RCM on GST on Metal Scrap Purchase from Unregistered Persons,

Also TDS Starts for  Registered Suppliers

This is a Big News. First Time Ever. Govt has started 2% TDS on Purchase of Metal Scrap from Registered Persons.. + Also RCM GST on Purchase from URP

Note there are TWO separate NEW ITEMS…. they are related but NOT SAME.

We start with the First one : RCM

This has come up with the introduction of Notification No. 06/2024-Central Tax (Rate), dt 8th Oct 24

All businesses involved in metal scrap PURCHASE should take immediate steps to comply with the reverse charge mechanism provisions. So, Starting from October 10, 2024, registered persons purchasing metal scrap from unregistered sellers must ensure that the appropriate GST is paid under RCM.

Notification No. 06/2024-Central Tax (Rate): Amendments to GST on Metal Scrap

Date of Notification: October 8, 2024
Notification No.: 06/2024-Central Tax (Rate)
Effective Date: October 10, 2024
Issued by: Ministry of Finance (Department of Revenue), Government of India

Key Dates:

Event	Date
Notification Date	October 8, 2024
Effective Date	October 10, 2024
Deadline for Compliance	Ongoing from October 10, 2024

The metal scrap industry often involves transactions between unregistered suppliers and registered businesses. By mandating that registered recipients must pay the GST under RCM, the government aims to bring more transparency and compliance to this sector, preventing revenue leakages.

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The source of this is the Recommendation of the GST council in 54th Meeting

The 54th GST ( Goods and Services Tax ) council meeting held on 9th September 2024 has recommended 2% TDS on the supply of metal scrap by registered persons in B to B supply. It had provided the clarifications on the RCM. The meeting was presided by the Finance minister Nirmala Sitharaman.

The Council has recommended the introduction of the Reverse Charge Mechanism (RCM) on metal scrap transactions

Under this new provision, when a metal scrap supplier is unregistered AND HE supplies to a registered entity, the recipient (buyer) will be liable to pay tax under RCM.

This is to bring these transactions in GST Net…. Since the unregistered Scrap dealers were slightly a GREY AREA

New Accounts required in your Finsys ERP / Tally / any Accounting package

Either create Three new accounts to create in your books

CGST RCM Payable ( Scrap )

SGST RCM Payable ( Scrap )

IGST RCM Payable ( Scrap )

CGST RCM ITC Receivable ( Scrap )

SGST RCM ITC Receivable ( Scrap )

IGST RCM ITC Receivable ( Scrap )

or you can continue with your current generalised RCM Accounts also… if you can manage with them

Specifically, under the new amendment, unregistered persons selling metal scrap (falling under categories 72, 73, or 81) will be subject to the reverse charge, meaning the registered buyer will be responsible for paying the GST instead of the seller.

Read more at: https://taxguru.in/goods-and-service-tax/gst-reverse-charge-mechanism-rcm-metal-scrap.html
Copyright © Taxguru.in

Source Links

Link 1 : Govt GST Site : https://taxinformation.cbic.gov.in/view-pdf/1010100/ENG/Notifications

Link 2 : https://taxguru.in/goods-and-service-tax/gst-reverse-charge-mechanism-rcm-metal-scrap.html

Notification No. 06/2024-Central Tax (Rate) | Dated: 8th October, 2024 G.S.R. 614(E).— In exercise of the powers conferred by sub-section (3) of section 9 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on the recommendations of the Council, hereby makes the following further amendments in the notification of the Government of India, Ministry of Finance (Department of Revenue), notification No. 4/2017-Central Tax (Rate), published in the Gazette of India, Extraordinary, Part II, Section 3, Sub­section (i), vide number G.S.R. 676(E), dated the 28th June, 2017, namely:-

In the said notification, in the Table, after S. No. 7 and the entries relating thereto, the following S. No. and entries shall be inserted, namely: – 2. This notification shall come into force on the 10th day of October, 2024. (1) (2) (3) (4) (5)

“S No 8.

Chapters 72, 73, 74, 75, 76, 77, 79, 80 or 81 Metal scrap

Seller = Any unregistered person

Buyer = Any registered person.

Now the second topic…… A new GST TDS of 2% will be applicable on supply of metal scrap by registered person in B to B supply.

Note : Income tax TDS will be zero upto 50 lakhs.. since this is not a service… and will be 0.1% after Rs 50 lakhs year purchase

But…. this GST TDS will start from Rs 2,50,000 per contract onwards…..

