GST: What are consequences of procuring goods from an unregistered vendor?

Our client is a partnership firm, trading in shares and securities. They also have income from investment consultancy and have obtained a GST (goods and services tax) number. Can GST levied on consultancy income be set off against GST paid on brokerage for buying and selling of shares?

A supplier of services is permitted to avail of input tax credit for goods/services/capital goods used in the course or furtherance of business. There is no requirement to establish a one-to-one correlation between goods/services procured and taxable services rendered for utilisation of input tax credit against output GST liability.

In your case, we understand the service provider is providing services for buying/selling of shares and consultancy services under the same GST registration. It should not be mandatory for the provider to utilise the GST paid on brokerage expenses only against the commission income earned from trading of shares on which GST liability is discharged. Such input tax credit can also be utilised against payment of GST liability attributable to the consultancy income earned under the same GST registration. 

Is an advocate providing interstate supply of services to a business entity whose turnover is below Rs 20 lakh required to obtain GST registration?
 

The GST liability for legal services provided by an advocate or senior advocate or a law firm, to a business entity should be discharged under reverse charge mechanism (RCM) by the recipient of service.

A person providing interstate service is mandatorily required to obtain GST registration. However, it is not required to be obtained by persons exclusively engaged in providing services which are subject to GST under the RCM. The government has tweeted: “Exemption from registration has been provided to such suppliers who are making only those supplies on which recipient is liable to discharge GST under RCM.” 

Amit Bhagat

Accordingly, if the advocate is only engaged in providing services liable to RCM, it should not be required to obtain the registration.

What are the consequences of procuring goods or services from an unregistered vendor under the GST regime? 

A registered person procuring goods or services from the unregistered vendor is required to deposit GST under RCM. The service recipient should also be required to issue a self-invoice and a payment voucher for such procurement.

The rate at which such GST liability is to be deposited by the service recipient under RCM should be based on the classification of goods/services so procured. 

The government has notified that service receiver should not be liable to discharge the GST liabilities if the total value of supplies received from all un-registered suppliers is below Rs 5,000 a day.

We are engaged in supply of goods to various customers located in different parts of India. Besides charging for the goods sold to customers, we also charge freight from the customers. What should be the treatment of freight charged from them under the GST regime?

The value of goods supplied should include incidental expenses such as commission and packing and any amount charged for anything done by the supplier for supply of goods at the time of or before delivery of goods or supply of services. The government through its tweets has clarified that expenses like freight/transport/packing should be included in the taxable value of the supply while raising the invoice. 

So, if you are engaged in supply of goods at a customer’s location and the freight charged is incidental to such supply, the value of the freight should be included in the taxable value of the goods.

The writer is tax partner, PwC India. Aditya Khanna, associate director, PwC contributed to this column. The views expressed are experts’ own. Send your queries to yourmoney@bsmail.in