All About Reverse Charge Mechanism of Goods & Services in GST.

GST & IDT

All about Reverse charge Mechanism In GST.

What is Reverse Charge

Normally Supplier of goods or services is liable to pay tax to Government. Supplier collect tax amount from receiver along with value of goods or services and deposit it to the government. But in case of reverse charge, changeability gets reversed and Receiver of goods or services is liable to pay tax directly to Government.

Normal Charge:-

Supplier receives tax from buyer along with value of supply and deposit it to Government.

Reverse Charge:-

Supplier only receives value of supply from buyer and buyer is liable to deposit tax amount to Government directly.

Cases where Reverse Charge is Applicable.

A. Supply from an Unregistered dealer to a Registered dealer

Section 9 (4) of the Central Goods and Services Tax, 2017 (CGST Act in short) and Section 5(4) of Integrated Goods and Services Tax, 2017 (IGST Act in short) provides that tax in respect of the supply of taxable goods or services or both by a person, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.

But these provisions kept on hold through various notification issued time to time. Recently these provisions are postponed till 30.09.2018 vide notification dated 29.06.2018. TDS provisions of GST are also postponed till 30.09.2018.

Download CGST notification

Download IGST Notification

Refer below given analysis of applicability of RCM in case of unregistered person:-

Applicability of IGST-RCM on Unregistered person u/s 5(4):-

  1. 1st July, 2017 to 12th October, 2017:- IGST is payable on RCM basis on all interstate supply of goods or services or both, from very first rupee, received by a registered person from an unregistered person from outside state,
  2. 13th October, 2017 upto 30th Sept. 2018:- No IGST is payable on RCM basis on all interstate supply of goods or services or both, received by a registered person from an unregistered person located outside the state.
  3. IGST shall be payable on RCM basis from 1st Oct, 2018 on all interstate supply of goods or services or both, from very first rupee, received by a registered person from an unregistered person from outside state.

Applicability of CGST-RCM on Unregistered person u/s 9(4):-

  1. 1st July, 2017 and upto 12st oct., 2018:- Exemption to all intra-state supply of goods or services or both was granted to the registered person who receives such supply from an unregistered person from payment of CGST on RCM basis subject to thresh hold limit of Rs. 5,000.00 per day in aggregate as provided by way of a proviso to notification 8/2017.
  2. 13th Oct, 2018 and upto 30th Sept, 2018:That the exemption from payment of GST on RCM basis for receipt of intra-state supply of goods or services or both by a registered person from an unregistered person is applicable without any threshold limit w.e.f. 1st July, 2017 and upto 31st March, 2018.(Thershold limit of Rs. 5000/- omitted by notification 38/2017 dated 13.10.2017.
  3. If GST on RCM basis has not be paid by a registered person in compliance of Notification 8/2017 supra, there is no need to deposit the same now.
  4. Registered dealer can claim refund of GST paid on RCM basis upto 12th October, 2017 where the GST paid on RCM was not eligible for ITC
  5. That CGST and SGST shall be payable on RCM basis from 1st Oct., 2018 on all intra-state supplies of goods or services or both,received by a registered person from an unregistered person.

B. Services through an e-commerce operator

If an e-commerce operator supplies services then reverse charge will be applicable to the e-commerce operator. He will be liable to pay GST.

For example, UrbanClap provides services of plumbers, electricians, teachers, beauticians etc. UrbanClap is liable to pay GST and collect it from the customers instead of the registered service providers.

If the e-commerce operator does not have a physical presence in the taxable territory, then a person representing such electronic commerce operator for any purpose will be liable to pay tax. If there is no representative, the operator will appoint a representative who will be held liable to pay GST.

C. Supply of certain goods and services specified by CBEC

CBEC has issued a list of goods and a list of services under section 9(3) of CGST Act, on which reverse charge is applicable.

Click Here for list of services under Reverse Charge. (Click here to download)

