Shortfall-Tax is just a moniker for RCM-tax liability that arises under 07/2019 in the following situation:
Output tax at 1.5% or 7.5% is applicable to a project (new or ongoing); Inward supplies are from ‘unregistered suppliers’; and
Such inward supplies exceed 20% of total inward supplies (excluding development rights, electricity and 3 petro-products);
In such a situation, a Developer is required to pay this shortfall-tax (fifth to seventh proviso in the conditions to notification 03/2019 dated 29th March, 2019) on RCM-basis:
At the respective rates applicable, if shortfall is due to cement or capital goods; and
At a flat rate of 18%, if shortfall is due to any other taxable inward supply of goods or services.
Special HSN is introduced with rate of 18% for payment of this shortfall-tax. Goods are listed in #452Q in schedule III of 01/2017 and services in #39 in 11/2017. This unique ‘shortfall-HSN’ will not apply to cement and capital goods which will fall under their respective HSN for rate of tax. Shortfall-tax on cement is to be paid monthly, while tax on all others to be paid by June 20XX.
Please note that ‘place of supply’ is to be carefully identified as this shortfall-tax is prescribed both under CGST Act and IGST Act. Since it is known which category of inward supply is from unregistered persons, a Developer is free to pick the ones to pay tax on that helps reach the threshold of 80%. Since, input tax credit is not available, it merits to hit 80% and not exceed it.