Problem of GST RCM and Suggestion

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Problem of GST RCM and Suggestion
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• GST was Introduced in India to make a convenient
  and simple indirect tax law for the taxpayers,
  but from the very beginning, some of such
  provisions were brought in this law, about which
  experts had warned in the beginning that these
  provisions will affect the simplification of GST
  Negatively and these provisions will make this
  tax as a very complex system of taxation. These
  provisions will not only make it a Complex system
  of taxation but these provisions  will also
  create huge trouble for the taxpayers.
• Read in Hindi ???? ????? ?????? ???? ?? ??? ??
  ?????? ?????? ?? ????? The Reverse Charge
  Mechanism, commonly known as RCM, is one such
  provision which has been a subject of controversy
  since its inception and that is why a very big
  part of it was withdrawn within four months of
  introduction of GST but the part of it which was
  still there was also not a logical or practical
  provision in itself and is becoming a cause of
  trouble for many dealers now.Read more
  at https//taxguru.in/goods-and-service-tax/probl
  em-gst-rcm-suggestion.htmlCopyright
  Taxguru.in

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• See the problem is that GST is primarily a tax to
  be paid by a seller or a supplier hence it is
  mainly a Forward charge Tax. If the tax is to be
  paid by the recipient of goods or services on RCM
  basis instead of supplier then it is an exception
  and it is not unusual to follow such exceptions
  in a new tax Like GST by all the tax payers, and
  many dealers have made mistake in following this
  provision of the reverse charge mechanism- RCM.
  The mistakes have been made by lot of dealers and
  they failed to pay the RCM wherever it was
  required to pay as per the provisions of the GST
  Laws. Let us see what are the financial effects
  of the RCM in most of the cases where  provisions
  of reverse charge mechanism as mentioned in the
  GST Laws is applicable. In respect of services
  and goods for which payment of tax under reverse
  charge mechanism has been notified, the recipient
  of goods or services pays tax under reverse
  charge mechanism and after payment of the same
  takes input credit of it and hence the tax paid
  under such reverse charge mechanism does not have
  any financial implication in most of the cases.
  What is written above let us try to understand it
  through an example-

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• X and Company is a mineral trader and owns a
  mine. This company has made a sale of Rs. 10
  lakhs in March 22 and Rs. 50000.00 tax is payable
  on it at the rate of 5 percent. In the same
  month, X and Company paid Rs 2 lakh as Royalty to
  the state government, on which he had to pay a
  total of Rs 36000.00 at the rate of 18 percent
  under reverse charge mechanism i.e. RCM and if he
  paid this tax then in the same month, he would
  have got input credit of Rs.36,000 and would have
  to pay tax of Rs.50,000 as follows-
• 1. Rs 36000.00 under reverse charge mechanism
  (reverse charge is always to be paid in cash)
• 2. Cash payment of balance tax Rs.14000.00 In
  this way the total cash payment made by X and
  Company is Rs. 50000.00. Let us now see how X and
  Company will pay tax if it has not paid tax under
  RCM. If X and Company has not paid Rs.36000.00
  under reverse charge mechanism, then it will not
  get its input credit and if input credit is not
  available then it will have to pay Rs.50000.00
  which is his total output tax since No ITC is
  available. In both the cases, X and Company has
  paid Rs.50,000.00 and the Government has also
  received tax of Rs.50,000.00 in this case, and
  thus in this situation reverse charge mechanism
  has no financial implication, and in most of the
  cases RCM has no financial effect. If this
  reverse charge mechanism tax does not have
  financial effect and the Government is also
  getting full tax, then this mistake should be
  forgiven for not fulfilling this provision. There
  should be  a simple rule

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• If reverse charge mechanism tax is paid, then
  its input credit will be available and if it is
  not paid then its input credit will not be
  available, then if this provision is not followed
  where its input credit is to be available, then
  the government will lose nothing financially then
  it should not have any harsh  adverse effect on
  the taxpayer. Here you should keep in mind that
  what should be is the logical aspect of any
  taxation  law but there is not much place of
  logic in many places in this GST Laws and
  especially in reverse charge mechanism which
  sometimes termed as illogical tax due to such
  type of harsh provisions hence X and Company have
  to  bear the brunt of this mistake. Let us see
  the implications of this mistake. X and Company
  has not paid the reverse charge mechanism tax and
  this amount was Rs.36000.00 and at present i.e.
  in the Month of December 2022 X and Company is
  ordered to deposit Rs.36000.00, then  he will
  have to deposit Rs.36000.00 along with interest
  on it. Even here it can be ok for him, but the
  biggest problem is that now he will not even get
  input credit because the due date  to take input
  credit for the year ending March 2022 was
   November 30 2022.

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• You should Observe here carefully that
  financially X and Company has not committed any
  big or even small financial  crime, what it has
  done only is that it has deposited the tax which
  it had to deposit including RCM tax, that too
  honestly and on due time but it was not shown
  under reverse charge mechanism while filing the
  GST return, which you can call a technical
  mistake but just because of this mistake, Now he
  has to  deposit this tax again  under reverse
  charge mechanism without getting any input credit
  of the same. Thus, it is a very harsh penalty
  with interest which was due to a technical
  mistake made by X and Company and it is the
  strictness of the GST law that makes this law
  impractical and a complex Law. If this kind of
  mistake or mistake has happened since 2017, from
  the inception of GST and is still going on, then
  you can imagine what will be the extent of this
  loss or burden for  such innocent defaulting
  dealers!!!! This is just one example we have
  given of mining royalty on which RCM is to be
  paid. Similar mistakes or omissions have been
  made in respect of transport expenses, purchase
  of raw cotton and other goods or services on
  which tax is applicable under reverse charge
  mechanism and their consequences are also
  similarly harsh .

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• HOW LAWMAKER CAN GIVE RELIEF TO THESE INNOCENT
  DEALERS
• If the taxpayer has paid his tax in full but
  failed to show the required tax under  while
  filing the GST return, then recovery of such tax
  along with interest and then withholding of input
  credit will put an unnecessary burden on such
  dealers. It will be tantamount to be  a very
  harsh penalty and impractical   for a technical
  fault or blunder of an innocent taxpayer. In
  fact, the tax received under the reverse charge
  mechanism can be a source of revenue to the
  Government when a dealer purchases goods or
  services which under the reverse charge mechanism
  and uses it to manufacture or supply goods or
  services that are exempt from tax.
• The  need of the hour is that the government
  should take care of this issue and give relief
  from this kind of financial effectless RCM tax so
  that the business world can be saved from this
  unnecessary burden.
• Tags goods and services tax, GST, Reverse Charge
  Mechanism, Sudhir HalakhandiRead more
  at https//taxguru.in/goods-and-service-tax/probl
  em-gst-rcm-suggestion.htmlCopyright
  Taxguru.in