TDS of 2% to Be Applicable on Supply of Metal Scrap by Registered Person in Case of B2B Supplies | Notification

The CBIC has issued notification to provide that any registered person receiving supplies of metal scrap shall deduct TDS of 2% on B2B transaction. This notification shall be applicable from 10th October, 2024.

GST is in the eighth year of its implementation.  When the CGST Act was enacted in 2017, Section 51 contained the provisions of TDS. But this section was made applicable only w.e.f 01.10.2018. Section 51 of the CGST Act causes obligation on the recipient of the supplies (deductor) to deduct some percentage as tax at source from the payments to be made to supplier (deductee) and pay it to the Government.

Till now , upto now, from July 2017 to September 2024 ….. the provisions were made applicable only to government bodies and PSUs.

However, clause (d) of section 51(1) empowers the government to notify any other category for the purpose.

A TDS of 2% will be applicable on supply of metal scrap by registered person in B to B supply.

NOTIFICATION New Delhi, the 9th October, 2024. No. 25/2024-Central Tax G.S.R. 629(E).— In exercise of the powers conferred by sub-section (3) of section 1 read with section 51 of the Central Goods and Services Tax Act, 2017 (12 of 2017), hereafter in this notification referred to as the said Act, the Central Government, on the recommendations of the Council, hereby makes the following further amendment in the notification of the Government of India in the Ministry of Finance, Department of Revenue No. 50/2018-Central Tax, published in the Gazette of India, Extraordinary, Part II, section 3, sub-section (i) vide number G.S.R 868 (E), dated 13th September, 2018, namely:– In the said notification, (i) after clause (c) and before the first proviso, the following clause shall be inserted,-

“(d) any registered person receiving supplies of metal scrap falling under Chapters 72 to 81 in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), from other registered person”;

(ii) for the third proviso, the following proviso shall be substituted, namely- “Provided also that nothing in this notification shall apply to the supply of goods or services or both, which takes place between one person to another person specified under clauses (a), (b), (c) and (d) of sub-section (1) of Section 51 of the said Act, except the person referred to in clause (d) of this notification.”

>>>> means Registration is mandatory for the Supplier and he cannot take exemption under this 2017 notification

2. This notification shall come into force with effect from the 10th day of October, 2024. [F No. CBIC-190354/149/2024-TO(TRU-II)] AMREETA TITUS, Dy. Secy.

Note:- The principal notification no. 50/2018- Central Tax, was published in the Gazette of India, Extraordinary, Part II, section 3, sub-section (i) vide number G.S.R 868 (E), dated 13th September, 2018 and last amended vide notification no. 73/2018-Central Tax, number G.S.R 1250(E), dated 31st December, 2018.

Read more at: https://taxguru.in/goods-and-service-tax/gst-tds-applicable-metal-scrap-supplies.html#
Copyright © Taxguru.in

New Accounts required in your Finsys ERP / Tally / any Accounting package

Three new accounts to create in your books

CGST TDS Payable

SGST TDS Payable

IGST TDS Payable

And a New return to file every month GSTR7

name of this return is GSTR-7

Last date of GST TDS Deposit is 10th of next month

So, yes, GST TDS on Purchase of Metal Scrap if Regd vendor, and GST RCM if Purchased from Unregistered Vendor

Advisory on Bank Account Validation on your GST Portal

Validate your Bank, or your GSTR-1 will get STOPPED – Advisory

GST dept notification alert

Your GSTR1 returns, will get blocked…if your current Bank account is not validated on GST portal.

Alert your accounts Department

And note… if your GSTR-1 is blocked… your customers will not get the GST ITC credit… and …. if they come to know of this… they “might” block your payments…..

Alert your accounts.

Regards,
Finsys MLG team

Source : https://tutorial.gst.gov.in/downloads/news/advisory_on_bank_account_validation_17april2023.pdf

Excerpts in a user friendly language

Advisory on Bank Account Validation

Dear Valued Tax Payers,

1. GSTN is pleased to inform you that the functionality for bank account validation is now integrated with the GST System. This feature is introduced to ensure that the bank accounts provided by the Tax Payer is correct.

Interpretation / Notes:

….. Govt was facing problems…. Over years…. Citibank closed down, Syndicate Bank got merged…. various other banks merged…. some cooperative banks closed down.

People also shift from bank 1 to bank 2 , due to credit limits or rate of interest

Government was facing problem…. how to send refund and how to take recovery … and infact how to validate that the GSTIN person is genuine or not…. Bank account validation helps in that also

How to solve  ?

