Reverse charge mechanism under GST – Reverse gear of tax burden
By: – Lakhvinder Singh
Goods and Services Tax – GST
Dated:- 14-7-2017
A. Introductory provisions of reverse charge under GST Law.
• In terms of section 9(1) of Central Goods and Services Tax Act, 2017, Central Goods and Services Tax (CGST) shall be levied on all intra-state supplies of goods & services or both except the supply of alcoholic liquor for human consumption.
• In terms of section 5(1) of Integrated Goods and Services Tax Act, 2017, Integrated Goods and Services Tax (IGST) shall be levied on all inter-state supplies of goods & services or both except the supply of alcoholic liquor for human consumption.
• However, by virtue of section 9(3) of Central Goods and Services Tax Act, 2017 and section 5(3) of Integrated Goods and Services Tax Act, 2017, the Government on recommendations of council may specify categories of supply of goods or services or both wherein tax shall be paid u
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(98) of Central Goods & Services Tax Act, 2017: "Reverse charge means the liability to pay tax by the recipient of the supply of the goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or sub-section (4) of section 5 of the Integrated Goods & Services Tax Act."
• Reverse charge is only a mode of collection of CGST/SGST or IGST on Supplies of goods and services where the service receiver (may be wholly or partially) will be liable to pay CGST/SGST or IGST to Government.
• As per Section 9 of the CGST Act, 2017 there are two types of supplies which are liable to tax under reverse charge mechanism which are:
* Specified categories of supply of goods or services or both as notified under GST Law.
* Supply of taxable goods or services or both having value more than ₹ 5000/- per day by an unregistered supplier to a registered person.
C. Reasons for
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registered under the Societies Registration Act, 1860 or under any other law for the time being in force in any part of India. c) Any co-operative society established by or under any law. d) Any dealer of excisable goods, who is registered under the Central Excise Act, 1944 or the rules made there under. e) Any Body-corporate established, by or under any law; or f) Any partnership firm whether registered or not under any law including association of persons g) Casual Taxable Person
* Person who pays the freight shall be treated as receiver of service.
* Legal service
* Services provided by individual advocate or a firm of advocates including senior advocate.
* Service receiver should be a business entity in taxable territory.
* Liability of service receiver is 100%.
* Service provided to another advocate or firm of advocates; non business entity or business entity having turnover of less than ₹ 20 lacs in previous year exempted.
* Services of Arbitral Tribunal
&bul
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usiness entity located in taxable territory.
* Liability of service receiver – 100%
* Director's services
* Services provided by a director.
* Service receiver -Company or body corporate – liable for 100 %
* Services by An Insurance Agent
* Services provided by an insurance agent. • Service receiver is any person carrying on insurance business.
* Liability of service receiver – 100% Services by Recovery Agent
* Services provided by a Recovery Agent.
* Service receiver is Banking Company or Financial Institution or a non banking financial company.
* Liability of service receiver – 100%
* Goods Transportation up to Custom Station (Not Covered in CGST LAW)
* Services provided by way of transportation of goods by a vessel from a place outside India up to the Customs station of clearance in India by a person located in non-taxable territory to a person located in non-taxable territory.
* Importer as defined under sec. 2(26) of the Customs Act, 1962 is to be de
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Registered Person
5.
Supply of lottery
State Govt. Union Territory or any local authority
Lottery distributor or selling agent
F. Services on which reverse charge was applicable in earlier law are now out of reverse charge:
• To be provided by mutual fund agent or distributor to a mutual fund or asset management company.
• To be provided by a selling or marketing agent of lottery tickets to a lottery distributor or selling agent.
• Renting of motor vehicle except through e-commerce operators.
• Supply of manpower or security service.
• Work Contract Service
G. Issues
Is the reverse charge mechanism applicable only to services? – No, reverse charge applies to supplies of both goods and services.
Composition scheme not applicable for tax payable under RCM: It is important to note that for any tax payable under reverse charge mechanism, the option of payment under composition scheme will not be available as per the provision of section 10(1) of
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ent.
H. Difficulties/Conclusion
• It will be difficult for small business houses, who procure goods and services from unregistered dealers, to pay tax every time they procure such supplies and will become even more difficult for unregistered dealers to find buyers. Who will purchase goods from them? (Only limit is 5000/- per day.)
Reply By Maninder Singh as =
Sir,
As per section 5(4) of IGST Act, if a registered person purchase any goods or service exceeding ₹ 5000/- per day from any or all unregistered supplier, he is liable to pay IGST on reverse charge basis. However when we have a look on the section 24 of CGST Act, it says that person making any inter-state taxable supply, will have to take registration mandatory, it means that unregistered person can not make inter-state supply, So here how the question of reverse charge arise. Please correct me if I am taking a wrong view and clarify in case of goods or service or both.
