Reverse Charge Mechanism (RCM) on purchases made from Unregistered Dealer under GST
As per Section 9(4) of CGST Act, 2017 and Section 5(4) of IGST Act, 2017 any Supply of goods or service from an Unregistered supplier to a Registered supplier will cast liability to Pay GST to the Government in the form of RCM i.e. Reverse charge mechanism.
As per provisions of Sec 31(3) of CGST Act, 2017 the Service Receiver under GST is require to issue taxable invoice on its own i.e. Self invoice. As Possession of Invoice is a basic element in order to claim ITC of Tax paid against any supply therefore self invoicing is required in order to avail Input tax credit of the Tax paid to government. Further it was found to be a negative provision because:
1. Registered dealer would purchase goods or services from registered Dealers instead of Un-registered dealers to avoid unnecessary difficulties.
2. In order to run the business Unregistered dealers will have to get themselves registered under GST voluntarily scheme even though they are not legally required to get registration.
Due to these difficulties Government has decided to exempt state supplies worth Rs. 5000/- per day from any Un-registered dealer vide Notification No. 08/2017- Central Tax (Rate) dated 28.06.2017. According to this Notification if the Registered Person purchase supplies above Rs. 5000 per day from Un-registered dealer then only he has to comply with the provisions as specified under GST law.
Further Government has amended Notification No. 08/2017- Central Tax (Rate) dated 28.06.2017 vide Notification No. 38/2017- Central Tax (Rate) dated 13.10.2017 which states that any registered person procuring taxable goods/services from unregistered suppliers, shall not be required to pay GST under reverse charge mechanism u/s 9(4) of CGST Act, 2017 and u/s 5(4) of IGST Act, 2017 w.e.f. 13.10.2017 till 31.03.2018. We need to keep in mind 2 important thing while doing GST Audit for F.Y. 2017-18:
After this Notification no. 12/2018- Central Tax (Rate) dated 29.06.2018 issued which further deferred the earlier notification till 30.09.2018. But after this CGST (Amendment) Act, 2018 dated 29.08.2018 has been issued which will be effective from 01.02.2019 and in this act old section 9(4) has been substituted by the new section which states that “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.”.
*Till now there is no such notification issued according to which the registered person will be liable to pay tax as per section 9(4) of the CGST (Amendment) Act, 2018.