2. The bank account validation status can be seen under the Dashboard→My Profile→ Bank Account Status tab in the FO portal. Tax Payers will also receive the bank account status detail on registered email and mobile number immediately after the
validation is performed for his declared bank account.

3. Post validation, any bank account number in the database would have one status out of the below mentioned four status types. The exact details of the accounts can be seen by hovering mouse over these icons in the Tax Payers’ dashboard in FO Portal.

Icon Description
Success
Failure
Success With Alert Remark
Pending for Validation

4. Whenever, the Tax Payer is shown ‘Failure’ icon with further details such as
– The entered PAN number is invalid.
– PAN not available in the concerned bank account.
– PAN Registered under GSTIN, and the PAN maintained in the Bank Account are not same.
– IFSC code entered for the bank account details is invalid.
In these cases, the Tax Payer is expected to ensure that he has entered correct bank
details and the KYC is completed by bank for his bank account.

5. Whenever, the Tax Payer is shown, the status of his bank account as ‘Success With Remark’ icon with details “The account cannot be validated since the bank is not integrated with NPCI for online bank account validation”, the Tax Payer should provide alternate bank account number so that it can be revalidated to expedite further online processes.

6. If the account status is shown as “Pending for Validation” then please wait since the account will be validated by NPCI.

7. The Tax Payer at any time can add/delete the bank account details and new account details will be validated.

Thank you for your cooperation.
Team GSTN

Additional Notes

The ISP-GSP  integrated Systems like Webtel, may also not be able to push the GSTR-1 data from your ERP, to the Government Portal.  Since the Portal will stop as a barrier due to Bank account non compliance.

Hence, please take early action on this immediately

How much time does it take ?

It takes just 30 to 50 seconds, or let us say less than 1 minute

so, do it now

Hence, please take early action on this immediately

Yes, You can do this yourself, it is easy and it is fast .. … very fast…

 

Link 1 :  GST Dept published August 2024 : https://tutorial.gst.gov.in/downloads/news/advisory_on_bank_account_validation_17april2023.pdf

link 2 : GST Dept portal published 2022 : https://tutorial.gst.gov.in/downloads/news/new_functionalities_compilation_may_2022.pdf

 

Bank Account validation GSTR1 stop alert … note.. your customers are going to be affected too…. if you dont solve this now.

 

Do this for all your smaller companies also

do this for all your less used small turnover / non moving State GSTIN also

Ideas and model clauses for the Audit Trail Qualifications…. in Audit Reports

Small Company with semi dormant ,  like non moving companies, with no operations….

 

As per the communication with the management,  company is maintaining books that are not in electronic mode,  and hence, audit trail maintenance is not required.

Small Company with semi dormant ,  like non moving companies, with no operations….

 

Please refer the below extracts from Audit Report in respect to Audit Trail (When Audit Trail not maintained through out the year) and advise is it correctly reported ?

Auditor’s Modified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the matter described in the Basis for Modified Opinion section of our report the aforesaid financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at 31/03/2024, and its Profit for the year ended on that date.

Basis for Modified Opinion

The Company has used accounting software for maintaining its books of account, which did not have a feature of recording audit trail (edit log) facility throughout the year details in respect of which has been reported in the clause (b), clause (g) and point (vi) of clause (h) in the last part titled as ‘Report on other legal and regulatory requirements’ of this report.

Report on Other Legal and Regulatory Requirements

This report doesn’t include a statement on the matters specified in paragraph 3 and 4 of the Companies (Auditor’s Report) Order, 2020, issued by the Central Government of India, in terms of sub section 11 of section 143 of the companies Act, 2013 since in Our opinion and according to the information and explanation given to us, the said order is not applicable to the company.

As required by Section 143 (3) of the Act, we report that:

We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.
In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books except for the matters stated in the point(vi) of clause (h) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014.
____
_____
______
______
The Modifications relating to the maintenance of accounts and other matters connected therewith are as stated in the clause (b) above on reporting under section 143(3)(b) of the Act and point (vi) of clause (h) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014.
With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:
___ ii__________ iii ____________ iv _______ v ___________ vi Based on our examination which included test checks and information given to us, the Company has used accounting software for maintaining its books of account, which did not have a feature of recording audit trail (edit log) facility throughout the year for all relevant transactions recorded in the respective software, hence we are unable to comment on audit trail feature of the said software.

What the topics, that a MLG team HOD must cover in the Financial Review Meeting 

( Note : This is an internal SOP.. .. the Target… many of us are already achieving these.. So, dear MLG team members,, take this as an internal note… when you prepare the Super Folder for the Monthly meeting with the Client Directors… You must see yourself this list as a Self checklist. )

In case of any Clarification, please discuss with your seniors.

