Supplies from Unregistered Persons Subject to Reverse Charge W.E.F 01.02.2019?

There is a wide spread confusion that reverse charge as per sec. 9(4) of the CGST/SGST (UTGST)  Act and sec. 5(4) of the IGST Act has again been made applicable w.e.f 01.02.2019.

For the sake of simplicity we would like to confine ourselves to the provisions of only CGST Act. The CGST Act, 2017 was made applicable w.e.f. 01.07.2017. The levy and collection of tax is governed by Section 9 and reverse charge is covered by its sub section (3 ) and (4). The recent confusion is on applicability of reverse charge u/s 9(4) of the CGST Act w.e.f 01.02.2019.

A) CGST Act, 2017 prior to 01.02.2019

Section 9(4) of the CGST Act, 2017 before its amendment by The Central Goods and Services Tax (Amendment) Act 2018 read as follows:-

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.

Thus, in simple terms, as per  the above sub section, a recipient of goods or services  if registered under the Act is liable to pay the tax in place of the supplier, if he receives any goods or services or both from a supplier who is not registered,  which in common parlance is termed as reverse charge.

However, with a view to provide some relief to registered persons,the Central Government issued  Notification no. 8/2017 Central Tax (Rate) dated 28th june 2017, which exempted, w.e.f. 1^st July, 2017, the intra-state supply of goods or services or both received by a registered supplier from whole of CGST, provided that the exemption would not be applicable where the aggregate value of such supplies of goods or service or both received by a registered person from any or all the suppliers, who is or are not registered, exceeds five thousand rupees in a day.

But, in view of difficulties faced by registered persons in complying with the above provisions, the Proviso to above notification no. 8/2017 CT(Rate) dated 28th june, 2017 specifying  the threshold limit of Rs. 5,000.00 for exemption, was  omitted vide Notification No. 38/2017 CT(Rate) dated 13th October, 2017.

The omission of proviso to notification no.8/2017 in a way suspended the applicability of reverse charge u/s 9(4) of the CGST Act,irrespective of the amount of purchases.

However, this exemption was upto 31^st March 2018 as the  Notification no. 38/2017 CT (Rate) also provided that the exemption, contained in the notification No. 8/2017  supra as amended by this notification shall apply to all registered persons till the 31st day of March, 2018.

The Government of India  again suspended the applicability of provisions of sec. 9(4) of CGST Act  till 30.06.2018 vide notification no. 10/2018-CT(Rate)  dated 23.03.2018 and the same was further suspended till 30.09.2018  vide Notification no. 12/2018-CT(Rate)  dated 29.06.2018.

Once again the said provisions were suspended till 30.09.2019 vide Notification No. 22/2018 – Central Tax (Rate) New Delhi dated 06.08.2018.

As a result of all these notifications put together, we could sum up that a registered person was exempted from payment of GST on thepurchase of goods or services or both from an unregistered person upto 30.09.2019. 

B) APPLICABILITY WE.F. 01.02.2019

So, now let us understand the position w.e.f. ist day of febraury 2019 and the reasons which led to this confusion amongst the tax payers

Notification no. 1/2019 –Central Tax (Rate) dt. 29.01.2019  

The Central Government vide notification no. 1/2019 rescinded the notification no. 8/2017-Central Tax (Rate) dated 28.06.2017. This notification came into force with effect from the 1st day of February, 2019.

So, does it mean that with rescinding of the above notification, reverse charge u/s 9(4) of the CGST Act has once again become operational  w.e.f. 01.02.2019 and that too without any threshold limit of Rs. 5,000/- per day?

There is a  wide spread confusion whether the reverse charge has again been made applicable w.e.f 01.02.2019 as It was only through notification no. 8/2017 Central Tax (Rate) dated 28.06.2017 that exemption from reverse charge u/s 9(4) of CGST was available.

So before the anxiety levels go high, would like to clarify that reverse charge mechanism is not back as of now.This is so because the charging section  9(4) of the CGST Act has been amended vide CGST Amendment Act, 2018

CBIC vide notification no. 2/2019 – Central Tax dated 29th January, 2019 has notified 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) shall be applicable.

Amendment in CGST Act with respect to reverse charge u/s 9(4)

In section 9 of the principal Act, for sub-section (4), the following sub-section has been substituted,

(4) “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.”

A careful reading of newly substituted sub section 4 will show that provisions of reverse charge under this sub section would be made applicable to a“ SPECIFIED  CLASS OF REGISTERED PERSONS” in respect of supply of specified categories of goods or services or both received  from  an “UNREGISTERED  SUPPLIER” .

In case of sec. 9(3) a supplier may be registered or an unregistered but in case of sec. 9(4), the applicability of reverse charge is on the recipient only if the supplier is an unregistered one.

Further, this list of specified class of registered persons and specified categories of goods and services will be notified by the Government on the recommendations of the GST Council.

C) Final Conclusion :-

To sum up reverse charge u/s 9(4) of CGST Act would now be applicable on supplies made by an Unregistered persons  to

1. Specified class of registered persons only and
2. in respect of supply of specified categories of goods or services or both.

Further this list of specified class of registered persons and specified categories of goods or services or both will be notified by the Central Government on recommendation of the GST Council.

But as of now no such notification has been issued by the Government.so we may conclude that reverse charge u/s 9(4) is still on hold.

DISCLAIMER: The views expressed in this article are strictly of the author. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation by the author. The author does not accept any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

(Author can be reached at Email: puneetthukral2@gmail.com)