09 May 2023
1. what will be the treatment of Input GST on capital goods in the hands of goods transport agency, in the light of rule 43 if, condition the GTA is on forward charge and has claimed 20% of input in the 1st year, but opt out from forward charge in the next year. whether he will have to reverse the GST of 20% in the year in which he is in the reverse charge or the input will be lapsed? and in the 3rd year he again shifted to forward charge, will he be eligible to claim the remaining 60% of input from 3rd year?
2. What will be the tax treatment in the following situation; There are 3 parties involved one is the client and the other two are GTA suppose A & B. Client gave job to A and A gave the same job to B. B is in forward charge and A is in Reverse charge. B pays 12% tax and claims input. now A is in reverse charge therefore he will by default pay 5% tax on RCM. who will pay the tax? (i) client, who gave the job to GTA-A, or (ii) GTA-B, who is in forward charge, because the ultimate provider of service is B. and if B is liable to pay then at what percentage he will pay tax and will he be eligible to claim input on the same?
10 July 2024
Let's address each of your questions regarding GST treatment in the scenarios described:
### Question 1: Input GST on Capital Goods for Goods Transport Agency (GTA)
**Situation:** - GTA opts for forward charge mechanism and claims 20% of input GST on capital goods in the first year. - In the subsequent year, GTA opts for reverse charge mechanism instead of forward charge. - In the third year, GTA again opts for forward charge.
**Treatment of Input GST:** - When GTA opts for forward charge, they can claim Input Tax Credit (ITC) on capital goods. As per GST rules, ITC on capital goods is allowed to be claimed in five equal annual installments. - **First Year (Forward Charge):** GTA claims 20% of the total ITC on capital goods. - **Second Year (Reverse Charge):** Since GTA is now under reverse charge, they cannot claim fresh ITC but must pay GST under reverse charge mechanism for services received from other GTA (if applicable). There is no requirement to reverse the already claimed 20% ITC in this scenario. - **Third Year (Forward Charge Again):** If GTA switches back to forward charge, they can continue to claim the remaining ITC in subsequent years, including the 60% remaining from the capital goods.
**Summary:** - The GTA does not need to reverse the 20% ITC claimed in the first year when they switch to reverse charge in the second year. The ITC claimed remains valid. - Upon returning to forward charge in the third year, the GTA can continue claiming the remaining 60% of ITC on capital goods in subsequent years.
### Question 2: Tax Treatment in Case of Multiple Parties (Client, GTA-A, and GTA-B)
**Situation:** - Client engages GTA-A for transportation services. - GTA-A subcontracts the job to GTA-B. - GTA-B is in forward charge and GTA-A is in reverse charge.
**Tax Liability:** - **GTA-B (Forward Charge):** GTA-B, being in the forward charge mechanism, will charge GST at the applicable rate (12% as per your example) on the transportation service provided to GTA-A. - **GTA-A (Reverse Charge):** GTA-A, being in the reverse charge mechanism, is liable to pay GST on the service received from GTA-B at the rate applicable to reverse charge (5% as per your example). - **Client's Liability:** Generally, in such subcontracting scenarios, the liability to pay GST under reverse charge mechanism falls on the GTA-A who received the service directly from GTA-B. Therefore, GTA-A will pay GST at 5% under reverse charge on the service received from GTA-B.
**Input Tax Credit (ITC):** - **GTA-B (Forward Charge):** GTA-B can claim Input Tax Credit (ITC) of the GST paid to GTA-A (if any) as part of their regular business operations. - **GTA-A (Reverse Charge):** GTA-A can claim ITC of the GST paid under reverse charge on services received from GTA-B, provided it is used for furtherance of business.
**Conclusion:** - GTA-B, who is in forward charge, will charge and collect GST from GTA-A at 12%. GTA-A, in reverse charge, will pay GST at 5% on the service received from GTA-B. - The client generally does not directly pay GST in this scenario unless they are directly contracting with GTA-B. - Both GTA-A and GTA-B can claim Input Tax Credit based on their respective GST payments, subject to GST rules.
These answers are based on general GST principles and assumptions from the information provided. Specific circumstances may require detailed examination by a tax professional or GST consultant.
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