Reverse Charge U/s 9(4) of CGST Act, 2017

As per Section 9(4) of CGST Act, 2017 if taxable person procures goods or services from unregistered person then recipient is subject to pay tax under reverse charge which is subject to double taxation.

For eg. :

A company purchases mineral water bottle from an unregistered person, then company has already paid all taxes on MRP basis on the said water bottle and further it is liable to pay tax under RCM as per section 9(4) /5(4) of Reverse Charge for which even credit is not allowed U/s 17(5) of CGST Act, 2017.

Issue :

(i)  Practically procurement of goods from unregistered suppliers could not be avoided wherein the limit of Rs.5,000 per day is very less.

(ii) Recipient is required to identify the HSN Code and rate of taxable goods or services and in few cases compensation cess is also liable to be paid e.g Mineral water bottle.

(iii) Tax has already being paid on such transaction leading to cascading & compliance of taxation.

Suggestion : It is suggested that :

(i) Reverse charge compliances U/s 9(4) be deferred for the MSE Sector having turnover of less than Rs. 2 Crore in a year / not subject to audit under U/s 35 of CGST Act, 2017

(ii) Reverse charge mechanism U/s 9(4) be liable to paid at a uniform rate say @ 18% only instead of HSN Code wise as credit of the same is available to the assessee and per day limit be enhanced to 10,000 for next one year till July, 2018.

(iii) Credit U/s 9(4) be available in all cases even for goods or services on which credit U/s17(5) is restricted one as it leads to cascading of taxes on which unregistered supplier has already paid the taxes at the time of procurement of goods from his immediate registered supplier.

Source- Suggestions on GST Implementation Issues by ICAI

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November 2020