GST on Bricks – New Bricks GST Rate | Taxmann Guidance Note
- Blog|Advisory|GST & Customs|
- 10 Min Read
- By Taxmann
- |
- Last Updated on 20 March, 2023
Latest from Taxmann
Table of Content
- Highlights
- Introduction
- GST Rate structure before April 01, 2022
- GST Rate structure after April 01, 2022
- FAQs on new tax structure notified for Brick Kilns Industry
Drafted by Taxmann’s (Indirect Tax) Research and Advisory Team
1. Highlights
"The new tax structure for the Brick Kilns Industry would bring an extra burden on the suppliers in terms of an increase in tax liability and compliance requirements. The increase in the GST rate would also impact the prices of the residential affordable projects that use bricks for the construction of flats. Further, it may not have an impact on large developers using the modern technology of blocks, etc." - Poonam Harjani – Leader, Indirect Tax, Advisory and Research Support Services
"The rate of 6% or 12% may be analyzed separately in respect of each transaction. Whether to opt for the higher rate or not will depend on various factors such as the ability of the customer to avail of ITC, cost-benefit analysis of the value chain, etc. Developers etc should analyze this and approach the suppliers accordingly." - Sunil Kumar – Manager, Indirect Tax, Advisory and Research Support Services (With inputs from Karishma Malhan, Assistant Manager, Indirect Tax, Advisory and Research Support Services)
2. Introduction
The Government has notified a revised tax structure for the Brick Kilns sector effective from April 01, 2022. In this new tax structure, the Government has provided the GST rate of 12%[1] (with ITC) or 6%[2] (without ITC) for the below products (hereinafter referred to as ‘specified products’):
| S. No. | Tariff item, sub-heading, heading or Chapter |
Description |
| 1. | 6815 | Fly ash bricks or fly ash aggregate with 90 per cent. or more fly ash content; Fly ash blocks |
| 2. | 6901 00 10 | Bricks of fossil meals or similar siliceous earths |
| 3. | 6904 10 00 | Building bricks |
| 4. | 6905 10 00 | Earthen or roofing tiles |
The rate structure implemented by the Government is an outcome of the recommendations of the 45th GST Council meeting. With the introduction of the new rates, the persons engaged in the supply of the specified products would not[3] be entitled to avail the composition scheme. In other words, they would not be entitled to the lower GST rate of 1% (without ITC). Further, the threshold limit of Rs. 40 Lakhs for GST registration has also been reduced to Rs. 20 Lakhs[4].
In view of the above changes, one may have various questions relating to the new rates structure. This Guidance Note discusses and analyzes the impugned change and its impact, along with discussing various questions that may arise during the implementation of this amendment.
3. GST Rate structure before April 01, 2022
Prior to April 01, 2022, the suppliers of specified products could either opt for the composition scheme[5] (1% GST without ITC) or the normal scheme (5% GST with ITC) in order to discharge their GST liability. The GST impact on different suppliers is summarized in the table below:
|
Sl. No. |
Taxpayer | GST Rate |
Implications |
| 1. | Supplier having aggregate turnover up to Rs. 40 Lakhs | – |
|
| 2. | Taxpayers opted for Composition Scheme | 1% |
|
| 3. | Other taxpayers (Normal scheme) | 5% |
|
4. GST Rate structure after April 01, 2022
Under the new tax rates structure, the Government has notified a higher rate of GST i.e. 12% on the specified products, where the benefit of claiming ITC would be available to the supplier. Alternatively, the specified products can be supplied with the lower GST rate of 6% with a condition that the benefit of ITC would not be available in respect of goods or services used (exclusive or common) in supplying such goods.
The suppliers of the specified products would no longer be able to avail the benefit of the composition scheme under Section 10 of the CGST Act. The threshold limit of registration for such suppliers has also been decreased from Rs. 40 lakhs to Rs. 20 lakhs. In other words, the supplier of specified products would be required to register as a normal taxpayer under the GST law if their aggregate turnover in the financial year exceeds Rs. 20 lakhs.
The rate structure for the supply of specified products with effect from April 01, 2022, is summarized as under:
|
Option |
Particulars | GST Rate |
Implications |
| 1. | Payment of tax at a higher rate | 12% |
|
| 2. | Payment of tax at a lower rate | 6% | ITC would not be available in respect of the following:
|
5. FAQs on new tax structure notified for Brick Kilns Industry
FAQ 1. I am presently registered under the normal scheme (e. paying GST at the rate of 5%) and opting to pay tax at 6% under the new scheme. Do I need to reverse the input tax credit relating to the following:
(a) Transitional stock of specified products
(b) Capital goods exclusively used for specified products
(c) Capital goods used for specified products and other products (e.g. cement, )
(d) Other inputs and input services (e. other than specified products)
Taxmann’s Research and Advisory Comments
If the supplier is registered under the normal scheme and chooses to pay tax at a lower rate i.e. 6%, he would be required to reverse the ITC on the transitional stock of specified products. In addition, proportionate credit of capital goods is also required to be reversed in terms of Rule 43 of the CGST Rules. The ITC would be required to be paid back even if the supplier has utilized the same.
