Introduction

For past two days from the time the Central Board of Indirect Taxes and Customs (CBIC) issued few circulars on 29.01.2019 there is a confusion whether the inward supplies from Unregistered dealer taxable under RCM from 01.02.2019?. The following is an attempt to clear the air in this regard.

The CBIC through its ‘Notification No. 02/2019’ – Central Tax dated 29.01.2019 appoints the 1st day of February, 2019, as the date on which the provisions of the Central Goods and Services Tax (Amendment) Act, 2018 (31 of 2018), except clause (b) of section 8, section 17, section 18, clause (a) of section 20, sub-clause (i) of clause (b) and sub-clause (i) of clause (c) of section 28, shall come into force.

The present confusion is with regard to the applicability of the amended section 9(4)  in the Central Goods and Services Tax (Amendment) Act, 2018 here in after referred as the ‘Amended Act’ and also with regard to the continuing effect of Section 9(3) of the original GST Act, 2017 here in after referred as the “Principal Act” . For this purpose let us have a glimpse at section 9(3) and 9(4) in the original Act and amended section 9(4) of the Central Goods and Services Tax (Amendment) Act, 2018

Section 9(3) in the Principal Act

“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”

Accordingly the Central government notifies certain goods and services on which the tax shall be paid by all the Registered Persons on RCM basis. The point to be noted is by the notifications issued on 29.01.2019 there will not be any change on the taxation as far as RCM under section 9(3) is concerned.

Section 9(4) in the Principal Act

“The 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.”

The applicability of the above provisions was kept in abeyance by the Central Government through its Notification No. 8/2017-Central Tax (Rate) dated 28.06.2017 forthose Registered dealers whose aggregate value of such supplies of goods or service or both received  from any or all the suppliers, who is or are not registered, not exceeds  five thousand rupees in a day otherwise it will be applicable. However through its Notification No. 38/2017 – Central Tax (Rate) dated 13.10.2017 the principal Notification No: 8/2017 was amended and by removing the Restriction of Rupees 5000/-   the exemption form the provisions of section 9(4) was extended to all the registered persons from paying CGST under reverse charge u/s 9(4) on supply of goods or services from unregistered person to registered person till 31.03.2018. Through Subsequent amendments to the principal notification and finally vide last amended Notification No: 22/2018-Central Tax (Rate), dated the 6th August, 2018, the applicability of Section 9(4) differed up to 30.09.2019. Relevant notifications under IGST Act, 2017 and subsequent amendments were carried out on the similar lines to the CGST Act, 2017 to differ the applicability of the provisions of Section 5(4) to the IGST Act.

Section 9(4) of the Amended Act

The Central Goods and Services Tax (Amendment) Act, 2018 has introduced an amended Section 9(4) in place of the Original Section 9(4) which reads as follows

“The Government may, on the recommendations of the Council, by notification, specify a class of registered persons who shall, in respect of supply of specified categories of goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient of such supply of 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 such supply of goods or services or both”

Brief Particulars of Notification No. 02/2019 – Central Tax dated 29.01.2019

“In exercise of the powers conferred by sub-section (2) of section 1 of the Central Goods and Services Tax (Amendment) Act, 2018 (31 of 2018), the Central Government hereby appoints the 1st day of February, 2019, as the date on which the provisions of the Central Goods and Services Tax (Amendment) Act, 2018 (31 of 2018), except clause (b) of section 8, section 17, section 18, clause (a) of section 20, sub-clause (i) of clause (b) and sub-clause (i) of clause (c) of section 28, shall come into force.”

Brief particulars of Notification No. 01/2019 – Central Tax (Rate) dated 29.01.2019

In exercise of the powers conferred by sub-section (1) of section 11 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on being satisfied that it is necessary in the public interest so to do, on the recommendations of the Council, hereby rescinds the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 8/2017-Central Tax (Rate), dated the 28th June, 2017, published in the Gazette of India, Extraordinary, vide number G.S.R. 680 (E), dated the 28th June, 2017, except as respects things done or omitted to be done before such rescission.

This notification shall come into force with effect from the 1st day of February, 2019.

The effect of the above two  notifications for our discussion is that one the principal Notification No: 8/2017 dated 28.06.2017 last amended by Notification No: 22/2018-Central Tax (Rate), dated the 6th August, 2018, was rescind means withdrawn and the provisions of amended section 9(4) was made applicable in place of old one with effect from 01.02.2019.

Now a reasonable analysis  of amended section 9(4) reveals the following

1) The Central government should get the recommendation of the GST council from its future meetings regarding the ‘Specified class of registered persons’ and Specified categories of goods or services or both received from and Unregistered persons by such  specified persons for application of the provisions  of amended section 9(4).

2) On such  recommendation is received from the GST Council the Central Government has to issue a new notification in consonance with the recommendations.

3) From such date of new notification the provisions of amended section 9(4) is not applicable

4) Further to specifically note is that even after that the amended section 9(4) is applicable it will apply to only those specified class  of persons notified and that also  to only those specified categories of goods or  services or both procured by such persons from an unregistered person. Hence it will not be applicable to all the registered persons en masse.

5) The same will be applicable under IGST also as per the applicable provisions and notifications.

Conclusion: To conclude that as per the information available as on date practically the RCM under amended section 9(4) is not coming in to effect on 01.02.2019. For that we have to await for the new Notification from the government, we do not know which may be given retrospective effect. Keeping in view that this is an election year we may not expect  such a drastic step at least before the election which may have larger impact on business community.

Caution: The Views expressed in the above article is solely the opinion of the author on the subject and not to be considered as an advice on the payment of Tax under RCM. Hence the author is not responsible for any pecuniary loss caused to anybody in this regard.

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Qualification: CA in Practice
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Location: Hyderabad, Telangana, IN
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5 Comments

  1. M V Sitaramaiah says:

    I am agree with you sir. I think the new notification may be come after the elections. Hence upto that there is no RCM on supply & services received from unregistered persons.

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