Under GST law, generally supplier (seller of goods or services or both) collects tax from recipient (buyer/ customer of goods or service or both) and pay to the Government (net of ITC) (but ultimately GST is borne by end customer or consumer that is why it is called indirect tax) this mechanism is known as forward charge.
But in few cases due to administrative difficulties (e.g. supplier is located outside India, large number of small suppliers etc.), GST law has imposed responsibility on recipient of goods or services or both to pay GST by himself directly to the Government not by supplier so this mechanism is known as reverse charge or also referred as reverse charge mechanism (RCM). Under forward charge supplier was paying tax but reverse charge or RCM has cast responsibility on recipient to make payment of GST directly to the Government though recipient will eligible to claim ITC on such tax payment. Reverse charge has been defined under section 2(98) of CGST Act, 2017 and SGST Act, 2017. Reverse charge concept was there earlier in service tax law and few State VAT law (in the form of purchase tax)
Under GST there is no case of partial reverse charge as it was prevalent under Service tax law and GST law mandates 100% tax payment by recipient only even if supplier is registered under GST. If a person gets covered supplies where reverse charge is applicable then he is required to take registration under GST (section 24 of CGST Act, 2017 and SGST Act, 2017 – mandatory registration) irrespective of the fact whether he is making outward supply or not.
Initially GST law introduced section 9(4) of CGST Act, 2017 which created great hue and cry for businesses because earlier you had to pay GST under reverse charge for making inward supply of goods or services from unregistered person though there was exemption available for making intra-state inward supply from unregistered person upto Rs. 5,000 and ultimately government had to withdraw this provision and refer central tax (rate) notification No. 07/2019 which specified categories of services which are covered under section 9(4).
Reverse charge is applicable in case of specified goods (Central tax (rate) notification No. 04/2017 as amended from time to time) and services (Central tax (rate) notification No. 13/2017 as amended from time to) and RCM is also applicable under section 9(4) for specified categories of services.
There is also section 9(5) which casts responsibility on ECO (Electronic commerce operator) to pay GST for services provided by supplier through ECO’s platform (refer notification No. 17/2017 (rate)). Under this notification basically cab aggregators (e.g. Ola etc.), hotel aggregators (for accommodation purpose) (e.g. Oyo etc.) are covered.
Also refer notification No. 10/2017 integrated tax (rate) for inter-state supply of services covered under RCM.
For details you can refer section 2(98), 9, 24 of the CGST and SGST Act, 2017 and also notifications as amended from time to time.
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