PAYMENT OF TAX ON REVERSE CHARGE BASIS U/S. 9(3) OF CGST ACT

An overview by CA. O. P. Agarwalla

GST laws has come with provisions of taxation reverse charge basis. It case obligation of paying taxes by the recipient of supply of goods, services or both. Following two types of provisions have been enacted.

1. Reverse charge to be paid on supplies of specified goods and or services.

2. Reverse charge to be paid by registered person on receipt of taxable supply from unregistered persons.

Subject matter of this article is confined to the provisions relating to tax payment on reverse charge basis on receipt of specified goods, services or both. To begin with, at first we should look into the provisions under CGST Act and under IGST Act.

Section:- 9 (3) of the CGST Act, 2017:-

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.

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Section:- 5 (3) of the IGST Act, 2017:-

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.

From the above provisions, it is clear that the provisions of tax payment on reverse charge basis will be applicable subject to the following conditions:-

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1. There must be an inter-state or intra-state supply of goods or services or both by a person.

2. The said supply must be a supply of taxable goods or services or both. In case of exempted and nil rated supplies no tax is liable to be paid.

3. Such goods or services or both must be specified for this purpose by the Government.

4. The liability to pay tax will be of the recipient. All the provisions of these Acts shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply.

First point to be kept in mind that there must be a supply. The scope of the term supply has been discussed in section 7 of the CGST Act and the said section is applicable mutatis mutandis under IGST Act. Unless and otherwise the transaction falls under the ambit of ‘supply’, no question arises for payment of tax neither in forward charge system nor in reverse charge system.

Section 9(3) does not levy any additional tax, it merely shifts the burden of payment of taxes from the suppliers to the recipients. Tax under section 9(3) is not applicable on the supply of nil rated and exempted supplies.

The Government has issued two separate notifications bearing distinctive nos. 13/2017 Central Tax (Rate) and 04/2017 Central Tax (Rate) under CGST Act specifying respectively the goods and services, receipt of the supply of which, will attract  tax on reverse charge basis. Similar notifications have also been issued under SGST Acts and IGST Act.

Being the provisions are same in IGST Act, needless to say that tax on reverse charge will be payable on receipt of the supply of specified goods or services, under all the three laws. To make it more clear, CGST and SGST will be payable in case of receipt of such supply in course of intra-state trade or commerce and IGST will be payable in case of receipt of such supply in course of inter-state trade or commerce.

It is also worth discussing that applicability of section 9(3) is not limited to registered persons and is equally applicable on unregistered persons. It is immaterial that whether both the supplier and recipient or any of them or none of them are registered or unregistered under these Acts.

The next point is to be kept in mind is that “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”. The words under inverted

Discussion is warranted on the later part of section 9(3) of CGST Act and Section 5(3) of IGST Act, which contain that all the provisions of this Act shall apply to RECIPIENT as if he is person liable for paying the tax in relation to such supply. What does these words indicate? Does it mean that by virtue of these words, the recipient will be deemed to be a supplier for all the purposes of the Acts or whether these deeming provisions will cloths the recipient in a manner so that his location will be treated as the location of the supplier? Though some learned consultants have opined as above, but I fails to appreciate the said interpretation. It seems more acceptable view that the words “liable for paying the tax” restricts the applicability of these deeming provisions to the provisions relating to payment of taxes, i.e. applicability of correct rate of tax, valuation of supply, due date of payments, interest etc.

Let us take few queries to understand the provisions:-

Query 1- If a Tezpur (Assam) based person books goods with a GTA on behalf of a Guwahati(Assam) based person and the GTA delivers the goods at Tezpur and collects transportation charges.  Who is liable to pay tax and under which Act?

Answer:- Being the place of supply is “Assam” and location of supplier is “Delhi”, it will be an inter-state supply of taxable service and accordingly the recipient is liable to pay IGST in the state of Assam.

Answer:- Being the ‘place of supply’ and ‘location of supplier’, both are  in the same State , it will be an intra-state supply of taxable service and accordingly the recipient of service, who is the Guwahati based person will be liable to pay CGST and SGST in the state of Assam.

Query 2 If a Delhi based person books goods with a GTA on behalf of a Guwahati based person and the GTA delivers the goods at Guwahati and collects transportation charges.  Who is liable to pay tax and under which Act?

Answer:- Being the place of supply is “Assam” and location of supplier is “Delhi”, it will be an inter-state supply of taxable service and accordingly the recipient of service, who is the Assam based person, will be liable to pay IGST in the state of Assam.

Query-3 If a Guwahati, (Assam) based registered person take some legal services from an advocate at Kolkata and pays the fees. Who is liable to pay tax and under which Act?

Answer:- Being the place of supply is “Assam” and location of supplier is “West Bengal”, it will be an inter-state supply of taxable service and accordingly the recipient of service, who is the Assam based person will be liable to pay IGST in the state of Assam.

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One response to “GST: Payment of Tax Reverse Charge on receipt of supply of specified goods and/or services”

  1. Alok says:

    Sir i am a builder developing residential colony and sell only developed plots. a) is GST registration required for selling of developed plots ? b) IS RCM applicable on me if i take work contract services for colony development like road, drainage, etc from an UNREGISTERED CONTRACTOR or Material Supplier

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