Section 9(3) & 9(4) of GST Act and Section 5(3) & 5(4) of IGST Act
1. Meaning of Reverse Charge[(Section 2(98)]
“Reverse charge” means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under Section 9(3) and 9(4) of GST Act or under section 5(3) or 5(4) of the IGST Act .
2. Provisions of Reverse Charge in Service tax
Under the Service Tax Law, tax on Reverse Charge basis is leviable under various services but the concept of Reverse Charge on goods is totally a new concept under the GST regime. Sections 9(3) & 9(4) of the GST Act, 2017 deals with the provisions of Reverse Charge
3. Provision of Reverse Charge in GST Act[ Section 9(3) of GST Act]
Government, on recommendation of Council, by notification may specify categories of supply of goods and services or both, tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and provisions of this Act shall apply to such recipient as if he is person liable to pay tax in relation to such supply
4. Provision of Reverse Charge in GST Act [Section 9(4) of GST Act]
Central tax in respect of the supply of taxable goods or services or both by a supplier, 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.
5. Provision of reverse Charge in IGST Act [Section 5(3) of IGST Act]
In line with the provision of Section 9(3) and 9(4) in GST Act, Similar provision has been incorporated in Section 5(3) and 5(4) of the IGST Act,to levy tax on goods and services under the reverse charge basis on their Inter- state supply of goods or services or both . However Section 24 of the GST Act, provides for mandatory registration in case of interstate supplies. So if an unregistered dealer cannot make interstate supplies then whether a registered person can purchase goods/ services in the course of interstate trade or commerce from unregistered dealer? This is to be seen
6. Certain services on reverse charge by GST council meeting on 19.05.2017
GST Counsel in its meeting held on 19-05-2017 has approved certain services the tax on which tax shall be paid on reverse charge basis which are mostly the same items as are prevailing in the service tax regime. However the Government is still to come out with list of goods on which tax shall be paid on reverse charge basis.
7. Additional Responsibility of Registered person for purchase of goods or services from unregistered person
Now a registered person purchasing goods/ services from unregistered person has to pay tax on those goods/ services on his behalf on reverse charge basis and all the provisions of the Act will apply to him as he is the person supplying such goods or Services. Now this will lead to an extra blockage of capital and some extra compliance under the Act in this regards. So a registered person who procures any goods/ services from an unregistered dealer will have to pay tax on their receipt and then will have to claim ITC on the same subject to the conditions of the Act. Not only this ,a registered person receiving supply under reverse charge has to issue an invoice and payment voucher as per the requirement of section 31(3)(f) and section 31(3)(g) of GST Act which is reproduced as under .
8. Responsibility of Issuing Invoice by registered Person [Section 31(3)(f)]
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. ( Sample Format of Invoice is given below)
9. Responsibility of Issuing Payment voucher by registered Person
[Section 31(3)(g)] A registered person who is liable to pay tax under section 9(3) or 9(4) shallissue a payment voucher at the time of making payment to the supplier.( Sample Format of Payment voucher is given below)
10. Difficulty may arise to small business house
In normal course of business, we incur many expenses in relation to business or furtherance of business for example printing, stationery, packing, refreshment, traveling, and services like Chartered accountancy fees, legal services which we debit in our profit and loss account .So now a registered person will have to pay GST under reverse charge on all these procurement of goods and services if procured from an unregistered dealer. Suppose if a payment is to be made amounting to Rs. 50,000 to an accountant for preparing of books of accounts, then GST on Rs. 50000/- under reverse charge has to be made, if accountant is not registered under GST Act. So it will be very difficult for business houses particularly for small business houses who procure these goods/ services from unregistered person 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.
11. Format of Invoice
12. Format of Payment voucher