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Payment of GST on Supply of GOODS under Reverse Charge Mechanism: A big dilemma
Prior to introduction of GST, Reverse Charge Mechanism was common for Service Sector as several of the services were in Reverse Charge. Thus Service Sector is well confortable with the Reverse Charge provisions. However the goods sector is in dilemma as with GST set to be roll-out from the mid-night of 30th June, the manufacturing and trading sector will face a big change with respect to Payment of GST on Reverse Charge in respect of Goods.
Power to levy GST on recipient under reverse charge arrives from Section 9(3) of CGST Act, 2017 and Section 5(3) of IGST Act, 2017 which says that “The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both 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”
Central Government in terms of Notification No. 4/2017- Central Tax (Rates) and Notification No. 4/2017- Integrated Tax (Rates) has notified certain goods, taxes on which shall be paid by recipient subject to some conditions.
|Statement showing supplies of goods under reverse charge|
|Sr. No.||Description of Goods under reverse charge||Supplier of goods||Recipient of supply (Person liable to pay GST under Reverse Charge)|
|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||Supply of Lottery||State Government, Union Territory or any local authority||Lottery distributor or selling agent|
However Notification No. 8/2017- Central Tax (Rate) dated 28.06.2017, gives an exemption to the aforesaid provision by providing that “the Central Government, on being satisfied that it is necessary in the public interest so to do, on the recommendations of the Council, hereby exempts intra-State supplies of goods or services or both received by a registered person from any supplier, who is not registered, from the whole of the central tax leviable thereon under sub-section (4) of section 9 of the Central Goods and Services Tax Act, 2017.
Provided that the said exemption shall not be applicable where the aggregate value of such supplies of goods or service or both received by a registered person from any or all the suppliers, who is or are not registered, exceeds five thousand rupees in a day.”
Although a little relaxation have been given by providing a monetary threshold of RS. 5,000 for a day, Reverse Charge Mechanism will prove to be a big hurdle for a manufacturing sector or for small traders. It may also lead to discouraging the purchases from small tax payers who are within the threshold of Rs. 20 Lakhs.
(Disclaimer: This write up is based on the understanding and interpretation of author and the same is not intended to be a professional advice.)
[The author is a Chartered Accountant and can also be reached at firstname.lastname@example.org]