Monthly Meeting with Client Directors

Profit and Loss

Preparation,  with comments and all its sheets as per MLG SOP

Fund Flow –

with comments and all its sheets, as per our SOP

Debtors with Credit
Creditors with debit
Non Moving
Stock
All owners capital accounts/current accounts
imprest accounts
all related party accounts

Portals

PPT or PDF or folder of GST returns area
PPT of GST notices and other notices
PPT of GST ITC, cash balance on the portal
PPT of TDS returns area
PPT of TDS demands on the portal
PPT of TCS area
PPT of income tax portal – demands and notices

GST

2A / 2B differences

MRR pending
CC account – interest calculations
Suspense accounts
On account receipts
On account payments
inter unit differences
Debtors Ageing 30-60-90
Creditors Ageing 30-60-90
Profitability Report – based on BOM

Last 1 month issues raised by the customer – 1 PPT each
Last 1 month issues raised by the us – 1 PPT each
PDF of Bank Reco
Sales collection Report – 48 box report
Non Moving stock Report

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Suggestion to team members

for most of things, you can just keep on savings the excel
and PDF of the relevant files
from the Finsys itself
and keep them in sub folders

Folder 1

GST TDS matters

folder 2

Related party Accounts

Bogus Purchases case study – Addition of full purchase or only Profit component

ITO Vs SP International

Whether in case of bogus purchases, the addition merits being restricted to the rate of profit embedded in such purchases – YES: ITAT

•⁠ ⁠Appeal dismissed: MUMBAI ITAT

THE Assessee is a partnership firm engaged in the business of trading in diamonds. Assessment under Section 147 read with Section 143(3) of the Act was framed on the Assessee vide order, dated 19/12/2019, reassessing the taxable income of the Assessee at INR 3,20,96,267/-, as against income of Rs 1,66,680/- assessed under Section 143(3) of the Act. The Assessing Officer has made addition of Rs 3,19,29,587/- holding that the purchases made from the following four parties were bogus. Being aggrieved by the assessment order, dated 19/12/2019, passed under Section 143(3) read with Section 147 of the Act, the Assessee preferred appeal before CIT (A) challenging the validity of the reassessment proceedings as well the addition of Rs 3,19,29,587/- made by the Assessing Officer on account of alleged bogus purchases. While the CIT (A) upheld the validity of the reassessment proceedings, substantial relief was granted to the Assessee as the CIT (A) restricted the disallowance to Rs 9,57,888/-, being 3% of the alleged bogus purchases of Rs 3,19,29,587/-, and deleted the balance disallowance of Rs 3,09,71,699/-. Being aggrieved by the above relief granted by the CIT (A), the Revenue has preferred the present appeal before the Tribunal.

On appeal, the Tribunal held that,

Whether in case of bogus purchases, the addition merits being restricted to the rate of profit embedded in such purchases – YES: ITAT

++ we concur with the CIT (A) that in the aforesaid facts and circumstances only profit element embedded in the alleged bogus purchases can be brought to tax in the hands of the Assessee, and that the judicial precedents relied upon by the Revenue in grounds of appeal are distinguishable in view of the aforesaid facts. In the present case the rate of profit embedded in the alleged bogus purchases has been accepted to be 3% by the Assessing Officer and the CIT(A) in the aforesaid assessment/appellate proceedings. There is nothing on record to show that the aforesaid decision of the Assessing Officer/CIT (A) have been challenged by the Revenue and/or have been overturned in the revision/appellate proceedings. Accordingly, we do not find any infirmity in the order dated 01/12/2023, passed by the CIT (A) restricting the addition on account of alleged bogus purchases to the profit element of 3% embedded therein. We note that the decision of the CIT (A) is also in line with the decision in the case of the Mumbai Bench of the Tribunal in the case of Oopal Diamond Vs. Assistant Commissioner of Income Tax 19(2), Mumbai: [ITA No.1499/Mum/2020, ITA No. 1500/Mum/2020 & ITA No.1501/Mum/2020, dated 26/10/2022] cited by the Assessee before the CIT (A). There is nothing on record to persuade us to take a view different from the view taken by the CIT (A). Accordingly, we do not find any infirmity in the order passed by the CIT (A).

All the grounds raised by the Revenue are dismissed as being without merit.

2024-TIOL-993-ITAT-MUM

What do the courts say… on the allegation of bogus purchases.. how to defend. What are the other decisions ?