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Reverse Charge Mechanism on Goods and Services under GST

Generally, the supplier of goods or services is liable to pay GST. However, in specified cases like imports and other notified supplies, the liability may be cast on the recipient under the reverse charge mechanism.

Reverse Charge Mechanism on Goods and Services under GST Updated – Article till 01.01.2018

Generally, the supplier of goods or services is liable to pay GST. However, in specified cases like imports and other notified supplies, the liability may be cast on the recipient under the reverse charge mechanism. GST Reverse Charge means the liability to pay tax is on the recipient of supply of goods or services instead of the supplier of such goods or services in respect of notified categories of supply.

There are two type of reverse charge scenarios provided in law. First is dependent on the nature of supply and/or nature of supplier. This scenario is covered by section 9 (3) of the CGST/SGST (UTGST) Act and section 5 (3) of the IGST Act. Second scenario is covered by section 9 (4) of the CGST/SGST (UTGST) Act and section 5 (4) of the IGST Act where taxable supplies by any unregistered person to a registered person is covered.

As per the provisions of section 9(3) of CGST / SGST (UTGST) Act, 2017 / section 5(3)of 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.

Similarly, section 9(4) of CGST / SGST (UTGST) Act, 2017 / section 5(4) of IGST Act, 2017 provides that the 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. Accordingly, wherever a registered person procures supplies from an unregistered supplier, he need to pay GST on reverse charge basis. However, supplies where the aggregate value of such supplies of goods or service or both received by a registered person from any or all the unregistered suppliers is less than five thousand rupees in a day are exempted. ( Notification 8/2017-Central Tax (Rate) dated 28.06.2017). However, vide notification no.38/2017-Central Tax (Rate) dated 13.10.2017, (corresponding IGST notification no.32/2017-Integrated Tax (Rate) dated 13.10.2017) all categories of registered persons are exempted from the provisions of reverse charge under 9(4) of CGST / SGST (UTGST) Act, 2017 / section 5(4) of IGST Act, 2017, till 31.03.2018. This exemption is available only till 31.03.2018.

The provisions of section 9(4) of the CGST Act, 2017, will not be applicable to supplies made to a TDS deductor in terms of notification no.9/2017-Central Tax (Rate) dated 28.06.2017. Thus, Government entities who are TDS Deductors under Section 51 of CGST Act, 2015, need not pay GST under reverse charge in case of procurements from unregistered suppliers.

Registration: A person who is required to pay tax under reverse charge has to compulsorily register under GST and the threshold limit of Rs. 20 lakh (Rs. 10 lakh for special category states except J & K) is not applicable to them.

ITC:

A supplier cannot take ITC of GST paid on goods or services used to make supplies on which recipient is liable to pay tax.

Time of Supply

The Time of supply is the point when the supply is liable to GST. One of the factor relevant for determining time of supply is the person who is liable to pay tax. In reverse charge, recipient is liable to pay GST. Thus time of supply for supplies under reverse charge is different from the supplies which are under forward charge.

In case of supply of goods, time of supply is earliest of –

a) date of receipt of goods; or

b) date of payment as per books of account or date of deb­it in bank account, whichever is earlier; or

c) the date immediately following thirty days from the date of issue of invoice or similar other document.

In case of supply of services, time of supply is earliest of –

a) date of payment as per books of account or date of deb­it in bank account, whichever is earlier; or

b) the date immediately following sixty days from the date of issue of invoice or similar other document.

Where it is not possible to determine time of supply using above methods, time of supply would be date of entry in the books of account of the recipient.

Compliances in respect of supplies under reverse charge mechanism:

1. As per section 31 of the CGST Act, 2017 read with Rule 46 of the CGST Rules, 2017, every tax invoice has to mention whether the tax in respect of supply in the invoice is payable on reverse charge. Similarly, this also needs to be mentioned in receipt voucher as well as refund voucher, if tax is payable on reverse charge.

2. Maintenance of accounts by registered persons: Every registered person is required to keep and maintain records of all supplies attracting payment of tax on reverse charge

3. Any amount payable under reverse charge shall be paid by debiting the electronic cash ledger. In other words, reverse charge liability cannot be discharged by using input tax credit. However, after discharging reverse charge liability, credit of the same can be taken by the recipient, if he is otherwise eligible.

4. Invoice level information in respect of all supplies attracting reverse charge, rate wise, are to be furnished separately in the table 4B of GSTR-1.

5. Advance paid for reverse charge supplies is also leviable to GST. The person making advance payment has to pay tax on reverse charge basis.