Notably, no ITC reversal would be required in respect of those goods or services which are not used for the supply of specified products. The supplier may continue to avail and utilize such ITC.
FAQ 2. We are the dealers of bricks and cement. We have opted to pay GST at the rate of 6% on the supply of bricks under the new tax structure. Can we use the ITC available in respect of cement to discharge GST liability of 6% on the supply of bricks?
Taxmann’s Research and Advisory Comments
There is no restriction on utilization of ITC otherwise available in respect of other businesses for discharging GST liability on the supply of specified products. In our view, the supplier can use such ITC for discharging their GST liability for the supply of specified products.
In this regard, one may note that in a similar scenario in the context of the food aggregators industry, where the GST rate is 5% (without ITC) on the supply of food, the CBIC has clarified that while discharging the GST liability on the supply of food, the food aggregator cannot utilize the ITC which is available in their business. In view of the above clarification, the GST authorities can challenge such utilization. However, in our considered view, the supplier can utilize the ITC which is available to them in their other businesses to discharge the impugned GST liability of 6%. The said clarification is not in line with the GST legislation.
FAQ 3. We are currently registered under the normal scheme (e. paying 5% GST) and opting to pay tax at the higher rate of 12% under the new scheme. Do we need to reverse the input tax credit on the transitional stock (i.e. purchased before April 1, 2022)?
Taxmann’s Research and Advisory Comments
The supplier of the specified products who opts to supply such goods at a higher rate of tax i.e. 12% would not be required to reverse any Input Tax Credit.
FAQ 4. We are presently registered under the composition scheme of Section 10 of the CGST Act. How can we choose to opt the new tax structure?
Taxmann’s Research and Advisory Comments
Firstly, you would need to withdraw[8] yourself from the existing composition scheme. In this regard, it is necessary to file an application in Form GST CMP-04 on the GSTN portal.
After such withdrawal, the person would automatically treated to be registered under the normal scheme. The taxpayer can simply start discharging GST at the desired rate (6%/12%) as the Government, as such, has not notified any special manner of opting under the new scheme.
FAQ 5. We are presently registered under the Composition Scheme of Section 10 of the CGST Act. What would be the GST implications on us under the new scheme?
Taxmann’s Research and Advisory Comments
The implications under the new scheme for the persons registered under composition scheme of Section 10 of the CGST Act would be as under:
1. No benefit of Composition scheme
With effect from April 01, 2022, the suppliers of the specified products are not eligible for the composition scheme under Section 10 of the CGST Act. Hence, they would need to opt out from the composition scheme. In this regard, intimation would be required to be filed in Form GST CMP-04 on the GSTN portal.
2. Availing input tax credit on transitional stock
A taxpayer opting to pay tax at the higher rate (i.e. 12%) would be eligible to avail of the ITC in respect of all the inputs held in stock, inputs contained in semi-finished, finished goods held in stock and capital goods used in the supply of all goods or services in a specified manner.
Under the new scheme, the person opting to pay tax at the lower rate (i.e. 6%) would not be able to avail ITC in respect of goods or services (common or exclusive) used in the supply of specified products. Such supplier would, however, be eligible to avail ITC in respect of other inputs held in stock, inputs contained in semi-finished, finished goods held in stock and capital goods used in the supply of other goods in a specified manner.
3. Issuance of tax invoices
Taxpayers transitioning from the existing composition scheme to the new scheme would be required to issue tax invoices instead of the bill of supply for the supply of specified products.
4. Filing monthly/quarterly returns
Taxpayers would also be required to comply with the monthly return compliance and file Form GSTR-1 and GSTR-3B, wherein the details of outward supplies, inwards supplies, payment of tax, etc. are furnished. The supplier, if eligible, may also opt for Quarterly Return and Monthly Payment (‘QRMP’) scheme.
FAQ 6. I am opting to pay tax at the lower rate of 6%. What other benefits would I be able to avail of apart from this lower rate?
Taxmann’s Research and Advisory Comments
The new scheme is not like the existing composition scheme of Section 10 of the CGST Act. The Government has not notified any special benefits apart from the lower rate of tax (6%). You would be required to comply with the general provisions under the GST law such as issuance of documents under GST, filing of regular returns, payment of tax as per the rate notifications, etc.
FAQ 7. I am opting to pay at the rate of 6% under the new tax structure. What documents would I be required to issue for supply of specified products? Whether my customer would be able to avail ITC on such document/such supplies?
