CA Manu Tayal
What is Reverse Charge Mechanism?
Central Government in terms of Notification No. 4/2017- Central Tax (Rates) DT: 28.06.2017 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 |
1. Thus in serial number 1, 2 and 3, if supplier of these goods is agriculturist and the recipient is any registered person, taxes needs to be paid by such registered person under reverse charge. However if recipient is unregistered, the supply would fall under normal charge.
2. In case of Silk Yarn, if supplier is manufacturer of silk yarn and recipient is any registered person, GST needs to be paid by such registered person under reverse charge.
3. In case of Lottery, if supplier of lottery is State Government, UT or any local authority and recipient is lottery distributor or selling agent, GST needs to be paid by such lottery distributor or selling agent.
4. For all other supplies of goods, GST will be paid by the supplier under forward charge. However taxes needs to be paid under reverse charge for any supply of goods if supplier of goods is an un-registered person and recipient is registered.
Central Government in terms of Notification No. 13/2017- Central Tax (Rates) DT: 28.06.2017 has notified certain services, taxes on which shall be paid by recipient subject to some conditions.
Category of Supply of Services | Supplier of service | Recipient of Service |
Supply of Services by a goods transport agency (GTA) | Goods Transport Agency (GTA) | (a) Any factory registered under or governed by the Factories Act, 1948(63 of 1948); or (b) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India; or (c) any co-operative society established by or under any law; or (d) any person registered under the Central Goods and Services Tax Act or the Integrated Goods and Services Tax Act or the State Goods and Services Tax Act or the 2 Central Goods and Services Tax Act or the Integrated Goods and Services Tax Act or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act; or (e) any body corporate established, by or under any law; or (f) any partnership firm whether registered or not under any law including association of persons; or (g) any casual taxable person. Union Territory Goods and Services Tax Act; or (e) any body corporate established, by or under any law; or (f) any partnership firm whether registered or not under any law including association of persons; or (g) any casual taxable person; located in the taxable territory |
Services supplied by an individual advocate including a senior advocate by way of representational services before any court, tribunal or authority by way of legal services, to a business entity. | An individual advocate including a senior advocate or firm of advocates | Any business entity located in the taxable territory |
Services supplied by an arbitral tribunal to a business entity. | An arbitral tribunal | Any business entity located in the taxable territory |
Services provided by way of sponsorship to a body corporate or partnership firm. | Any person | A body corporate or partnership firm located in the taxable territory. |
Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding, –
(1) renting of immovable property, and (2) services specified below- (i) services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Central Government, State Government or Union territory or local authority; (ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) transport of goods or passengers |
Central Government, State Government, Union territory or local authority | Any business entity located in the taxable territory. |
Services supplied by a director of a company or a body corporate to the said company or the body corporate. | A director of a company or a body corporate | The company or a body corporate located in the taxable territory. |
Services supplied by an insurance agent to any person carrying on insurance business | An insurance agent | Any person carrying on insurance business, located in the taxable territory. |
Services supplied by a recovery agent to a banking company or a financial institution or a nonbanking financial company. | A recovery agent | A banking company or a financial institution or a non-banking financial company, located in the taxable territory. |
Supply of services by an author, music composer, photographer, artist or the like by way of transfer or permitting the use or enjoyment of a copyright covered under clause (a) of sub-section (1) of section 13 of the Copyright Act, 1957 relating to original literary, dramatic, musical or artistic works to a publisher, music company, producer
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Author or music composer, photographer, artist, or the like | Publisher, music company, producer or the like, located in the taxable territory |
Section 9(4) shall come into play if the below conditions are met:
a. There should be supply.
b. Supply should be in respect of taxable goods or services or both.
c. Supply must be by unregistered person.
d. Supply must be to registered person.
1. If the supply involved exempt goods or services or both this section won’t be applicable.
Examples:
1. A registered person hire auto rickshaw for commuting from one place to another. Section 9(4) would not be applicable since transportation of passenger by auto rickshaw is exempted services.
2. A registered person stay in a hotel whose room tariff is less than Rs. 1,000. Section 9(4) won’t be applicable since services by a hotel having declared tariff less than Rs. 1,000 per day or equivalent is an exempt service.
3. Supply is intra- state, supplier of goods is an un-registered person and recipient is registered, and the aggregate value of all such supplies in a day exceeds Rs. 5,000 then GST on such supply will needs to be paid by the recipient under reverse charge.
Persons not liable for Registration?
Central Government in terms of Notification No. 5/2017- Central Tax DT: 19.06.2017:” The Central Government hereby specifies the persons who are only engaged in making supplies of taxable goods or services or both, the total tax on which is liable to be paid on reverse charge basis by the recipient of such goods or services or both under sub-section (3) of section 9 of the said Act as the category of persons exempted from obtaining registration under the aforesaid Act.”
