GST has introduced new concepts like ‘place of supply’ with a new tax structure. GST is applicable in the state where the goods/services are consumed i.e., it is a destination-based tax. Confusions might therefore occur in certain cases.
The recipient is registered in Delhi and has taken a godown on rent in West Bengal. The godown owner (supplier of service) who is registered in West Bengal collects rent for space let out.
What Happens If You Pay Wrong GST On Supply
Place of Supply:
The place of supply of services, ––
directly in relation to an immovable property, including services provided by architects, interior decorators, surveyors, engineers and other related experts or real estate agents, any service provided by way of grant of rights to use immovable property or for carrying out or co-ordination of construction work shall be the location at which the immovable property or boat or vessel, as the case may be, is located or intended to be located.
This clearly means that the place of supply in this case is West Bengal, i.e. the place where the godown is located.
Suppose in the given Situation:
Instead of charging CGST and SGST, IGST has been charged. This is the case when intra- state sale is wrongly treated as inter-state sale.
To rectify the situation, the person concerned will have to pay CGST/SGST and get the refund of the amount paid as IGST.
Note: No interest will need to be paid when the taxpayer pays the correct tax later on.
The procedure for these refunds is different from the normal refund process of GST. The above points are backed by Section 77 of CGST Act, 2017 and Section 19 of IGST Act, 2017.
Section 19 (1) of IGST Act, 2017 states that registered person who has paid integrated tax on a supply considered by him to be an inter-State supply, but which is subsequently held to be an intra-State supply, shall be granted refund of the amount of integrated tax so paid in such manner and subject to such conditions as may be prescribed.
Section 77 (2) states that a registered person who has paid integrated tax on a transaction considered by him to be an inter-State supply, but which is subsequently held to be an intra- State supply, shall not be required to pay any interest on the amount of central tax and State tax or, as the case may be, the Central tax and the Union territory tax payable.
This Section specifically mentions that interest will not be applicable when the correct tax is paid later.
Rule 89 (2) (m) of CGST Rules, 2017 prescribes that for refund application a Certificate in Annexure 2 of Form RFD-01 issued by a chartered accountant or a cost accountant to the effect that the incidence of tax, interest or any other amount claimed as refund has not been passed on to any other person, in a case where the amount of refund claimed exceeds ₹2,00,000 is required to be furnished.
This means that a refund would be granted only when the incidence of tax claimed as refund has not been passed on to any other person (i.e. the supplier has not received the tax amount).
Suppose in the given situation tax has already been collected from the buyer who has availed the benefit of ITC, this would mean the incidence of tax has been passed on. Therefore, in order to claim refund, it is firstly important to get ITC taken by the counter party reversed. Upon such reversal refund can be claimed.
CGST and SGST would then be charged from the recipient and paid by the supplier to the Government, the credit of which would be claimed by the recipient. In this case however, the counter party would not get credit of CGST and SGST paid because he is not registered in West Bengal.
Firstly, a credit note is required to be issued by the supplier to decrease the tax under the head IGST. This will be required to be supplemented by a debit note issued by the recipient.
Secondly a debit note would be required to be issued by the supplier to increase tax under the heads CGST and SGST. Corresponding credit note issued by the recipient would be required.
The credit note issued by supplier would act as a valid proof of reversal of ITC taken by recipient. This would facilitate refund of IGST. Debit note issued by the supplier would act as a valid document showing payment of CGST and SGST.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the any clarification on behalf of the Government. Choosing any course of action is purely at the option of the reader and the author holds no responsibility for it.
Author: CA Manish Raj Dhandharia
Qualification: Chartered Accountant (CA) holding Full Time COP since 2013. BCOM(HONS).
CA Firm: Practicing as a CA in a reputed CA Firm based in Kolkata.
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