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Reverse charge means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of goods or services or both under Section 9 (3) or Section 9 (4) of CGST Act, ( Central Goods and Service Tax Act) or Section 5 (3) or Section 5 (4) of the IGST Act ( Integrated Goods and Services Tax Act).

Section 9(4) of the CGST Act provides for 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. The Tax is paid by the registered person as the recipient of goods and services. All the provisions of the Act shall apply to such recipient as if he is the person liable for paying the tax.

If we examine the above provision of GST Liability to pay GST under reverse charge on purchases or services procured from un registered dealers or service providers, the Liability has been shifted from the supplier of goods or provider of services to the receiver of goods or receiver of services if he is a registered person.

On further understanding of the provisions, it will be clear that it is the liability of the person who is receiving goods and services and utilising them for the business or furtherance of business. All the business organisations whether small or big will have urgencies and necessity to use the services of small time vendors, service providers, and services of skilled man power who will be un organised sector and will not have registration under GST.

For example:

  1. If we analyse an organisation or a small business house’s small time requirements, there will be petty purchases and expenses of staff welfare, where it requires for purchase of Milk, coffee powder, tea powder, sugar etc.
  2. The supply of water to the business by a water taker provider (it is the most essential requirement in SMEs).
  3. Services of a plumber where there is water leakage.
  4. Photo copy services,
  5. Book binding services,
  6. Small electrical repair or a general up keep.
  7. Purchase of a Bulb.
  8. Purchase of Pen for office.
  9. Purchases for Puja and payments to Pandit.

Every registered person availing services from anun registered dealer or purchasing goods from un registered dealer has to pay the GST under the respective HSN Code of the Service / Goods by raising an Invoice. It means all the registered persons, liable for GST for un registered services/ goods are to raise Invoice on self and file returns to take Input Tax Credit.

This will be additional activity for the registered dealers who are liable to pay GST under reverse charge mechanism and are supposed to know the rate of GST and HSN code for each and every category of service or goods procured.

Usual practice of the industry is to ascertain the service category and HSN code for the Goods produced or Services rendered by that industry for billing. But the effect of reverse charge under GST will make all the Tax Payers to know the rate of GST and HSN codes for all the purchases and services ( un registered). So an expert advice will be mandatory for all the GST payers. A small size business house/ SME/ distributor who has employed an accountant, need to take the services of an expert.

Why not a simple mechanism of reverse charge payment and filing of returns where the registered dealers pay the GST for all the un registered goods and services with one Invoice and the category registered by the registered person who is liable to pay the GST under reverse charge mechanism.

All most all of the emergency purchases and small repair and plumbing works and services are done by un registered persons. Hence the liability to pay GST will fall on the registered person who has availed these services or procured goods. It means SMEs/ business organisations are forced to incur additional tax liability, compliance,  ( cash flow) on these procurements from an un registered person.

By this activity it is tendency of the business to reduce purchases from unregistered persons or to avoid services from un registered persons. We could see the news and articles from industry, preparations for GST, to comply with GST and to avoid / reduce purchases from unregistered persons.

If the industry/ business houses/ SMEs stop the services of un registered person, there will not be any purchases from small time vendors, or utilization of services from skilled man power who are self employed and not registered.

GST paid by the recipient under reverse charge on some of the purchases or services from un registered persons, may be available Input Tax Credit, but not on all the goods and services paid under revere charge, as there are restrictions and conditions for Input Tax Credit.

What is the motto of the Government, is it bringing all the activities of small timers to bring under tax net? Or ease of business for the industry or, /making it convenience for the Government.

Implementation of GST is evident and very short time for the industry to look for alternatives or change a vendor. It is the testing time for all till a clear path is ahead.

M Sudhakar, Advocate

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  1. PRITESH MALAV says:


  2. Anju says:

    Hai Sir

    we are receiving services from interstate Unregistered Persons and Place of supply is within the state. we are liable to Pay Reverse charge or not?

  3. dilip says:

    Sir, after 13 oct as govt has declared no RCM applied, pl. guide, on purchase from URD for trading purpose what we do, we have to pay full liability as on sales, no itc will be entertain.

