Query regarding tax liability under RCM

This query is : Resolved

Vaibhav Kumar Agrawal (Querist)
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21 June 2024 Suppose ABC Limited has taken a service from XYZ Limited and this service is qualified under Reverse Charge. XYZ Limited has not provided any tax invoice to ABC Limited. Now the issue is:

i) ABC Limited has to discharge tax liability under RCM but it cannot taken ITC since tax invoice has not been issued by M/s XYZ Limited. This is a loss to M/s ABC since they might not be able to avail ITC even if they have discharged GST liability under RCM

ii) If M/s ABC opts not to discharge liability under RCM then will it be a non compliance for them

I request all experts to provide their valuable opinion in this matter

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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10 July 2024 In the scenario where ABC Limited has received a service from XYZ Limited and is liable to pay GST under Reverse Charge Mechanism (RCM), but XYZ Limited has not issued a tax invoice, there are a few important points to consider:

### Option i: Discharging Tax Liability under RCM without Tax Invoice

1. **Discharging Tax Liability:**
- Under RCM, if the service received is notified under GST law to be paid under RCM, ABC Limited is liable to discharge the GST liability.
- ABC Limited should calculate and pay the GST amount applicable on the service received from XYZ Limited directly to the government.

2. **Input Tax Credit (ITC) Issue:**
- ABC Limited cannot claim Input Tax Credit (ITC) unless it has received a tax invoice from XYZ Limited.
- This means ABC Limited will not be able to set off the GST paid under RCM against its output tax liability.

3. **Financial Impact:**
- Not being able to claim ITC results in a financial impact as ABC Limited effectively bears the GST cost without the benefit of ITC.

### Option ii: Not Discharging Tax Liability under RCM

1. **Non-Compliance Risk:**
- If ABC Limited chooses not to discharge the tax liability under RCM due to the absence of a tax invoice from XYZ Limited, it could potentially be considered non-compliant with GST regulations.
- Non-compliance could lead to penalties and interest charges as per GST laws.

### Guidance and Resolution:

1. **Contacting XYZ Limited:**
- ABC Limited should communicate with XYZ Limited to request issuance of a tax invoice for the services provided. The tax invoice should clearly mention the GST charged and comply with GST invoice rules.

2. **Documentary Evidence:**
- Even in the absence of a tax invoice, ABC Limited should maintain other documentary evidence such as agreements, correspondence, and payment records to substantiate the payment made and the liability discharged under RCM.

3. **Seek Professional Advice:**
- It's advisable for ABC Limited to consult with a tax advisor or GST expert to assess the best course of action based on specific circumstances and applicable GST laws.

### Conclusion:

While ABC Limited faces challenges due to the non-issuance of a tax invoice by XYZ Limited, it is crucial to adhere to GST compliance requirements. Discharging GST liability under RCM without ITC may lead to increased costs for ABC Limited. However, non-compliance with RCM provisions could result in penalties. Therefore, seeking to obtain the tax invoice from XYZ Limited and maintaining proper documentation are essential steps to mitigate risks and ensure compliance with GST regulations.