Reverse Charge Mechanism (RCM) in GST
[Relevant section 9(3), 9(4) ]
In the normal course of taxability in GST liability to pay GST is on supplier on supply of Goods or services but in some cases recipient of goods or services are liable to pay GST.
The concept of reverse charge under GST is similar to the reverse charges liability in previous service tax law but in GST it is little bit different. In GST there are two type of reverse charge liability viz.:-
1. Reverse Charge Mechanism Under section 9(3) of CGST/SGST Act :- it is similar to reverse charge liability in previous service tax law. Under this section notified supply of goods and services are covered in which specified recipient are liable to pay tax under reverse charge mechanism.
2. Reverse Charge Mechanism Under Section 9(4) of CGST/SGST Act :- under this section only registered person under GST act are liable to pay GST under reverse charge mechanism on all taxable goods or services or both receipt from the unregistered supplier.
Reverse Charge under section 9(3) of CGST / SGST 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.”
List of the notified goods under section 9(3) of CGST Act onw which Reverse Charge Mechanism is applicable
|S No||Particulars of supply of Goods||Supplier of Goods||Recipient of Goods|
|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||Raw cotton||Agriculturist||Any registered person.|
|6||Supply of lottery||State Government, Union Territory or any local authority||Lottery distributor or selling agent|
|7||Used vehicles, seized and confiscated goods, old and used goods, waste and scrap||Central Government, State Government, Union territory or a local authority||Any registered person|
List of the Services Notified for Reverse Charge under section 9(3) of CGST Act
|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|
|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 oran airport (iii) transport of goods or passengers.
|Central Government, State Government, Union territory or local authority||Any business entity located in the taxable territory|
|6A||Services supplied by the Central Government, State Government, Union territory or local authority by way of renting of immovable property to a person registered under the Central Goods and Services Tax Act, 2017 (12 of 2017).
** Added with effect from 25.01.2018
|Central Government, State Government, Union territory or
|Any person registered under the
Central Goods and Services
Tax Act, 2017 read with clause (v) of section 20 of
Integrated Goods and Services Tax Act, 2017.
|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|
|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.|
Since this section is applicable whether dealer is registered dealer under GST or Not so if dealer received goods or services as specified above than he is required to register under GST and pay tax under reversed charge basis.
Reverse Charge under section 9(4) of CGST / SGST Act
9(4) 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
So reverse charge under this section applicable only on the registered supplier under GST. under this section if a registered supplier received any goods or services from the unregistered supplier than registered supplier is liable to pay GST on goods or services which was received under reverse charge.
However as per the Notification 8/2017-Central Tax (Rate) dated 28.06.2017, if the aggregate value of all such goods and service received in a day is less than Rs. 5000 than such it are exempted.
Government also vide notification no. 38/2017-Central Tax (Rate) dated 13.10.2017 exempt all registered dealer from applicability of section 9(4) till 31st March 2018.
Payment of Reverse Charge Tax
Tax under reverse charge cannot paid using Input tax Credit. So Reverse Charge tax is required to pay only through Cash.
However after payment of reverse charge tax , it will be available as input tax credit