Compulsory Registration in Certain Cases?
Time of supply for goods under reverse charge ?
As per Section 12(3) of CGST Act 2017, “In case of reverse charge, the time of supply shall be the earliest of the following dates—
(a) the date of receipt of goods OR
(b) the date of payment OR
(c) the date immediately after THIRTY days from the date of issue of invoice by the supplier .
If it is not possible to determine the time of supply under (a), (b) or (c), the time of supply shall be the date of entry in the books of account of the recipient.
For clause (b)- the date of payment shall be earlier of-
1. The date on which the recipient entered the payment in his books
OR
2. The date on which the payment is debited from his bank account
Example:
1. Date of receipt of goods 15th May 2017
2. Date of payment 15th July 2017
3. Date of invoice 1st June 2017
4. Date of entry in books of receiver 18th May 2017
Time of supply of goods 15th May 2017
If for some reason time of supply could not be determined supply under (1), (2) or (3) then it would be 18th May 2017 i.e., date of entry.
Time of supply for services under reverse charge ?
(a) The date of payment
OR
(b) The date immediately after SIXTY days from the date of issue of invoice by the supplier (30 days for goods)
If it is not possible to determine the time of supply under (a) or (b), the time of supply shall be the date of entry in the books of account of the receiver of service.
For clause (a)- the date of payment shall be earlier of-
1. The date on which the recipient entered the payment in his books
OR
2. The date on which the payment is debited from his bank account
When supplier is located outside India
In case of ‘associated enterprises’, where the supplier of service is located outside India, the time of supply shall be-
1. the date of entry in the books of account of the receiver OR
2. the date of payment
-whichever is earlier
Example for reverse charge:
1. Date of payment 15th July 2017
2. Date of invoice 1st July 2017
3. Date of entry in books of receiver 18th July 2017
Time of supply of service 15th May 2017
If for some reason time of supply could not be determined supply under (a) or (b) then it would be 18th July 2017 i.e., date of entry in books.
Invoice in case of reverse charge ?
GST on reverse charge To be Paid Through Cash/Bank .
As per Section 41(2) of CGST Act 2017,” The credit referred to in sub – section (1) shall be utilized only for payment of self assessed output tax as per the return referred to in the said sub section.
Availability of Input Tax Credit of GST Paid on reverse charge basis .
(a) the integrated goods and services tax charged on import of goods;
(b) the tax payable under the provisions of sub-sections (3) and (4) of section 9;( Reverse Charge )
(c) the tax payable under the provisions of sub-sections (3) and (4) of section 5 of the Integrated Goods and Services Tax Act;
(d) the tax payable under the provisions of sub-sections (3) and (4) of section 9 of the respective State Goods and Services Tax Act; or
(e) the tax payable under the provisions of sub-sections (3) and (4) of section 7 of the Union Territory Goods and Services Tax Act,
but does not include the tax paid under the composition levy;
Entry for Purchase of Goods / Services Availed:
If purchases/services are availed within the state (Intra State)
Purchase / Expense A/c. ———10,000
Input CGST A/c. ——————- 900
Input SGST A/c. ——————- 900
To Creditors A/c. or Cash/Bank Ac —— 10,000
To CGST A/c Payable ———————–900
To SGST A/c Payable ———————–900
If purchases / services are availed from other state (Inter State)
Purchase / Expense A/c. ———10,000
Input IGST A/c. ——————– 1,800
To Creditors A/c. or Cash/Bank A/c. —— 10,000
To IGST A/c Payable ———————–1,800
If purchases / services are availed from other Country (Import)
Purchase / Expense A/c. ———10,000
Input IGST A/c. ——————– 1,800
To Creditors A/c. or Cash/Bank A/c. —— 10,000
To IGST A/c Payable ———————–1,800
Some Other Important Points.
(Author can be reached at camanutayal@gmail.com)
can u please tell me about invoicing under reverse charge mechanism.
whether invoice will be issued by service recipient or supplier
Dear Expert,
I would say in case of interstate supply, Section 9(4) would not get attracted since every person making interstate supply has to get himself registered. Hence, no unregistered person cannot make inter state supply.
Hence the govt is correct in not notifying the same under IGST ACT.
Thanks
Dear Expert,
As per notification 8/2017, purchase from URD in a day upto 5,000/-, no GST. Per day means we need to look at the date of invoice or receipt of goods or receipt of invoices on same day. For example, two invoices dated 5th July, we receive on 6th July and 7th July exceeding 5,000 in total or two different dated invoices receive by us on one particular date exceeding 5,000/-. Hope you may understood the issue? Please guide how to interpret such notification
Thanks in advance