List of the Services Notified for Reverse Charge under section 9(3) of CGST Act 

S No Description of supply of Service Supplier of service Recipient of service
1 Any service supplied by any person who is located in a non-taxable territory to any person other than nontaxable online  recipient. Any person located in a non-taxable territory Any person located in the taxable territory other than nontaxable online recipient.
2 GTA Services Goods Transport Agency (GTA) who has not paid integrated tax at the rate of 12% Any factory, society, cooperative society, registered person, body corporate, partnership firm, casual taxable person; located in the taxable territory
3 Legal Services by advocate An individual advocate including a senior advocate or firm of advocates Any business entity located in the taxable territory
4 Services supplied by an arbitral tribunal to a business entity An arbitral Tribunal Any business entity located in the taxable territory
5 Services provided by way of sponsorship to any body corporate or partnership firm Any person Any body corporate or partnership firm located in the taxable territory
6 Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding, – (1) renting of immovable property, and (2) services specified below- (i)services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Central Government, State Government or Union territory or local authority;(ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port oran airport (iii) transport of goods or passengers. Central Government, State Government, Union territory or local authority Any business entity located in the taxable territory
6A Services supplied by the Central Government, State Government, Union territory or local authority by way of renting of immovable property to a person registered under the Central Goods and Services Tax Act, 2017 (12 of 2017).** Added with effect from 25.01.2018 Central Government, State Government, Union territory or
local authority
Any person registered under the
Central Goods and Services
Tax Act, 2017 read with clause (v) of section 20 of
Integrated Goods and Services Tax Act, 2017.
7 Services supplied by a director of a company or a body corporate to the said company or the body corporate A director of a company or a body corporate The company or a body corporate located in the taxable territory
8 Services supplied by an insurance agent to any person carrying on insurance business An insurance Agent Any person carrying on insurance business, located in the taxable territory
9 Services supplied by a recovery agent to a banking company or a financial institution or a non banking financial company A recovery Agent A banking company or a financial institution or a non banking financial  company, located in the taxable territory
10 Services supplied by a person located in non- taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India A person located in non-taxable territory Importer, as defined in clause (26) of section 2 of the Customs Act, 1962 (52 of 1962), located in the taxable territory
11 Supply of services by an author, music composer, photographer, artist or the like by way of transfer or permitting the use or enjoyment of a copyright covered under section 13(1) (a) of the Copyright Act, 1957 relating to original literary, dramatic, musical or artistic works to a publisher, music company, producer or the like Author or music composer, photograph her, artist, or the like Publisher, music company, producer or the like, located in the taxable territory
12 Supply of services by the members of Overseeing Committee to Reserve Bank of India Members of Overseeing Committee constituted by the Reserve Bank of India Reserve Bank of India.

 

List of Goods under reverse charge.

List of the notified goods under section 9(3) of CGST Act on which Reverse Charge Mechanism is applicable:-

S No Particulars of supply of Goods Supplier of Goods Recipient of Goods
1 Cashew nuts, not shelled or peeled Agriculturist Any registered person
2 Bidi wrapper leaves (tendu) Agriculturist Any registered person
3 Tobacco leaves Agriculturist Any registered person
4 Silk yarn Any person who manufactures silk yarn from raw silk or silk worm cocoons for supply of silk yarn Any registered person
5 Raw cotton Agriculturist Any registered person.
6 Supply of lottery State Government, Union Territory or any local authority Lottery distributor or selling agent
7 Used vehicles, seized and confiscated goods, old and used goods, waste and scrap Central Government, State Government, Union territory or a local authority Any registered person

Time of Supply in Case of Reverse Charge.

A. Time Of Supply in case of Goods

In case of reverse charge, the time of supply shall be the earliest of the following dates:

  • the date of receipt of goods
  • the date of payment*
  • the date immediately after 30 days from the date of issue of an invoice by the supplier

If it is not possible to determine the time of supply, the time of supply shall be the date of entry in the books of account of the recipient.

*This point is no more applicable based this Notification No. 66/2017 – Central Tax issued on 15.11.2017

B. Time Of Supply in case of Services

In case of reverse charge, the time of supply shall be the earliest of the following dates:

  • The date of payment
  • The date immediately after 60 days from the date of issue of invoice by the supplier

If it is not possible to determine the time of supply, the time of supply shall be the date of entry in the books of account of the recipient.

Other Important Points about Reverse Charge.

  • Self-invoicing is to be done when you have purchased from an unregistered supplier AND such purchase of goods or services falls under reverse charge. This is due to the fact that your supplier cannot issue a GST-compliant invoice to you, and thus you become liable to pay taxes on their behalf. Hence, self-invoicing, in this case, becomes necessary.
  • All taxpayers required to pay tax under reverse charge have to register for GST and the threshold of Rs 20 Lakhs is not applicable to them.
  • Tax paid on reverse charge basis will be available for input tax credit if such goods and/or services are used, or will be used, for business. The recipient (i.e., who pays reverse tax) can avail input tax credit. But ITC cannot be used for payment of tax under reverse charge.
  • An ISD cannot make purchases liable to Reverse Charge. If the ISD wants to procure such supplies and take the Reverse Charge paid as credit, the ISD should register as a Normal Taxpayer.
  • Unlike Service Tax, there is no concept of partial reverse charge in GST.

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