Supplies of goods under reverse charge mechanism:

S/
No.
Description of
supply of Goods
Supplier of
goods
Recipient of Goods
1 Cashew nuts, not shelled or peeled Agriculturist Any regis-tered person
2 Bidi wrapper leaves (tendu) Agriculturist Any regis-tered person
3 Tobacco leaves Agriculturist Any regis-tered person
4 Silk yarn Any person who manufac- tures silk yarn from raw silk or silk worm cocoons for
supply of silk yarn
Any regis-tered person
 4A Raw cotton Agriculturist Any regis- tered person.
5 Supply of lottery State Govern- ment, Union Territory or any local au­thority Lottery dis-tributor or
selling agent
6 Used vehicles, seized and confis-cated goods, old and   used    goods,
waste and scrap
Central Gov- rnment, State Government, Union
territory or a local authority
Any regis-tered person

Supplies of services under reverse charge mechanism:

 S/ No.  Description of supply of Service  Supplier of service  Recipient of service
 1 Any service supplied by any person who is located in a non-taxable territory to any person other than nontaxable online recipient. Any person located in a non-taxable territory Any person located in the taxable territory other than nontaxable online recipient.
 2 GTA Services Goods Transport Agency (GTA) who has not paid integrated tax at the rate of 12% Any factory, society, cooperative society, registered person, body corporate, partnership firm, casual taxable person;

located in the taxable territory Reverse Charge Mechanism in GST

 3 Legal Services by advocate An individual advocate including a senior advocate or firm of advocates Any business entity located in the taxable territory
 4 Services supplied by an arbitral tribunal to a business entity An arbitral  tribunal Any business entity located in the taxable territory
 5 Services provided by way of sponsorship to any body corporate or partnership firm  Any person Any body corporate or partnership firm located in the taxable territory
 6 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
 7

 

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
 8

 

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
 9

 

Services supplied by a recovery agent to a banking company or a financial institution or a non-banking  financial company  A recovery agent A banking company or a financial institution or a non-banking financial company, located in the taxable territory
10 Services supplied by a person located in non- taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India A person located in non-taxable territory Importer, as defined in clause (26) of section 2 of the Customs Act, 1962(52 of 1962), located in the taxable territory
11 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 section 13(1) (a) of the Copyright Act, 1957 relating to original literary, dramatic, musical or artistic works to a publisher, music company, producer or the like

 

Author or music composer, photograph her, artist, or the like

 

Publisher, music company, producer or the like, located in the taxable territory Reverse Charge Mechanism in GST

 

 

12 Supply of services by the members of Overseeing Committee to Reserve Bank of India Members of Overseeing Committee constituted by the Reserve Bank of India

Reserve Bank of India.

What is Composition Scheme Under GST?

Our Recommendation on GST

Sr No.  Particulars
1 Registration under GST Law
2 Cancellation of Registration in GST
3 The Meaning and Scope of Supply
4 Composite Supply and Mixed Supply
5 Time of Supply in GST
6 GST on advances received for future supplies
7 Concept of Aggregate Turnover in GST
8 Non-resident taxable person in GST
9 Casual taxable person in GST
10 Input Service Distributor in GST
11 Composition Levy Scheme in GST
12 Reverse Charge Mechanism in GST
13 Tax Invoice and other such instruments in GST
14 Accounts and Records in GST
15 Credit Note in GST
16 Debit Note in GST
17 Electronic Cash/Credit Ledgers and Liability Register in GST
18 Electronic Way Bill in GST
19 Input Tax Credit Mechanism in GST
20 Transition Provisions under GST
21 Integrated Goods and Services Tax Act
22 Compensation cess in GST
23 Imports in GST Regime
24 Zero Rating of Supplies in GST
25 Deemed Exports in GST
26 Pure Agent Concept in GST
27 Job Work under GST
28 Works Contract in GST
29 Valuation in GST
30 Margin Scheme in GST
31 Provisional Assessment in GST
32 Returns in GST
33 Statement of Outward Supplies (GSTR-1) in GST
34 Refunds under GST
35 Refund of Integrated Tax paid on account of zero rated supplies
36 Refund of unutilised Input Tax Credit (ITC)
37 Advance Ruling Mechanism in GST
38 Goods Transport Agency in GST
39 GST on Charitable and Religious Trusts
40 GST on Education Services
41 GST on Co-operative Housing Societies
42 Online Information Data Base Access and Retrieval (OIDAR) Services in GST
43 GST Practitioners
44 National Anti-Profiteering Authority in GST
45 Benefits of Goods and Services Tax (GST)
46 Special Audit in GST
47 TDS Mechanism under GST
48 TCS Mechanism under GST
49 Inspection, Search, Seizure and Arrest
50 Appeals and Review Mechanism under GST
51 Recovery of Tax
(Republished with Amendment as on 01.01.2018 – Source- CBEC)

View Comments (31)

  • we are a service provider , we have a party in USA to import their goods to india and bill to USA party. Will the IGST apply and if apply then who will be pay the same because USA party not able to take the credit of same. kindly advise on below

    1 what type of invoice we will raise to party - GST INVOICE OR NON-GST ?

    2 If party refuse to pay then can we pay the same and take a credit of same?

  • We are traders and we are getting commission from other countries for supply in India against their orders. We are providing intermediary services. in this case can we are paying GST on commission under RCM. But we would like to know whether can we take credit of it in next month ?

  • IGST Credit is more than CGST or SGST then how to do in ITC? and what is passed the entry about CGST or SGST.

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