Basics of Reverse Charge
In GST, generally, the supplier of the goods or service is liable to collect the tax on supply from the receiver on behalf of the government. He shall also be liable to pay the same to the government by the specified date. However, in case of a reverse charge, the receiver of the goods or service becomes liable to pay the tax on supply to the government.
Here, I will discuss the legal provisions regarding the applicability of reverse charge.
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Applicability of Reverse Charge
Applicable Legal Provisions
As per section 9(3) of the CGST Act, 2017, the Government may, on the recommendations of the Council, specify categories of supply of goods or services or both by notification on which the tax shall be paid on reverse charge basis by the recipient of such goods or services or both.
According to section 9(4) of the CGST Act, 2017, tax in respect of the supply of taxable goods or services or both by an unregistered supplier, to a registered person, shall be paid by such registered person on a reverse charge basis.
As per Notification No. 22/2018 dated 6th August 2018, the applicability of the provisions of the principal Notification No. 8/2017 dated 28th June 2017, regarding the applicability of the reverse charge in case of supply of taxable goods or services by an unregistered supplier to a registered person where the aggregate value is more than 5,000 rupees in a day has been deferred till 30.09.2019.
Understanding the Legal Provisions
According to the aforesaid provisions, Reverse Charge is applicable on the 2 following cases:
Case A: Supply of certain goods or specified services published in the Official Gazette by the issue of notification
The CBIC has issued a list of Goods and Services on which reverse charge is applicable.
Also Read: List of Goods and Services on which Reverse Charge is Applicable
Case B: Supply of taxable goods or services or both by an unregistered supplier, to a registered person
The applicability of the provision of reverse charge, in this case, has been deferred till 30.09.2019.
E-Commerce Operator
Many E-Commerce Operator has the confusion regarding the applicability of reverse charge. Let us now examine the same.
Applicable Legal Provisions
As per section 9(5) of the CGST Act, 2017, the Government may, on the recommendations of the Council, specify categories of services by notification on intra-State supplies of which the tax shall be paid by the electronic commerce operator if such services are supplied through it.
Provided that where an electronic commerce operator does not have a physical presence in the taxable territory then representative shall be liable to pay the tax. In case, there is no representative in the said territory, then such electronic commerce operator shall have to appoint a person for the purpose of paying tax and such person shall be liable to pay tax.
Understanding the Legal Provisions
The Government has specified certain services on which tax is to be paid by the e-commerce operator. These services are provided as follows –
- Transportation of Passengers by Radio-taxi, Motor-cab, Maxi cab and Motor Cycle
- Services of Short Term Accommodation
- Services by way of housekeeping, such as plumbing, carpentering and etc
One has to note that, in this case, since the E-Commerce operator is neither the supplier nor the receiver of service. He is only providing intermediary services through its platform which connects the supplier and the recipient.
For Example, Uber through its E-Commerce platform provides the service of transportation of passengers by Cab. Uber is neither the supplier, in this case, the driver, nor the receiver of service, in this case, passenger. Now, Uber has to collect the tax from passenger and pay it to the government.
Hence, the tax paid by the e-commerce operator on behalf of the supplier is not covered under reverse charge mechanism.
Time of Supply under RCM
Applicable Legal Provisions
As per section 12(3) of the CGST Act, 2017, in case of supply of goods on which tax is paid on a reverse charge basis, the time of supply shall be the earliest of the following dates, namely
(a) the date of the receipt of goods, or
(b) the date of payment in the books of account or the date on which payment is debited in the bank account of the recipient, whichever is earlier, or
(c) the date immediately following thirty days from the date of issue of invoice or any other document,
Provided that where it is not possible to determine the time of supply under clause (a) or clause (b) or clause (c), the time of supply shall be the date of entry in the books of account of the recipient of the supply.
As per section 13(3) of the CGST Act, 2017, in case of supply of services on which tax is paid on a reverse charge basis, the time of supply shall be the earlier of the following dates, namely
(a) the date of payment in the books of account or the date on which the payment is debited in the bank account of the recipient, whichever is earlier, or
(b) the date immediately following sixty days from the date of issue of invoice or any other document,
Provided that where it is not possible to determine the time of supply under clause (a) or clause (b), the time of supply shall be the date of entry in the books of account of the recipient of supply.
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Understanding the Legal Provisions
Let us take a simple example to understand the aforesaid provisions.
In Case of Goods,
- Date of Payment – 13th Aug 2018
- Invoice Date – 5th July 2018
- Date of Entry in books by recipient – 14th Aug 2018
- Date of receipt of goods – 18th Aug 2018
In this case, the time of supply shall be 5th Aug 2018
In Case of Services,
- Date of Payment – 13th Oct 2018
- Invoice Date – 5th July 2018
- Date of Entry in books by recipient – 14th Oct 2018
In this case, the time of supply shall be 4th Sept 2018
Compliances under RCM
Registration Requirement
Applicable Legal Provisions
As per section 24 of the CGST Act, 2017, notwithstanding anything contained in
Understanding the Legal Provisions
Any person who is required to pay tax under reverse charge has to compulsorily register under GST right from the start. That is to say, irrespective of the threshold limit of 20 or 40 lakhs, or 10 lakhs in case of some special category states.
Invoicing and ITC under RCM
Applicable Legal Provisions
As per section 31(3)(f) of the CGST Act, 2017, a registered person who is liable to pay tax under section 9(3) or 9(4) shall issue an invoice in respect of goods or services or both received by him from the supplier who is not registered on the date of receipt of goods or services or both. The invoice issue in this regard shall be subject to rule 46 of the CGST Rules, 2017.
According to section 31(3)(g) of the CGST Act, 2017, a registered person who is liable to pay tax under section 9(3) or 9(4) shall issue a payment voucher at the time of making payment to the supplier.
As per the second proviso of rule 46 of CGST Rules, 2017, where an invoice is required to be issued as per section 31(3)(f), a registered person may issue a consolidated invoice at the end of a month for supplies covered under section 9(4) the aggregate value of such supplies exceeds rupees five thousand in a day from any or all the suppliers.
According to rule 36 of the CGST Rules, 2017, The input tax credit shall be availed by a registered person, on the basis of an invoice issued in accordance with the provisions of section 31(3)(f), subject to the payment of tax.
Understanding the Legal Provisions
Invoicing is to be done by the receiver himself if the goods or services fall under reverse charge, and he purchased the same from an unregistered supplier.
One has to note that the provision regarding the issue of consolidated invoice at the end of the month has been deferred till 30.09.2019.
Self Invoicing is to be done because the supplier is unregistered. Therefore, he cannot issue a GST compliant invoice. And, thus recipient becomes liable to pay taxes on their behalf.
Also, in case of a reverse charge, the Input tax credit can be availed and utilized by the recipient on the basis of the invoice issued but after the payment of tax. Any amount payable shall be paid by debiting the electronic cash ledger i.e. to be paid in cash.
Details regarding all the invoices issued in respect of supplies attracting a reverse charge, to be furnished separately in table 4B of GSTR-1.
Also Read : What is GST (Goods and Services Tax) in India?
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