  4. udit says:

    what do i do when i purchase paper scrap from an unregestered seller like feri wala ,
    my business is from them how can i ignore them because my business run on them and they (feri wala) cant get gst number how can i give their tax

  5. Girish Chandra says:

    When a registered Dealer purchases Natural Rubber from a farmer what kind of Invoice/Bill could he issue.
    Would the Regd dealer have to pay tax on the purchase
    If he sold out the entire purchase on same month will he get Input Tax Credit in the same month

  6. Girish Chandra says:

    When a registered Dealer purchases Natural Rubber from a farmer what kind of Invoice/Bill could he issue.
    Would the Regd dealer have to pay tax on the purchase
    If so will he get Input Tax Credit in the same month

  7. Dipesh Shukla says:

    If we procure goods/ services from vendors who are not registered under GST that under the reverse charge mechanism the liability to pay GST

    we registered under section 12AA,charitable activities

  8. Capt jojo Chandi says:

    Natural Rubber is taxed at 5%.

    When a registered Dealer purchases Natural Rubber from a farmer what kind of Invoice/Bill could he issue.
    Would the Regd dealer have to pay tax on the purchase
    If so will he get Input Tax Credit in the same month

  9. Mohd Qasim says:

    if an unregistered dealer provide service to a registered dealer so who will be liable to pay tax?

    if an unregistered dealer sold goods to unregistered dealer then who will be liable for tax paying.

  10. M. JAYASEELAN says:

    I want know , RCM is eligible or not for pur.of milk, sugar, tea power from unregistered vendor to registered company. If is what is the rate of tax and HSN code for the above.

  11. ramesh agarwal says:

    we are dealing in hosiery and textile waste, our mainly purchase are from small vendors collecting scraps from small garment factories all are maximum illiterate or uneducated person . how will show our purchase in books ?

  12. P Syamala Rao says:

    We are small contractor registered we will purchase sand, metal and bricks from un registered dealer. Then who has pay the GST.

  13. anupam choudhary says:

    Dear Sir,
    Me ke hotel chalata hu, or jese me bad sheet , housekeeping ke liye payment karta hu jo unregistred h. to me ese me kya kru.or mujhe pe kya rules applicable honge under GST. Payment jo kar raha hu uska invoice kese lu kuki small wokr karne wale to accounting karte nhi h.ese me kya karu

  14. nirmal says:

    Reverse charge michenisam will work only for those who are getting money by cheque or bank transection in the business like all retailers may have turn over more than 50000000 will not be worried about this because theny will simply not book the bill and directly they they paid from cash received and they also not raise the invoice for cell. So this is totally bad idea of government. Government only poking those who have income in white no worries for the person who receive money is cash

  15. Pawan says:

    Notification no. 8/2017 -CT (rate) dtd 28/06/2017 will be applicable on RCM services/goods from unregistered dealer(intra state) less then 5000/-

  16. soniya shah says:

    sir registration is not compulsory upto 20lakhs,then how the services of housekeeping security charges will be charged under rcm

  17. V K Kataria says:

    Sir, this section 9(4) of CGST, in some or rather most of the cases, is practically a case of “DOUBLE TAXATION”
    For example if a small un register business enterprise procures goods from a registered dealer than GST on those goods must have already paid. Now if that unregistered business enterprise supplies those goods to another registered dealer, that second registered dealer is again liable for TAX. Is it not a double taxation ?



  19. Paul says:

    Excellent observations. Govt. simply thrusting everything on the Companies instead of using its own machinery to collect taxes from Unregistered dealers. They should not dump their responsibility to the registered Dealers and collect taxes thru them. Also there is no mechanism for provide data about unregistered dealers to Govt. by way of any unique code..

  20. SAGAR DAVDA says:

    Agree with you. This is will be very chaos situation for all registered dealer.

    Reverse Charge provision is applicable to even dealer who is opt for composite scheme. that sis also at rate applicable (not under composite rate). How would they get credit of tax paid on RCM ?


    Indirect message of GST is clear, everyone under GST net. Today, they have exempted small dealers, but other conditions are such that tomorrow even they would prefer to register, lest they shall perish.

    Now most of the GST dealers will not buy anything from unregistered dealer. So they will eventually get themselves registered under GST to prevent losing out against registered dealers.

  22. Alkesh says:

    Sir, (1) RCM to be paid from CASH ledger only?
    and (2) Can ITC be taken in the same month or in the next month after filing of return of the month?

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May 2024