I have one more query regarding the reve
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bt relating RCM of Rs.5000/- per day . please clarify with a example to clear the matter.
ALL UNREGISTERED DEALER:-
Suppose if I purchase from A – ₹ 5000/- Tea in a day , ₹ 4500/- Printing & Stationery from B, RS. 2000/- office expenses from C, Now the total unregistered purchase is ₹ 11500/- in a day. Is it liable to pay RCM.
I seen some youtube video , they are telling that ₹ 5000/- per day from a single person not in gross or in total. further I purchase ₹ 6000/- then may it be taxable in whole under RCM.
Dated: 15-7-2017
Reply By Rohit Bhura as =
Sir, under point D you have written
* Taxable territory – Whole of India except Jammu & Kashmir
But as GST is applicable to J & K also so the taxable territory should be whole of india
Dated: 15-7-2017
Reply By MANOHARAN ARUMUGAM as =
Sir,
For inter-state services the service provider has charges us IGST @ 18% But in the invoice, they have shown this as CGST & SGST. The service provider says that
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Beraji following is clarification regarding exemption of 5000 per day available on purchase from unregistered person:-
* In case of supply more than ₹ 5,000/- per day, whole of such supply shall be taxable under reverse charge.
* Limit is in respect of all suppliers, not in respect to one supplier.
Dated: 15-7-2017
Reply By Maninder Singh as =
Dear Sir,
Thanks for giving clarifications on the query. Request you to please share your opinion on reverse charge in case of interstate supply where registration is mandatory for a person making interstate supply.
Dated: 15-7-2017
Reply By swaminathan venkataraman as =
IMPROMPTU
The term 'reverse charge', as explained, calls for an elucidation. To be precise, the point not made quite clear is this: Whether the recipient acts only as a collecting agent of the levy; that is, the burden has to be picked up and borne by the supplier, in all situations?
To Dilate:
“• Reverse charge is ONLY A MODE OF COLLECTION of CG
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SER (for an in-depth deliberation by eminent Experts):
Should not, having regard to the foregoing aspects, even under the new concept of 'reverse charge', as to who has to bear the brunt of the levy require to be decided on a case-to-case basis?
If so inspired, suggest that, professionals in field practice, may search for, and look up the material on the subject topic, available in public domain , for useful guidance.
Dated: 16-7-2017
Reply By swaminathan venkataraman as =
WRT -"Taxable territory -Whole of India except Jammu & Kashmir"
There is another aspect which has been brought out and shared on Facebook / Linked in, intended for deliberation by eminent experts. That is on the point of doubt in one's mind, -whether it is amply clear that the service tax jurisdiction is limited to or extends beyond the territorial waters of India (i.e. 12 nautical miles ) . For comparison, need to keep in focus the areas of ongoing controversy , and issues still kept alive, in the ma
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evious scenario ???
What is the maximum purchase limit of goods from unregistered persons in cash ?????
Dated: 16-7-2017
Reply By Rohit Bhura as =
WRT -"Taxable territory -Whole of India except Jammu & Kashmir"
If i am supplying material to Jammu and kashmir than the GST on transportation of good would be payable by service recipient in J&K as per Reverse Change or the GTA (SERVICE PROVIDER)
Dated: 16-7-2017
Reply By Amit Choudhary as =
Lalhvinder Singh ji very nice article.
Sir I have query i.e. does advance payment to FOREIGN VENDOR for import of goods, liable to IGST under RCM as the foreign vendor is unregistered dealer as per GST Act ?
Further if we pay IGST on RCM basis on payment of advance, again the same will be taxed at the time of import when the BILL OF ENTRY will be filed, which implies double taxation.
Sir please clarify this issue.
Thanks in advance.
Dated: 17-7-2017
Reply By Gautam Kumar Bera as =
ALL UNREGISTERED DEALER:-
Suppose if I purchase
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24 of CGST Act specifies that Person making Interstate taxable Supply is liable for compulsory registration under GST. So if Place of Supply of the sender of goods falls in state different to his local state, then how come the GST be payable by Registered person under RCM u/s 5(4) because in this case sender would require to be compulsorly registered??
For Ex: A Supplier from U.P. purchases a machinery from Delhi by taking delivery at the factory gate of Unregistered Supplier of Delhi for Supply to another registered person in Delhi itself. In the said transaction, he himself arranges the transporter and the risk & rewards of the goods are transferred to recipient on the factory gate of person in delhi. What shall be the place of Supply???
– If i consider place of Supply at Delhi only- The same would amount to Intrastate Transaction, thus out of IGST. Will I be Liable to take registration as casual dealer??
– If The Place of Supply is U.P.- Who will discharge IGST?? Will the Supplie
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