Taxmann’s Research and Advisory Comments
As already discussed, the new scheme is not like the existing composition scheme of Section 10 of the CGST Act. The scheme restricts the claim of ITC for the supplier of specified products only and not for the recipient of such goods. The recipient can avail the ITC of the GST charged by the supplier of specified goods if their ITC is not otherwise restricted by the GST law. Notably, if the recipient is engaged in the further supply of the specified products at the lower rate, he cannot avail of the ITC.
The supplier would be required to issue a tax invoice (whether he is charging a 12% rate or 6% rate of GST) for the supply of specified products.
FAQ 8. Can we charge 6% GST on one bill and 12% on another bill for the supply of specified products in the same tax period?
Taxmann’s Research and Advisory Comments
The normal GST rate on the supply of specified products is 12% and the rate of 6% is provided by way of issuance of an exemption notification. The language of the exemption notification that prescribes 6% GST rate is subject to the condition that ITC cannot be availed. If the person opts to avail ITC, he would not be entitled to avail the lower GST rate. Given this, the benefit of 6% GST is optional and should be interpreted transaction wise.
Reference in this regard may be made to a similar notification issued in respect of Merchant Export supplies where the benefit of a 0.10% GST rate is provided[9] for the supply of goods by the supplier to the Merchant Exporter. In this regard, the CBIC has clarified[10] that the benefit of the concessional rate is optional and the supplier may or may not avail of the benefit and supply the goods at the normal applicable tax rate.
FAQ 9. Do we need to revise our contracts with developers/customers in respect of the supply of specified products?
Taxmann’s Research and Advisory Comments
The contracts, wherever entered, should be reviewed in view of the changes brought by the Government in the GST rates. Depending upon the nature of the contract, the terms may be reviewed and changes, if needed, should be incorporated.
FAQ 10. We are a supplier of specified products and are not registered under GST as our aggregate turnover is less than 40 Lakhs. Are we affected by the given amendments notified by the Government?
Taxmann’s Research and Advisory Comments
Persons supplying the specified products would now be liable to take registration under the GST law if their aggregate turnover during the year exceeds Rs. 20 lakhs. The existing threshold limit for registration has been reduced from 40 lakhs to Rs. 20 lakhs.
Where the registration is applied within 30 days from the date of becoming liable to registration, the supplier would be entitled to avail ITC on the stock of inputs (say coal, etc.) available as on April 01, 2022.
Notably, where the supplier opts to pay tax at the rate of 6% under the new tax structure, ITC in respect of goods used in the supply of such specified goods cannot be claimed.
Note: The above comments are for guidance purposes and cannot be construed as a legal advisory. In case of any clarification or query, feel free to reach us at connect@taxmann.com.
[1] Notification No. 01/2022-Central Tax (Rate), Dated March 31, 2022
[2] Notification No. 02/2022-Central Tax (Rate), Dated March 31, 2022
[3] Notification No. 03/2022-Central Tax, Dated March 31, 2022
[4] Notification No. 04/2022-Central Tax, Dated March 31, 2022
[5] Under Section 10 of the CGST Act
[6] Notification No. 10/2019-Central Tax, dated March 7, 2019
[7] Section 17(5)(e) of the CGST Act, 2017
[8] Rule 6(3) of the CGST Rules, 2017
[9] Notification No. 02/2022-Central Tax (Rate), dated March 31, 2022
[10] Circular No. 37/11/2018-GST, dated 15th March 2018
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Is a supplier can charge GST separately in invoices for 6% GST rate?
The normal GST rate on the supply of specified products is 12% and the rate of 6% is provided by way of issuance of an exemption notification. The language of the exemption notification that prescribes 6% GST rate is subject to the condition that ITC cannot be availed. If the person opts to avail ITC, he would not be entitled to avail the lower GST rate. Given this, the benefit of 6% GST is optional and should be interpreted transaction wise.
If I opt for 6% Gst in the new scheme what will happen to RCM paid by me in terms of transport and other non-registered person purchases?
Will I get a refund of that amount or it won’t be paid?
Kindly Explain
ITC would not be available in respect of the Goods or services used in supplying such goods even if tax is paid under RCM.
We are engaged in Trading business of Building Material Supplier(Charging GST @12% on Bricks) ,we are purchasing bricks from registered person (Bricks Manufacture) and he is charging 6% GST . Can we claim that 6% GST in our GSTR 3B as ITC
Yes, you can claim ITC in respect of such supplies.
WE ARE A TRADER OF CEMENT & BRICKS
WE ARE BUYING BRICKS FROM BKO AND PAYING 6%GST . WHETHER WE NEED TO PAY TAX 6% OR 12% ON RESALE OF SAME BRICKS.
AS WE KNOW ITC CHAIN WILL CONTINUE UNDER NEW SCHEME
Bricks can be supplied with the lower GST rate of 6% with a condition that the benefit of ITC would not be available in respect of goods or services used (exclusive or common) in supplying such goods.