . (Neither supply of goods nor a supply of services). This Schedule is, by and large, Negative List of erstwhile Service Tax law (Finance Act, 1994) , under GST Regime. For example ; If CAG Office conducts the audit of the records of office of Central Excise Department, Customs Department etc., it is NOT a service. It is a statutory duty/function/responsibility of the CAG Office in order to safeguard revenue. Similarly, if CGST department conducts the audit of the units registered with CGST/SGST department, it is not a service. Thus the department performs its statutory duties/fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nctions/responsibilities. (iv) Further, to fall under RCM, Services or Goods or both must conform to the scope of supply under Section 7 of CGST Act and those services and goods must be taxable. Exempted goods and services cannot be brought under network of RCM. Needless to say, under RCM tax lability is shifted upon the recipient in place of supplier. If there is no supply and no consideration, how those services and goods can be brought under RCM ? (v) Now the issue arises of fee charged by the Audit wing of the Kerala Co-operative Societies Department of Kerala State Govt. Whether it is a consideration ? As per Section 64 (6) the amount of fee charged for auditing is cost of conducting the audit . Fee is always in lieu of service but here as per Section 64 (6) fee is the expenses incurred for conducting the audit. Such fee is not merged with General Public revenue. For example : Fee is paid for filing application with Advance Ruling Authority. Fee is paid for filing appeal with GST Tribunal. These are expenses incurred. (vi) Since there is no supply of service, fee charged for expenses incurred cannot be treated as consideration. (vii) Cooperative Society is a body corporate and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a business entity and not wing of the State Govt. Department. In view of the above, in my view RCM is not applicable in this scenario. I am flexible. Views of the experts are welcome. DISCLAIMER : These are my personal views meant for education purpose and not meant for any court proceedings. - Reply By Sadanand Bulbule - The Reply = Dear sh. Sethi Sir ji Your illustrative clarification has convinced me. Further welcoming point is you have widened the scope for all other experts. True sportsmanship. I seek the opinion of all other experts to make it more clear for all the stakeholders. Deeply obliged Sir. - Reply By KALLESHAMURTHY MURTHY - The Reply = Dear Sirs, The audit fee is not like the fee prescribed to pay in advance and get the services thereafter. The audit fee is calculated after the conduct of the audit in a society based on the turnover involved in the audit. It is not a lump sum amount. That means it is a fee payable to the Government for the supply of service in the form of an audit. That report is a base for the further transactions of the Society. Therefore, it is a taxable service and I agree with Sri Venu Sir, for the opinion expressed at Sl. No. 29. With regards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . - Reply By Sadanand Bulbule - The Reply = Dear Murthy Let the churning of thoughts continue tiil the nector comes. Let s wait till the evening to see how day has been going. - Reply By KASTURI SETHI - The Reply = Dear Sirs, Not to speak of taxability and RCM, auditing can never be service at all. In simple words, it is one of the statutory administrative actions which is clear from the definition of 'audit'. It is pertinent to peruse the following definitions of 'audit'. As per Section 2(13) of CGST Act , audit means the examination of records, returns and other documents maintained or furnished by the registered person under this Act or the rules made thereunder or under any other law for the time being in force to verify the correctness of turnover declared, taxes paid, refund claimed and input tax credit availed, and to assess his compliance with the provisions of this Act or the rules made thereunder. Other definitions Howard on Auditing-6th ELBS Ed. : The common dictionary meaning of audit is an inspection , correction and verification of business accounts by a qualified accountant. Leading lexicographer Henry Black: Audit is a systematic inspection of accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting records involving analyses, tests and confirmations. Eric L. Kohler, a renowned accountant and auditor defines audit as the examination of contracts, orders, and other original documents for the purpose of substantiating individual transactions before their settlement;= pre-audit, voucher audit, administrative audit. Any systematic investigation or appraisal of procedures or operations for the purpose of determining conformity with prescribed criteria. Any inspection of accounting or other records of the past or projected management activities in order to provide a basis for third-party evaluation or appraisal. This may involve analysis or test of records and supporting documents. It may also involve interrogation of management and others for the purpose of securing confirmations or proofs of evidence that can be documented for third-party evaluation-such evaluation extending to i nspection a nd possible evaluation by other auditors. Source : Excise Service Tax Audit Manual 2nd Edition 2008-09 by K.S.Ravi Shankar M.N. Hiregange Publisher : CENTAX PUBLICATIONS (Page No. 52 refers. Legal dictionary meanings of 'audit' cannot be changed because these are internationally a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccepted. - Reply By KASTURI SETHI - The Reply = Sh.Sadanand Bulbule Ji, Sir, My above post is the result of 'churning of thoughts' as motivated by you in your post at serial no.34 dated 14.10.2024. Not concerned about 'nectar'. However, your further motivation will be translated into practice in the interest of all visitors of this forum of TMI. I treated your motivation as a 'big plus'. Thanks regards. - Reply By Sadanand Bulbule - The Reply = Dear Sir Nectar is there in every drop of noble thought. It is bottled this way for relishing the TMI visitors to have a larger picture. We need to clean our tounge to taste pure nectar. This is selfless discussion forum and nectar is freely available. So kind of you Sir Profound regards - Reply By KASTURI SETHI - The Reply = Sh. Kalleshamurthy Murthy Ji, Sir, In your post at serial no.11 dated 11.10.24, you have mentioned that the auditing is a statutory function and hence service and audit fee is a consideration. Will you please clarify the difference between a statutory function and a statutory duty ? Thanks a lot. - Reply By KASTURI SETHI - The Reply = In continuation to my above post, In my view, a statutory func ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion is wider term than a statutory duty and it includes duty also. - Reply By KALLESHAMURTHY MURTHY - The Reply = Dear Sir, A statutory function is a job or duty established by a law or rule. It can also refer to the powers and duties that an Act imposes. - Reply By VENU K - The Reply = Dear experts, Thank you so much for the overwhelming response to the query and enlightening views. There was an audit note for payment of RCM on similar lines. Now based on all your inputs, which I could understand, I propose to give the following reply. The proposal to demand RCM on Audit Cost paid to Government of Kerala is disputed as being not a supply as per Sec 7 of the CGST Act and as such no RCM liability can be levied on such a payment.. As per Sec 7 a supply has to be in the course or furtherance of business . Further Sec 2 (17) defines business in clause 'i among other things as Any Activity or transaction undertaken by the Central Government , a state Government, or any local authority in which they are engaged as public authorities .It is the uniquivocal position of the tax payer that Audit of a Cooperative Society is a statutory duty performed by the Government and that it cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be deemed to be a supply as per Sec 2(17)(i) by any stretch of imagination. Audit is a statutary administrative function performed by the Government and as such it is not a supply liable for taxation and therefore not liable for RCM . Any further comments are welcome. - Reply By KALLESHAMURTHY MURTHY - The Reply = Sri Venu Sir, How would you decide that the Cooperative audit is not in the course of furtherance business? If the activities of the Coerattives are not in the course of furtherance of business, then why they are registering under GST? Do you think, taxable transactions of the Cooperatives are out of the purview of the GST transactions? Otherwise why the audit note is issued? Sir, you have not come out of confusion as mentioned at Sl. No. 30 by Bulbule Sir. More discussion is expected. With regards. - RCM on Audit Fee - Query Started By: - VENU K Dated:- 9-10-2024 Last Replied Date:- 16-10-2024 Goods and Services Tax - GST - Got 42 Replies - GST - Discussion Forum - Knowledge Sharing, reply post by an expert, personal opinion Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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