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03 October 2021

Supply from Government to Composition Dealer covered under RCM.

In the recent AAR of M/s. Ahmedraza Abdulwahid Munshi [2021] 131 taxmann.com 268 (AAR - GUJARAT), Authority for Advance Ruling – Gujarat held that

  1. RCM is liable to be paid by the composition dealer purchasing scrap/used vehicles from Central Government, State Government, Union territory or a local authority.
  1. There is no RCM tax liability for purchase of subject goods from unregistered dealers.

As per section 9(3) of the CGST Act, 2017, Notification No. 04/2017-CT(R) dated 28-6-17 was issued for supply of goods, on which the recipient was liable to pay tax under reverse charge which was further amended vide Notification No. 36/2017-CT(R) dated 13-10-17, wherein, for the supply of used vehicles, seized and confiscated goods, old and used goods, waste and scrap, the registered person who is the recipient, is liable to pay GST on reverse charge basis if the supplier happens to be Central Government, State Government, Union territory (or) a Local Authority.

The Central Government exercising powers provided in section 9(3) of CGST Act specified in Notification No. 4/2017-Central Tax (Rate), Central tax shall be paid on reverse charge basis by the recipient as follows:

Sl.No. Tariff item, sub-heading, heading or Chapter Description of supply of Goods Supplier of goods Recipient of supply
06. Any Chapter Used vehicles, seized and confiscated goods, old and used goods, waste and scrap Central Government, State Government, Union territory or a local authority Any registered person

Sr.No.06 above was inserted vide Notification No. 36/2017-Central Tax (Rate) dated 13-10-17.

Section 9(4) was subsequently amended and substituted vide CGST Amendment Act, 2018 and covered specific class of registered persons and specific category of supply of goods and services.

Notification No. 7/2019-Central Tax(Rate) dated 29-3-19 notifies that the specified registered persons shall, in respect of supply of goods or services or both, received from an unregistered supplier shall pay tax on reverse charge basis as recipient of such goods or services or both. However, subject goods are not notified vide said Notification 7/2019-CT(R).

Thus it was observed that the Composition Dealer can purchase scrap/used vehicles from the unregistered dealer and there arises no liability to pay tax under RCM as it is not covered under specific categories of goods/services mentioned in Notification No. 07/2019-Central Tax(Rate).

Further, if a registered person receives/purchases the scrap/used vehicle from the supplier that is Central Government, State Government, Union territory (or) local authority, then the recipient is liable to pay tax under reverse charge as per Notification No. 36/2017-Central Tax(Rate) dated 13-10-17.

The recipient is not liable to pay GST under reverse charge with respect to purchase of goods viz. scrap and used vehicles from unregistered dealers and therefore exemption limit for such purchase does not arise.